What tariff policy will UK adopt post-Brexit?

by David Hannay | 11.08.2016

One of Liam Fox’s main tasks will be to construct a new UK tariff to take the place of the EU’s Common External Tariff which has hitherto applied to imports into the UK from those third countries with whom the EU does not have special trade arrangements. This will not only be an enormously complicated operation for Fox’s Department of International Trade but also one that bristles with tricky economic and political judgements. These will affect the price of goods in our shops and our relations, for better or for worse, with a whole range of countries around the world – for example, the United States, Russia, China, India, Indonesia, Brazil and Mexico. Anyone who doubts the domestic sensitivity of those judgements should just remember that this issue split the Conservative party in the early years of the 20th century, lost it a general election in the 1920s and then split the Liberal party in the 1930s.

In theory, all this hassle could be avoided by deciding not to impose any tariffs on imports into the UK at all – which is sometimes called the Singapore or Hong Kong option and is favoured by Patrick Minford and Nigel Lawson. But since the main protagonist of this course admits that it would probably lead over time to the disappearance of manufacturing industry from the UK, its attractions to the government, to members of parliament and to the electorate would seem to be limited. And to the extent that the vote for Brexit was in part a protest against globalisation, such a “cold turkey” approach to complete globalisation would seem entirely contradictory.

The technicalities of constructing a new UK tariff, for which neither Liam Fox nor the officials advising him have any relevant experience, will themselves be pretty daunting. Tariff rates will need to be set for thousands of tariff positions and sub-positions. Should these be higher than those set in the EU’s Common External Tariff, in which case we will either have to cut tariffs on others products to compensate all our WTO trading partners or suffer higher retaliatory tariffs from them? Or should the tariffs be set lower, in which case UK manufacturers will have to face up to more competition and less protection? Or should they be set at the same level as now, in which case one wonders what all the fuss was about in the first place? And do not be deceived by sweet talk about tariffs being so unimportant now that the average level of the EU ‘s External Tariff is so relatively low. The average tariff is of no interest to a company; what matters is the actual level of the tariffs on the products it imports and on those it manufactures. The least that can be said is that this operation will require a massive exercise in consultation; and that it will give rise to plenty of divided counsels.

The outcome of this exercise will be the basis on which we trade with the EU should we be unable to negotiate a satisfactory trade relationship with our erstwhile partners and have to fall back on WTO rules; it will be the starting point for negotiating with the third countries with whom the EU currently has special trading relationships which will cease to apply when we leave; it will be the framework within which we will seek better trade relations with other third countries who, we were assured by Brexiteers, were thirsting to give us quicker and more favourable deals than they were prepared to do with the EU; it will determine the basis on which important British industries such as agriculture, food and drink will have to operate. So a lot will depend on it.

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    Did the Brexiteers explain all this to the electorates and say which solutions they favoured? Of course they did not – they did not even agree on which ones they favoured. They just peddled half- truths and outright untruths about the sunlit prospects for Britain’s trade relationships outside the EU. Now it is delivery time and that process may prove to be protracted and painful.

    Edited by Hugo Dixon

    3 Responses to “What tariff policy will UK adopt post-Brexit?”

    • Congratulations on the excellence of the comprehensive coverage you are giving to the many challenges of Brexit.
      An aspect which it would also be helpful to cover is the current debates in our partner member states on the need for urgent and fundamental reform of the EU.
      EU Council President, Donald Tusk, has emphasised the need for radical reform, saying there has been too much intervention in matters best left to member states, that there is no appetite for a future super state and that a two speed structure may be helpful. Angela Merkel has made clear that Germany values the UK as a partner in supporting liberal, open economics and the UK has a crucial interest in ensuring that the market expands to include the digital world. Wolfgang Schauble, the German Finance minister has said that “integration” has gone too far.
      Recently the European Commission accepted that national governments should have a veto over the terms of the EU-Canada trade agreement.
      In France the Republican party is likely to win next year’s presidential and legislative elections. The party wants stricter border controls, a reduced role for the Commission and more national government influence over common EU policies. Last month a group of leading French commentators called for the existing EU treaties to be renegociated and a new confederal EU established. In brief an EU of nation states. The French Liberal party is calling for similar reforms.
      This enthusiasm for reform is hardly reported here, so how can the UK know what organisation it will be leaving?
      We should know whether the government is exercising it right to full participation in all discussions on reform.What constructive proposals is it Is it contributing? ? Such UK participation ahead of any exercise of Article 50 would curb uncertainty. it would also enable us to assess the situation after the elections in France and Germany in 2017.
      It would be ironic indeed if, having stimulated constructive debate across the EU, we were to find that, by acting precipitately, we had excluded ourselves from an EU redesigned to meet the challenges of tomorrow. This exactly what so many people want, including many who, misled by a false prospectus, voted to leave and now regret having done so.

    • Regarding tariffs, yesterday in an interview on the radio, Digby Jones argued that the UK could decide not to impose any tariffs post brexit. Is this a reasoned argument?