What impact will Brexit have on UK trade?
As a member of the EU, the UK can trade with countries within the EU without having to pay import or export tariffs and without having to apply other customs procedures and regulatory checks. The UK can also benefit from free trade agreements that the EU has negotiated with 3rd countries. These provide benefits such as reduced or zero tariffs and a reduced level of regulatory checks.
Once the UK leaves the EU it will have to make its own trade deals with the EU and other countries. The UK is however working to replicate the deals the EU currently has with the rest of the world.
In the longer term, the future trading relationship with the EU will depend on the outcome of negotiations on the Future Economic Partnership between the UK and EU.
What is a tariff?
A tariff is a tax on imports or exports. Money collected under a tariff is called a duty or customs duty.
Tariffs give a price advantage to locally-produced goods over similar goods which are imported, and they raise revenues for governments.
What is a Tariff Rate Quota (TRQ)?
Tariff-rate quotas (TRQs) apply to imports of goods and are almost exclusive to agricultural goods. TRQs limit the amount of certain goods that may be imported into a country at reduced or zero rates of Customs Duty over a specified period of time. The limit may be expressed in units of weight, volume, quantity or value. Quantities exceeding the quota are subject to a higher duty rate.
TRQs protect domestic producers from having to face competition from large quantities of imports, however they also allow exporters some access to the market.
What happens if the UK leaves the EU but doesn’t have a trade deal in place?
If the UK leaves the EU and a trade deal has not been agreed, then trading relationships between the UK and EU will be on the basis of World Trade Organisation (WTO) rules alone.
What happens if the UK leaves the EU but doesn’t have a trade deal in place?
If the UK leaves the EU and a trade deal has not been agreed, then the UK will follow World Trade Organisation (WTO) rules.
What is the World Trade Organisation (WTO)?
The WTO is an international organisation that deals with the global rules of trade. There are 164 members and, if they don't have free trade agreements with each other, they trade under "WTO rules".
At the heart of the system – known as the multilateral trading system – are the WTO’s agreements, negotiated and signed by a large majority of the world’s trading economies, and ratified in their parliaments.
These agreements are the legal foundations for global trade. Essentially, they are contracts, guaranteeing WTO members important trade rights. They also bind governments to keep their trade policies transparent and predictable which is to everybody’s benefit.
The agreements provide a stable and transparent framework to help producers of goods and services, exporters and importers conduct their business.
Free Trade Agreements (FTAs) are bilateral or plurilateral agreements between specific countries and do not apply to the WTO Membership as a whole. They give the participating countries preferential trading arrangements (mostly in the form of zero or reduced tariffs in relation to goods) than what would be available under “WTO rules.”
Further information can be found at the following link:
What are WTO rules?
Every WTO member has a list of tariffs (taxes on imports of goods) and quotas (limits on the number of goods) that they apply to other countries. These are known as their WTO schedules.
Under the WTO's "most favoured nation" (MFN) rules, the UK cannot just lower tariffs for the EU, or any specific country, unless it has agreed a trade deal. It has to treat every WTO member around the world with which it does not have a free trade deal with in the same way. In other words it has to apply the same tariff to all WTO Members and the EU has to do the same. There are exemptions from this rule for free trade agreements provided they cover substantially all of the trade between the countries concerned.
If the UK leaves the EU without a deal, then the UK has no free trade agreement with the EU. Therefore under WTO rules both the EU and UK have to apply their MFN Tariff. The MFN tariff is the highest tariff that can be applied as any other tariff being applied to a specific country will be lower as a result of a free trade agreement.
Does the UK have to apply to be a member of the WTO?
No. The UK is already a member of the WTO in its own right but it will have to agree a new list of tariffs and quotas once it leaves the EU. This process is already under way.
Doesn't the UK already trade with many countries on WTO rules?
Many countries at present trade with the EU and therefore the UK on the basis of WTO rules in respect of tariffs. As they don’t have a free trade agreement in place, the MFN tariff applies. Examples are United States, China, Brazil and Argentina.
Whether it is economically viable to trade with a country and pay the MFN tariff depends on the level of tariff applied by the country concerned on the specific good. It should be noted that MFN tariffs on some agricultural goods applied by some countries, including the EU can be particularly high.
Very few countries trade with the EU on the basis of having no agreement of any description in place other than that provided by WTO rules. Agreements in relation to non tariff barriers such as recognition of regulatory standards are very important to facilitate trade.
What does it mean to be a ‘third country’ after Brexit?
The term ‘third country’ means a country, in this instance, which is not part of the EU or its associated organisations e.g. the European Economic Area (EEA).
Why is trade so important to the NI agri-food industry?
The agri-food sector (comprising agriculture, fisheries, and food and drinks processing) plays a significant role in NI’s economy. In NI the sector represents a much more important component of the regional economy than is the case for the UK as a whole.
In 2016, 25% of sales in the food and drinks processing sector were exported outside of the UK, (compared with 11% for the UK as a whole). Some sectors are more reliant on export sales than others (for example, 36% of dairy processing sales and 39% of fish processing sales are exports). Total exports of the NI agri-food sector (edible and non-edible exports combined) are worth over £1.5 billion per annum. Compared with the UK as a whole, NI has a much heavier reliance on, and exposure to, international markets.
What about trade between Northern Ireland and Ireland?
The NI agri-food sector currently operates in a trading environment where there is little difference between trading with Ireland and trading with GB. This has led to a highly integrated cross-border industry and an all-island supply chain, where raw agricultural materials and processed agri-food products cross and re-cross the border in both directions on a daily basis. The movement of raw milk and live sheep from NI to Ireland, and the movement of live pigs in the opposite direction, are often quoted to illustrate the scale of this integration.
What role does DAERA have in trade policy?
The responsibility for international trade policy rests with the Department for International Trade (DIT), as it is a reserved matter. Defra leads on matters relating to products of animal origin.
DAERA acknowledges that trade negotiations are a reserved matter but there are many aspects that have a devolved interest. In agriculture the level of tariffs and tariff rate quotas set have the potential to have a major impact on the NI agriculture sector as they will largely determine the quantity of imports which NI producers will have to compete with and also the export opportunities available for the sector.
DAERA is continuing to work closely with both Defra and DIT (through the Department for Economy) on a range of trade issues.