The announcement by the UK of the tariffs it would impose on imports in the event of a no-deal Brexit illustrates yet again that trying to introduce a new trade regime in such a short period is a recipe for chaos, uncertainty and unintended consequences. If the UK crashes out without a deal on March 29th, there is simply no way businesses will be ready.The implications for the Irish economy – and particularly the food industry and rural Ireland – are serious.
Politically, the focus here is on the plans to avoid tariffs – or import duties – on goods crossing from the Republic – wherever their origin – into the North.This is the UK plan to avoid installing physical checks at the Border and may lead to pressure on the Dublin government to outline what it would do in the event of a no-deal. However the plan looks like a charter for smugglers and is strongly opposed by businesses in the North.
However, economically the most significant question is the level of tariffs which will apply on goods crossing from the Republic to the British market, so-called east-west trade, in the event of a no-deal Brexit. Here the tariff proposals show that the Irish food sector is particularly in the firing line, as this is the area where the most heavy tariffs would apply.
More than half of the Republic’s €1.4 billion beef exports go to the UK. It is our closest market, one where Irish beef is popular and where a good price is available. It is also a key market for dairy products, particularly cheddar cheese, and for the wider food sector, including the pork and poultry industries.The UK has announced heavy tariffs on food imports after Brexit, as a way of protecting its food sector and farmers from a flood of cheap competition – and this is a big threat to our exports.
Tariffs,or customs duties, are special taxes which countries levy on imports and the UK has said that its new schedule will stay in place for one year, while it considers what to do in the long term. Tariff levels for food are not straightforward and are often set in relation to both the volume and value of the product. Looking at the no-deal tariff schedule published by the UK, Dr Kevin Hanrahan, chief economist at Teagasc, calculates that taking 2018 export levels, the tariff on chilled Irish boneless beef entering the UK would be around 36 per cent of its value. This level of tariff would effectively price the bulk of Irish beef out of the UK market, though a potentially chaotic scenario in the British marketplace would also mean higher prices for UK consumers.
To try to safeguard consumers, the UK will also allow set amounts of imports in beef and other types of food into the market without a tariff, under a so-called tariff quota system. It will aim to import less beef in total – to leave more scope for its own producers, shut out of EU markets by tariffs, to sell at home.
According to Dr Hanrahan, the indications are that these quotas will be open to exporters from all countries, rather than being allocated on the basis of where the UK buys from at the moment. This means that Irish beef exporters would face competition from lower-cost producers in countries such as Argentina and Brazil for these quota allocations. ( In trade jargon this is known as a first-come, first-served or erga omnes – open to all – tariff quota system )
This looks likely to create a two-tier market. Producers from all over the world will compete for a relatively small tariff-free allocation – with importers free to decide who to buy from. And heavy tariffs will be slapped on anything imported above the quota. It is a lose-lose situation for the Republic’s beef sector and farmers, the latter already facing pressure from falling prices. There will be enormous pressure on the Government and EU to assist if a no-deal Brexit comes to pass and the beef sector and farming will be at the forefront of the hit.
The implications for other sectors are also being assessed. Other areas of food including dairy – but not all sectors – would face tariffs too, selling into the UK market, though generally not at levels as high as beef. Significantly lower tariffs would apply in some other sectors – such as footwear and chemical products. But in many other areas the UK government is cutting tariffs completely.
This will mean another problem for some Irish exporters – more competition. Under the rules of the World Trade Organisation, the UK is allowed to cut tariffs below WTO levels, once it offers the same deal for everyone. So, many goods which previously entered the UK market from third countries facing tariffs will in future enter tariff free.
While the UK has been careful to keep to WTO rules in this area, its plans for the Irish Border tell a different story. It plans to allow goods from the Republic in free of tariffs – or duties – as a way of avoiding physical checks on the Border. Politically, this puts pressure on the Republic to outline its plans in the event of a no-deal and how EU tariffs will be applied and monitored. But it will mean pressure on businesses in the North – facing competition from the Republic but themselves facing duties on exports to the EU – and, crucially, looks set to offer free rein for smugglers. moving goods into the North.
It does not look like a sustainable proposal and is arguably contrary to WTO rules, which are that all trading partners must be treated the same.
The tariff plan again highlights the price of a no-deal and the huge uncertainties for the UK – where business has reacted furiously – and for the Republic. Indeed many ask how long a no-deal situation could be sustained for. The worrying thing is that even a vote in the House of Commons against a no-deal exit would not guarantee that it would not happen. For that to happen, some other way forward must be agreed.