The Brexit process is now officially under way. Over the next two years, the United Kingdom must determine how to best serve British interests as it withdraws from the European Union and develops new trade, immigration, and investment policies. This will not be easy and, in some cases, the costs of lost market access, for example for financial services, could well be higher than the benefits of policy autonomy. When it comes to traditional trade barriers and goods imports, however, negotiators have an opportunity to lower costs for British consumers with little or no cost for British producers. If policymakers opt for a simple, low-rate tariff structure, they would also find it easier to develop a new trade policy, and to manage the UK’s transition to being an independent member of the World Trade Organization (WTO).
Staying in the customs union (covering goods only) would be the simplest way to avoid disruption in merchandise trade with the EU, as well as the rest of the world, though the UK would still have to negotiate access for services and for foreign investors. The downside of staying in the customs union is that it would leave the economy with a suboptimal set of tariffs and it would prevent the UK negotiating trade agreements with external partners of its choice. While the EU has a relatively open trade policy, there are exceptions that make little sense for the UK economy. Nearly half of EU “normal” tariffs (for partners without bilateral trade agreements or preferences) are 2 percent or less and three-quarters are less than 5 percent. Though there are still a number of tariff peaks that are many times higher than the average. The EU also imposes quantitative restrictions on a number of agricultural and food products.
At the aggregate level, EU tariff policy is suboptimal for all of its members because it represents a compromise among highly disparate economies. In particular, many of the high barriers to agricultural and labor-intensive manufactures protect producers elsewhere in Europe at the expense of British consumers. Post-Brexit, it would make little sense for the UK to continue paying more for oranges, tomatoes, almonds, and other fresh fruits and vegetables because southern European growers succeeded in negotiating quantitative restrictions on EU imports of those products. The table shows selected agricultural products that the EU restricts using tariff rate quotas, as well as others that are subject to tariffs of 20 percent or more. (Tariff rate quotas impose a low tariff on set quantities of imports and higher, often prohibitive, tariffs on any imports over that amount.)
|Highly Protected Products in the European Union|
|Quantitative restrictions (not a complete list)||Other high tariff products (≥ 20 percent, in descending order)|
Fresh, chilled or frozen meat
Sausages, other preserved pork meat
Other prepared meat (poultry)
Starchy tubers (manioc and starch therefrom, arrowroot, sweet potato not for human consumption)
Grains (rice, millet, wheat, oats, barley)
Bran, preparations of malt sprouts, barley screenings
Other animal feed
Citrus (oranges, tangerines, lemons)
Other fresh fruit (table grapes, apples, pears, apricots, cherries)
Fresh vegetables (cucumbers, mushrooms, potatoes, carrots and turnips, sweet peppers, edible maize, tomatoes)
Frozen concentrated orange juice, other fruit juices
Grape juice (non-alcoholic)
Chocolate, confectionary, biscuits
Preserved fruit (pineapples, citrus, pears, apricots, cherries, peaches, and strawberries)
Other food preparations
Prepared or preserved fish (tuna, mackerel, anchovies)
Fresh, chilled or frozen fish (sardines, tuna, misc.)
Prepared or preserved herring
Shellfish, prepared or preserved
Renegotiating current tariff levels to better reflect British interests would be both politically easier and economically more beneficial if negotiators take a liberal approach to trade, as British leaders have said they wish to do. Moving to a policy that eschews tariff rate quotas and tariff peaks, would avoid a number of problems for British negotiators. With an approach that does not raise trade barriers, and generally lowers them, UK negotiators should have an easier time gaining agreement from other WTO members on the tariff schedule to which they will be bound post-Brexit. A liberal approach to trade in goods would also give the UK more leverage to preserve access for the more economically important financial and other services sectors.
Having a tariff structure marked by low, uniform tariffs would also allow British officials to mostly avoid the morass of unilateral trade preferences for developing countries. If post-Brexit UK tariffs do not discriminate against agricultural and labor intensive products in which poorer countries specialize, there will be no need to replicate the Generalized System of Preferences programs of other countries, or the regional arrangements that US policymakers favor. That means not having to deal with complex eligibility criteria, including when countries should “graduate” from preference programs, or rules of origin for products. Moreover, developing countries should like this approach because many will gain new export opportunities, and without having to go through the laborious process of demonstrating eligibility.
The UK should, however, continue duty-free, quota-free access for the UN-designated least-developed countries under something like the EU’s Everything But Arms program (with rules of origin that make the program easy to use). And policymakers should announce that they will do so as soon as possible to avoid uncertainty for those exporters. This would preserve a modest edge for these countries, though the preference margins will be less valuable than before. To help them adjust to the more intense competition they will face, the Department for International Development should have adequate resources and programs in place sooner rather than later.
Post-Brexit, the UK will have to develop its own trade, investment, and immigrations laws in a number of areas. This process will entail more difficult challenges than anyone anticipated. But there are also opportunities to improve Britain’s economic position and to do so in ways that make the process somewhat easier to manage. In particular, adopting a schedule of low, relatively uniform tariffs on imported goods would minimize the need to undergo extensive negotiations with other (non-EU) WTO members on the post-Brexit schedule. It would also avoid the need to develop complex preference programs. Developing country exporters would still benefit from new opportunities, and so would British consumers.
Kimberly Ann Elliott is a Senior Fellow with the Center for Global Development and the author or co-author of numerous books and articles on trade policy and globalization, economic sanctions, and food security. Previously, she was with the Peterson Institute for International Economics. The views expressed here are her own.
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