he EU and UK Tariff Rules that will apply
In the event of a no-deal Brexit, the supposition and likely position are that the EU customs code that applies to imports and exports out of Europe at present would apply to the United Kingdom as a “third” or external country. The United Kingdom has enacted legislation that applies the equal and opposite rules for imports into and exports out of the United Kingdom as apply to imports into and exports out of the EU at present. The UK published a temporary tariff before the 2019 exit dates, reducing many tariff lines to zero, which is to apply in the event of a no deal Brexit.
On day one of a Brexit, the UK import-export rules would be a mirror image of EU rules. This might change a little over time. However, most customs laws and rules are harmonised to a significant extent worldwide so that they are likely to remain very similar.
There are two distinct costs with customs. One is tariffs which are duties on every import. There may be no customs duties in most sectors, under a free trade agreement, provided that the goods “originate” in the other state. The second is the cost of the customs compliance process.
In a no-deal Brexit, both costs would be likely to kick in. This is because the UK would be outside the EU and each of the UK and EU would have to apply third-country default tariffs against the other. They are identified in the tariff. The third country default tariffs are those that apply where there is no trade agreement.
However, the UK has published a temporary tariff which is to apply in the event of a no-deal Brexit. Under this proposal, the UK would apply lower duties to imports from the EU and all third countries with which it has no trade agreement than those which the EU would apply to the UK and other third countries with which it has no trade agreement.
Normally, this would be a bad idea as it would involve the UK making a unilateral concession but getting nothing in return. However, there is a desire to facilitate trade, at least in the immediate aftermath of a no deal Brexit. It might be expected that the rates may revert to the EU third-country level which is what would apply on the EU side if a no deal relationship was to continue for more than a few months.
Possibility of Zero Duties Even Without Agreement?
If the UK dropped out either under a short-term no-deal Brexit after a failure to reach a trade agreement at the end of 2020 or some postponed date, then the default position is that full tariffs would immediately apply as if the EU and UK were each third countries as regards each other, equivalent to China or the United States of America.
There is some possibility that if no trade agreement is entered before the end of the transition period, or perhaps after a no deal Brexit, that the UK and EU might enter an interim agreement under the WTO (World Trade Organisation) rules which allow that such an agreement might be entered between states which are negotiating under the agreement for a final agreement, to apply for up to 10 years. If this was the case, then that different treatment might be applied.
Some UK politicians and commentators have placed considerable emphasis on this exception in the WTO Agreement to the requirement for the imposition of full third country tariffs. It requires that the two countries are in actual agreement by way of an interim agreement for a future trade agreement. They may apply on a temporary basis zero, or other unique tariffs as they agree between themselves.
Such an arrangement would require the agreement of the EU and must provide for a program for a final agreement. It could be contested by third countries under the WTO Agreements. It could not be done without the EU’s agreement. It is argued that the EU might not be willing to enter a temporary agreement but may require full agreement rather than an interim agreement. Either or both parties may be unwilling to so if it would adversely affect their hand in trade negotiations.
Although this possibility has been largely dismissed, it could happen. The WTO provision could be invoked if the EU was willing to agree. Origin issues would also arise, in order to obtain more favourable treatment. This would require certification of origin which is mentioned elsewhere.
Under the Withdrawal Agreement, the UK technically leaves the EU on 31 January 2020. The transitional period has commenced, and it will last until the end of 2020. It could be extended until the end of 2021 or 2022 and possibly later, by an amending agreement. There would be no customs tariffs or any other change in the terms of trade during this period.
At some point, the UK would leave the EU and the supposition is that there will be a trade agreement, likely to be part of a comprehensive future relationship agreement. The alternative is a postponed no-deal “hard” Brexit.
Under the proposed Northern Ireland protocol, Northern Ireland remains in a customs and regulatory union with the EU, at least for a four-year period. This would mean that there would be no customs duties or procedures in relation to trade between the Republic of Ireland and Northern Ireland.
Other Tariff Possibilities
There is the possibility that the UK and EU might enter an interim agreement under World Trade Organisation rules which allows an interim agreement with tariff rates which apply only as between them (but not as regards third countries) to be made between the party states which are negotiating an free trade agreement or customs union, for a period of up to 10 years.
It requires that the two countries enter an interim agreement for a future trade agreement. They may apply on a temporary basis, zero or other unique tariffs as they wish between them. If this occurs, then that differential treatment might be applied by the UK and EU mutually, without the risk that a third country business might claim a breach of the WTO anti-discrimination principles.
Some UK politicians and commentators have placed considerable emphasis on this exception in the WTO Agreement. The arrangement would require the agreement of the EU and provide for a program for a final agreement, which could be contested by third countries under the WTO agreements. It is argued that the EU might simply prefer to enter a full agreement than an interim agreement. Although this possibility has been widely dismissed, it could happen if the EU was willing to agree.
If there were differential arrangements under any of the above circumstances after Brexit takes effect, then it would be necessary to look at the EU and/or UK treatment for each product.
Origin issues would also arise in order to obtain any favourable bilateral (or unilateral) tariff rates. This would require certification of origin which is mentioned elsewhere.