No-deal tariffs could be at 0%

The UK will not introduce food import tariffs if it crashes out of the EU without a deal, predicts RaboResearch senior food and agribusiness analyst Harry Smit.

This implies the UK choosing to reduce to zero the tariff rate it charges on imports from all World Trade Organisation (WTO) member countries, a course of action which does not require negotiation with the WTO membership.

If the UK chooses to reduce the tariff to zero, it would have to do so for all 164 WTO member countries.

However, the chances of imports from other countries taking over the role of EU suppliers are small, at least in the short term, said the researcher at Rabobank, the world’s leading financial services provider for the food and agribusiness sector.

Reasons for this include the UK’s high quality standards, not easy to meet for most non-EU suppliers. Also, the UK has to compete with many alternative destinations for export traded commodities.

“Raw sugar is the only product for which we may see an increase in imports,” said Mr Smit last week, before the latest British Government initiatives on Brexit.

Reducing or removing tariffs after a no-deal Brexit could help the UK avoid politically unacceptable higher prices for British consumers. It would be a welcome development also for Irish exporters, compared to a worst case scenario of WTO tariffs on Irish food exports to the UK, averaging 22%, ranging from 14% on poultry to 56% on beef, 70% for milk.

About 15% of Irish goods and services exports go to the UK, but this rises to nearly 40% for the agri-food sector.

Even with zero tariffs, no-deal customs controls would disrupt trading for Irish exporters to the UK, and for the two-thirds of Irish exporters using the UK landbridge to continental markets.

“The administrative burden of trading with, or having operations in, both the EU and the UK will rise,” said Mr Smit. “Customs controls will not only lead to higher costs of border crossing, but time spent at the border will also increase, which is detrimental for the quality and value of fresh produce.

A highly sensitive issue will be the border crossing between the Republic of Ireland and Northern Ireland, as the hard Brexit scenario entails a hard border.

“Food companies will have to reorganise their supply chains to adapt to this new reality. Efficiencies based on cross-border EU-UK value chains will be lost.”

Mr Smit said part of the damage incurred by UK farmers due to a Brexit loss of access to the EU would be compensated for by weakening of the British pound improving their competitive position vis-a-vis imports.

But food price inflation in the UK can be expected to rise, due to the rising costs of crossing the border with the EU, and a weaker pound, because the UK is a net food importer, said the Rabobank analyst.

“For seafood, a hard Brexit entails serious damage to both UK and EU fisheries industries, as long as there is no agreement in place for access to each other’s fishing waters and markets,” said Mr Smit.

“In grains, a significant volume of grains currently processed into ethanol might come available on the UK market, depending on the future support to ethanol in the UK.

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