Brexit: trade in goods Contents

Chapter 4: Tariff barriers

79.Tariffs are the most visible barriers to trade. All our witnesses said that the imposition of tariffs on trade with the EU would be deleterious to businesses in their sectors. More information on tariffs can be found in Box 2.

Box 2: What are tariffs?

Tariffs or customs duties are a state levy imposed on goods crossing from one customs territory to another. Tariffs can be imposed on both exports (usually commodities) and imports, but import tariffs are more common.140 This report focuses on import tariffs only.

Tariffs impose a charge on the import of a product, usually expressed as a percentage of the value of the product,141 with the percentage varying from product to product.142 In so doing, a tariff raises the price of the imported product for the consumer and so both gives a price advantage to locally-produced goods, and raises revenue for governments.143

Tariffs therefore can have a dual impact: both imports and exports are made more expensive.

A customs territory—the territory in which a defined and autonomously-set customs law applies144—is usually a country, but it can also be a customs union between a number of countries, or another separate customs territory with full autonomy in the conduct of its external commercial relations (such as Hong Kong).145

WTO members commit not to raise tariffs beyond a certain maximum level (referred to as ‘bound tariff rates’).146 These commitments vary from member to member, and between product categories. They are contained in each member’s schedules of concessions. According to the most favoured nation (MFN) obligation contained in Article I of the GATT, members cannot normally discriminate between their trading partners. Members have to apply the same tariff to like products imported from different members. If a WTO member grants a concession (such as a lower tariff) to one member, then it must also do the same for all other WTO members.147

There are limited exceptions to this obligation not to discriminate between WTO members, including:

  • WTO members can form a customs union. The EU is an example of this. There are no tariffs on products traded between the EU Member States and its Common Customs Tariff applies to all goods imported from third countries.148
  • WTO members can negotiate a FTA. In the case of the EU, this includes third country FTAs (such as that between the EU and South Korea), Switzerland’s bilateral agreements with the EU, and the European Economic Area (which brings together the EU Member States, Norway, Iceland and Liechtenstein).149
  • WTO members may give preferential treatment to developing countries in accordance with the Generalised System of Preferences (GSP). This is discussed in Chapter 7.

The UK will no longer apply the Common External Tariff when it leaves the EU. The Government could decide either to adopt as its own the current tariff levels applied by the EU, or to review them.150

Tariff rate quotas

Another type of tariff, particularly common for agricultural products, is tariff rate quotas (TRQs).151 A TRQ allows a customs territory to impose a lower tariff rate up to a quantitative limit, and then a higher tariff for imports after that limit has been reached.152 TRQs were introduced to provide some market access, in the context of very high tariffs on some agricultural products. Scheduled TRQs constitute binding tariff limits. The EU’s TRQs include dairy, beef, lamb, poultry meat, sugar, fruit and vegetables.153

Impact of tariff barriers on UK-EU trade

80.We note that the Government’s White Paper, The United Kingdom’s exit from and partnership with the EU, stated that “the Government will prioritise securing the freest and most frictionless trade possible in goods and services between the UK and the EU … including an ambitious and comprehensive free trade agreement and a new customs agreement”.154 In any free trade agreement tariff levels are subject to negotiation, but are generally lower than those provided for by the MFN principle under WTO rules. For example, the FTA between the EU and South Korea liberalises 98.7% of tariffs and commits to preventing a rise in tariffs on either side in the future.155

81.But though the Government envisages that the UK and EU will conclude a FTA within the two-year period set out in Article 50 TEU for the completion of withdrawal negotiations, we have previously concluded that this is unlikely to be possible.156 In the absence of such a FTA, or a transitional arrangement, UK-EU trade would, from the point of withdrawal, have to proceed according to the MFN principle. This would mean the UK would be legally obliged to treat the EU the same as any other WTO member, and vice versa. Accordingly, both UK exports to the EU, and EU exports to the UK, would be subject to tariff barriers. Figure 4 shows a range of EU tariff levels.

82.In our report, Brexit: the options for trade, we concluded that the UK was also unlikely to be able to retain access to the EU’s FTAs with third countries following Brexit.157 This would include non-EU EEA states (Norway, Liechtenstein, and Iceland) and Switzerland (which has a series of bilateral agreements with the EU), which are some of the UK’s largest trading partners in goods. MFN tariff schedules would be the baseline for UK trade negotiations with all these countries.

83.This report accordingly considers the impact of tariffs in the various sectors according to the EU’s MFN schedules. We also assume that the UK will retain, at least in the short term, the EU’s tariff schedules. In this regard, Lord Price CVO, Minister of State for Trade Policy, Department for International Trade, said: “We are looking to replicate as far as possible the current UK agreements within a new WTO schedule. In that sense, we are not looking to deviate from what we do today. Our working principle is that whatever the UK does today within its schedules we will look to do in a post-Brexit world.”158 Lord Bridges and Lord Price added:

“In order to minimise disruption to global trade as we leave the EU, over the coming period the Government will prepare the necessary draft schedules which replicate as far as possible our current obligations. The Government will undertake this process in dialogue with the WTO membership. These schedules will provide the baseline against which future liberalisation can be judged.” 159

84.As noted in our previous report, the UK will have to negotiate with the EU to separate out its TRQs and levels of subsidies from those currently shared between the EU’s 28 Member States, before presenting its schedules to WTO members.160 We were told by Mr Richard Eglin, Senior Trade Policy Adviser, White and Case LLP, that it might take “many years” for consensus to be reached on the UK’s proposed schedules. Nonetheless, in the intervening period, trade with the UK “would continue … on the terms in which [the UK] proposed”, provided that these “were reasonable”.161

85.While the average MFN tariff on goods levied by the EU is 5.3%,162 the individual tariffs vary significantly between different sectors and products. For example, the import tariff on cars into the EU is 10% and the ad valorem equivalent tariff (a tariff based on the determined value of the item being taxed) on certain kinds of poultry is over 200%.163 Figure 4 below shows tariffs relating to the sectors considered in this inquiry.

Figure 4: Average final bound tariff rates applied by the EU relating to the sectors considered in this report

Bar chart

Source: WTO, World Tariff Profiles 2016: applied MFN tariffs (2016): [accessed 31 January 2017]; Q 4 (Dr Virginia Acha); written evidence from SMMT (FTG0009) and Q 88 (Paul Everitt)

86.The industry representatives who provided evidence to this inquiry agreed that tariffs could have negative consequences for trade with the EU, the UK’s biggest trading partner. As tariffs vary between different sectors, this chapter considers the possible impacts of tariffs on UK-EU trade for each sector in turn. We make the caveat, though, that it is not always straightforward to separate an industry from its supply chain, which can be highly integrated.

Pharmaceuticals and chemicals

87.Mr Steve Elliott, Chief Executive Officer, Chemical Industries Association (CIA), said that tariff-free access to the Single Market was “the key priority”.164 The chemicals sector “faces essentially three tariff levels: 0%,165 5.5% or 6.5%.” The volume of cross-border trade made these potentially significant: “some 75% of our chemical imports come from the European Union”, and 60% of the UK’s exports went to the EU.166 This meant that tariffs would apply to “both the import … of a raw material … and the export, so there is a potential double whammy if you sit at the 6.5% end.”167 The CIA concluded that the imposition of tariffs “would have a significant impact on the competitiveness of the UK to continue to deliver into EU markets.”168

88.For pharmaceutical products, most Organisation for Economic Co-operation and Development members have imposed zero tariffs since the signature of the WTO Pharmaceutical Agreement during the Uruguay Round. This ‘zero-for-zero’169 rule, Dr Virginia Acha, Executive Director of Research, Medical and Innovation, Association of the British Pharmaceutical Industry, explained, covered many pharmaceutical products, so that “the first thing” for the sector to do was to “confirm that zero-for-zero will continue,”170 through the re-establishment of the UK’s independent schedules at the WTO.171 Lord Bridges and Lord Price clarified that the WTO Pharmaceutical Agreement is extended on a MFN basis: “All WTO members enjoy the benefits of tariff free trade to signatory countries irrespective of whether or not they themselves are members. The UK will therefore continue to benefit from the tariff eliminations of negotiating parties”. They stated that, “in line with our technical rectification approach” to the UK’s schedules at the WTO, “the UK will continue to place zero tariffs on pharmaceutical goods covered by the Agreement”.172 In our previous report, we noted the risk that other WTO members may consider the UK’s actions to be a ‘modification’ rather than simply a ‘rectification’ of the EU’s schedules.173

89.Dr Acha also noted that “zero-for-zero is for a named list of medicines and some of the manufacturing components”, which had “not been updated for seven years.”174 The list would need to be updated,175 which would require the agreement of all signatories.

90.The impact of tariffs would also be deleterious to the pharmaceutical and chemicals sector’s supply chain. Dr Acha told the Committee that “after 40 years of being part of the Single Market and the customs union, our supply chains are highly integrated within the EU”. The sector and its supply chain were exchanging medicines, raw and clinical materials, active pharmaceutical ingredients (APIs) and “even trading and sharing samples” across the borders of EU Member States.176 The CIA told us that the UK chemicals industry was reliant on an EU supply chain for some products, and would not be able to substitute domestic products, because the UK “no longer produces a number of its own feedstocks”.177

Capital goods and machinery

91.Mr Fergus McReynolds, Director of EU Affairs, EEF—The Manufacturers’ Organisation (EEF), said that the EEF “would like to see tariff-free access” to the EU after Brexit.178 The Manufacturing Technologies Association (MTA) gave an example underlining the significance of trade with the EU for its members: around 45% of machine tools exports from the UK went to other EU countries, and 25–30% of the cost of a UK-manufactured machine tool consisted of materials and components imported from within the EU.179 It added that “the manufacturing technology sector is a major supplier to UK industries such as automotive and aerospace which export a very substantial proportion of their output to the EU, therefore the exposure to EU markets is even greater that the figures suggest.”180 It cautioned that “special care should be taken to prevent their double imposition i.e. the levying of a tariff on an imported subsystem and then … again on an exported finished assembly which would leave the manufacturer paying twice—or even more times.”181

92.A range of tariffs apply to capital goods and machinery, given the breadth of the sector. The EU’s final bound duty on electrical machinery is on average 2.4% and on transport equipment 4.1%. The maximum bound duty can be as high as 22% on transport equipment or up to 14% on electrical machinery.182

93.The effect of tariffs would be particularly significant for the supply chain: Mr McReynolds said that components of goods “may cross borders a number of times”. Each time such a component “crosses any potential barrier, there is an implication for cost, time and additional administrative burden”.183

Food and beverages

94.The imposition of tariffs on UK-EU trade would be particularly significant for the food and beverages sector. The Food and Drink Federation (FDF) highlighted the scale of cross-border trade: “The overwhelming majority of UK trade in food and non-alcoholic drink is with the EU—more than 70 per cent of both exports and imports”.184 For this reason, the FDF said the Government “must … prioritise tariff-free market access via a comprehensive UK-EU trade deal”.185 The Agriculture and Horticulture Development Board (AHDB) similarly stressed the importance of tariff-free access, “if remaining in the Single Market is not an option”.186

95.The FDF has also highlighted, in a published paper, the difficulty of replacing the EU as an export destination: “Many manufacturers will struggle to substitute EU customers for ones in other parts of the world, including emerging markets, because of differing consumer tastes and limited product shelf-lives.”187 Mr Peter Hardwick, Head of Exports, AHDB, agreed the EU was “extremely important to our exports”, not least because of its geographical proximity: “We are talking about fresh, perishable products, and moving them long distances is challenging.”188 We note that while increasing exports to non-EU markets might be a challenge, the ready availability in the UK of imported fresh and perishable products from geographically distant countries suggests that distance may not be a prohibitive obstacle throughout the sector. On the other hand, Professor John Manners Bell, Chief Executive, Transport Intelligence Ltd, noted that an increase in freight transport would exacerbate already high CO2 emissions.189

96.The AHDB told the Committee that EU tariffs in the agricultural sector “differ significantly by product, being as high as 87% for frozen beef down to 3.8% on whole, fresh sweet potatoes”.190 Dairy products are subject to an average bound tariff of 35.5%, whereas coffee and tea only have an average bound tariff of 6.0%.191 Tariffs would therefore be “significant for some sectors”.192 Turning to processed food, the FDF cited confectionery and cereals as being subject to significant tariffs, at 25% and 15% respectively.193

97.Mr Hardwick highlighted the pork sector as particularly vulnerable. Almost all UK sow exports went to Germany, so the imposition of tariffs (as currently set out in the EU’s schedules) “would almost double the price and make us uncompetitive. That would be terminal for the pig sector—and there are plenty of other examples.”194

98.The Agricultural Industries Confederation (AIC) gave the example of wheat. It told us that, if WTO tariff levels were to be applied, the UK would “find it difficult to compete with other third country wheat producers such as Russia and Ukraine and would become less competitive against other EU wheat producers such as France and Germany”. Tariffs on imports would “lead to an increase in the costs of production and therefore [to] a negative impact on competitiveness”.195

99.Mr Hardwick concluded that “I do not think that any arrangement that involves tariffs—this is the most important thing—will work because it will put up the price of goods to consumers”.196 Professor Tim Lang, Founder, Centre for Food Policy, City, University of London, was also concerned about the impact on consumers: “A WTO Brexit … would mean Britain trying to flog more saturated fats, alcohol and biscuits—those are our leading sources of food exports—to pay for the good things for public health, such as fruit and vegetables, which is what we bring in”. This was a “public health” issue: “It would be folly in the extreme from a food policy perspective not to negotiate a customs union”.197

100.Turning to the supply chain, we were told that tariffs would again have a significant negative impact. The AHDB told us that tariffs would “affect the whole supply chain as they would cover both [the] imported product ready for retail consumption through to input costs such as machinery, feed and fertilisers.”198 There was, as in other sectors, a danger of the double imposition of tariffs. Mr Hardwick gave an example:

“Carcass meat is exported to The Netherlands or Ireland, where it is processed and sent back here or to another Member State … If I take sheep meat, for example, we represent something like 38% of the French market and a lot of that product is processed and moved on; it does not necessarily stay in France … Clearly, anything that obstructs that would be problematic.”199

101.We note that the impact of tariffs on trade with Ireland would be particularly significant, due to a highly integrated supply chain. The FDF told us that 23.8% of the UK’s food and non-alcoholic drink exports went to Ireland in 2015 and 10.9% of imports came from there.200 In some agricultural sectors this percentage could be much higher: in 2015, 68% of the UK’s beef imports came from Ireland.201 The importance of trade with Ireland was discussed in our report Brexit: UK-Irish relations, published on 12 December 2016, in which we concluded: “It is extremely important for both Northern Ireland and the Republic of Ireland that an agreement is reached which takes into account the all-island nature of their economies.”202

102.The FDF also highlighted that substituting EU imports with locally-produced inputs was not always an option. While its members were “partners of our domestic agriculture industry … they also often need to import ingredients that are not produced in the UK or are not produced in sufficient quantity to supplement their use of UK ingredients”.203

103.We do not consider the impact of TRQs (for which see Box 2) on the UK agricultural sector in this report. Our previous report, Brexit: the options for trade, considered the division of the EU’s existing WTO schedules between the UK and the EU-27, including TRQs.204

Oil and petroleum

104.Mr Chris Hunt, Director General and Company Secretary, UK Petroleum Industry Association, told us that the “barrier-free movement of goods … is very important to us”.205 In the oil and petroleum sector, tariffs are relatively low: the currently applied average MFN tariff on petroleum imports to the EU is 2.5%.206 Nevertheless, Norton Rose Fulbright LLP said the UK oil and petroleum sector relied on crude oil imports, so a tariff-free regime between the UK and the EU “must be maintained” to protect the UK oil and petroleum industry’s market share, and “for their businesses to survive”.207 We note that this is a rather strong statement, given the relatively low average MFN tariff.

105.Mr Hunt noted that the downstream industry’s UK-EU imports and exports were relatively balanced—”around 15 million tonnes each way”. Were tariffs to be imposed, “One would hope … they would be reciprocal, so that would affect exports as well as imports.” In that case, “in theory you could say … so be it”.208

106.Mr Hunt was, though, concerned by potential tariffs on equipment and spares for the refining industry.209 He said that “typically, and very indicatively, the UK’s six oil refineries could spend around £150–300 million per annum in trade with other EU countries” on such items. He added that some of this was “specialist equipment, catalyst and chemicals which are not manufactured in the UK”. This was often required at short notice.210 Norton Rose Fulbright LLP also recommended “maintaining a zero tariff on replacement parts”.211


107.The Society of Motor Manufacturers and Traders (SMMT) told us that continued membership of the Single Market was one of UK automotive industry’s five key priorities for relations with the EU post-Brexit, in order to “ensure no tariff or non-tariff barriers to trade with the EU”. The UK should also maintain membership of the EU’s customs union, “with common customs procedures”.212 Both these objectives were ruled out in the Prime Minister’s speech of 17 January 2017 and in the Government’s White Paper. We discuss the Prime Minister’s expectations of a customs arrangement with the EU in Chapter 6.

108.In the automotive sector, the EU’s external tariff on cars is 10% (6.5% for developing countries).213 Tariffs also apply to car components, ranging from 2.5–4.5%.214 According to the SMMT, the introduction of UK-EU tariffs “would be hugely damaging to UK automotive. Tariffs on vehicles and parts would put the UK at an immediate competitive disadvantage.”215

109.Professor Peter Wells, Professor of Business and Sustainability, Cardiff Business School, agreed that tariffs would potentially make “all aspects of UK automotive production more expensive”.216 According to the National Franchised Dealers Association, the increase in production costs would “have an impact on the end cost of vehicles supplied to both consumers and businesses”, with the additional costs being passed on to retailers and customers.217

110.In the automotive sector, most companies rely on a highly integrated supply chain, magnifying the impact of tariffs, and making the separation of the impact of tariffs on the sector from that on the supply chain difficult. Mr Hawes told the Committee that “the average UK-built car has about 41% UK components. In other words, 59–60% come from abroad”. Of these, “the majority come from the EU … Any tariff will add cost.”218

111.The SMMT provided the following summary of the automotive supply chain:

“One part can, as part of an integrated supply-chain, travel across the Channel multiple times before the final vehicle is completed. If a tariff is applied to parts, whole vehicles and furthermore customs duties and significant compliance costs for inward and outward processing, this could ultimately make UK automotive companies, and their operations unviable.”219

112.Mr Koji Tsuruoka, Ambassador of Japan to the UK, also commented on supply chains, in the context of Japanese companies, such as Nissan or Honda: “If you have tariffs on both sides the company suffers very severely, in terms of prices but also procedures.”220

113.Imported parts could not easily be replaced with UK-sourced goods, according to Mr Mike Hawes, Chief Executive Officer, SMMT: “We have identified that about 80% of the parts that go into a car are not actually made here and there is no UK supplier”.221 Conversely, an increase in the cost of importing the necessary parts into the UK could result in the UK losing its competitiveness as a centre for car manufacturing. According to Mr Hawes, competitors included Slovakia, Hungary, and other eastern European countries.222

Aerospace and defence

114.Mr Paul Everitt, Chief Executive Officer, ADS Group, the trade organisation for companies in the UK aerospace, defence, security and space sectors, said that “Our strong preference would be for the UK to remain in the Single Market and customs union to ensure tariff-free trade”.223

115.Mr Everitt acknowledged, though, that there was a WTO arrangement that would mitigate the effect of tariffs between the UK and the EU: “For the aerospace sector there is a pre-existing WTO plurilateral agreement on the trade in civil aircraft [the Agreement on Trade in Civil Aircraft (TCA)],224 which means that both aircraft and complete parts are tariff free.”225 Plurilateral agreements are WTO agreements that—unlike most WTO agreements which all WTO members have to sign (so-called ‘multilateral agreements’)—are not and do not have to be signed and ratified by all WTO members. Mr Everitt was “reasonably comfortable that systems and sub-systems” were included in the TCA. Therefore, he thought that “with some care and attention”, the tariff barrier challenge was “doable”.226

116.The UK was an original signatory to the TCA agreement.227 Mr Everitt thought that “the EU’s signature to the agreement has subsequently superseded” the UK’s.228 However, Lord Bridges and Lord Price confirmed that “The UK is a member of the Agreement on Trade in Civil Aircraft in its own right and no action is necessary for the UK to remain a member.”229

117.Mr Everitt also cautioned that the TCA agreement “does not cover some of the raw materials and part-finished goods that we import and export as part of the development of our larger products.”230 He told us that this was currently addressed by the EU Customs Code: “UK companies are … able to apply for Inward Processing Relief on the import of raw materials used in the manufacture of an aircraft component that are to be ultimately exported”.231 We note that this is currently part of EU law, and that the Government may need to consider establishing a similar UK scheme after Brexit. Box 3 explains Inward Processing Relief.

Box 3: Inward Processing Relief

Inward Processing Relief is an EU scheme that improves export competitiveness, similar to schemes that in other countries may be termed ‘duty drawback’. It permits relief from the payment of import duties and other charges for certain goods brought into the EU, in order to enable those goods to be used for manufacturing, processing or repair before they are then exported from that territory.232

Inward processing or duty drawback is permitted under WTO law, as long as the relief is granted on a MFN basis, and the relief is not larger than the tariff due on the imported goods (if it were larger it would constitute an illegal export subsidy).233

The World Customs Organisation has noted that the rules of origin (see Chapter 5) within many FTAs prohibit the use of such duty drawback systems (so-called ‘no-drawback’ provisions).234 ‘No-drawback’ (‘no-inward-processing’) provisions are routinely included within EU FTAs. For example, the EU-Canada Economic and Trade Agreement (CETA) limits the use of duty drawback.235 However, we note that the EU-Korea FTA does not limit duty drawback to the same extent.236 Whether the FTA between the UK and the EU will contain a no-drawback provision will be subject to negotiation.

118.Lord Bridges of Headley MBE, Parliamentary Under-Secretary of State, Department for Exiting the EU, told us that the Government was considering the issue of Inward Processing Relief. Such a scheme was another way to “mitigate tariffs”, and was “something that is there or will be there”.237

119.With regard to the defence industry, Mr Everitt told us that the EU was “a relatively small part of our overall defence market”, with exports of around £700 million. For this reason, and because “there are already export licensing, export controls, a whole range of other procedures”, he was “less alarmed about the impacts from a European perspective around defence”.238

120.For the aerospace and defence sector, costs associated with tariffs could potentially have a more significant impact on smaller companies producing parts for export, which could be more easily replaced as part of a supply chain. Mr Everitt told the Committee: “Dealing with smaller businesses further down the supply chain, is a much more mobile situation … there is a downward push to find competitive places to manufacture.”239

Establishing a UK tariff regime

121.As discussed in our previous report, Brexit: the options for trade, the UK is currently part of the EU’s combined WTO schedules of concessions. As the UK will leave the EU’s customs union (and so the Common External Tariff), it will have to establish its own schedules in the WTO, which will need to be certified according to WTO rules.240 It is not yet clear how far this will require negotiations with other WTO members.

122.We note that there may be a particular interest within the agricultural sector, both in the UK and in third countries, in changing the level of the UK’s tariffs and quotas. Mr Hardwick said there was “probably scope for the UK to say in time that it will vary some of these tariffs a bit”.241 The AIC recommended the Government take into account “the ability of the UK to produce the product in question, its ability to meet the volume requirements and the market demands for the product” when considering the level of its import tariffs.242 The AIC further told us that in sectors where the UK could not produce the quantity or quality of products needed, “a relaxation of import tariffs would be advantageous”.243 We note that lower tariffs could have a positive impact for UK consumers in the form of lower prices.

123.On the other hand, if the UK Government were to decide to lower tariffs, this could have two negative consequences. First, it could reduce the UK’s leverage in future FTA negotiations with third countries, as WTO schedules are the baseline for negotiations to further liberalise trade. Second—and of particular interest to the agricultural sector—a lowering of tariffs could threaten the UK’s agricultural industry by exposing it to global competition without the protection offered by tariffs. As Mr Hardwick explained, “tariffs reflect a difference in the costs of production in non-EU countries and in those within the European Union”.244 Without tariff protection, imports from countries with lower production costs could flood the UK market.

Conclusions and recommendations

124.In the event that the UK leaves the EU without first either agreeing a comprehensive UK-EU FTA or—pending completion of such a FTA—agreeing a transitional arrangement, UK-EU trade would have to proceed according to WTO rules, and may incur significant tariff costs for UK businesses.

125.All the sectors from which we took evidence expressed concerns about the imposition of tariffs in their sectors, although we note that the level of duties varies considerably between them.

126.Many of these sectors are integrated into efficient EU-wide supply chains. They are both significant importers of goods from the EU and exporters to the Single Market. It is imperative that a trade deal with the EU seeks to avoid the imposition of tariffs on trade in both directions.

127.Many UK businesses cannot easily substitute their imports from the EU with UK products. For example, the UK no longer produces three of the major feedstocks required for the chemicals industry. It may also be difficult for exporters to find new markets for goods. For example, perishable products from the UK food and beverages sector may have a short shelf-life, and customer demand for such products may not exist in non-EU markets.

128.When establishing its own schedules at the WTO, the UK Government must give particular consideration to the implications of tariffs on the UK agricultural sector. High tariffs on imports would raise the cost to UK consumers, whereas lower tariffs could reduce the cost of food to consumers, but might undermine the domestic agricultural sector’s competitiveness.

140 Michael J. Hahn, ‘Article II GATT’ in WTO—Trade in Goods by Rüdiger Wolfrum, Peter-Tobias Stoll & Holger P. Hestermeyer (eds), paras 5, 17 (Leiden: Brill, 2011)

141 Known as an ad valorem tariff. World Bank, ‘Forms of Import Tariffs’: [accessed 10 February 2017]

142 Most countries use a nomenclature comprising about 5000 commodity groups to list the different products. The nomenclature is referred to as the Harmonised System and is maintained by the World Customs Organization.

143 WTO, ‘Tariffs’: [accessed 10 February 2017]

144 World Customs Organization, Chapter 2 E.12 of the Revised Kyoto Convention on the Simplification and Harmonisation of Customs Procedures (17 April 2008): [accessed 23 January 2017]

145 Art. XII:1 of the Agreement Establishing the World Trade Organization permits such entities to become members of the WTO. Under this provision Chinese Taipei, Macao, China, and Hong Kong, China, are WTO members, separate to China. WTO, ‘Members and observers’: [accessed 10 February 2017]

146 Members of the WTO provide information regarding their ‘bound tariffs’ in their goods schedules. However, they are able to provide more favourable ‘applied tariffs’ if this is done on an MFN basis to all other WTO members. WTO, A Handbook on Reading WTO Goods and Services Schedules, p 15: [accessed 20 February 2017]

147 WTO, ‘Understanding the WTO: basics—Principles of the trading system’: [accessed 20 February 2017]

148 WTO, General Agreement on Tariffs and Trade 1994, Article XXIV: 8: [accessed 10 February 2017]; We note that the European Economic Area is treated as a free trade agreement under WTO rules.

149 The WTO rules regarding derogation from the MFN principle, and the detail of the EU’s arrangements with third parties, including the EEA and Switzerland, are discussed in our previous report. European Union Committee, Brexit: the options for trade (5th Report, Session 2016–17, HL Paper 72)

150 The process for the UK to establish new tariffs at the WTO is discussed in our previous report. European Union Committee, Brexit: the options for trade (5th Report, Session 2016–17, HL Paper 72)

151 European Union Committee, Brexit: the options for trade (5th Report, Session 2016–17, HL Paper 72)

152 Holger P. Hestermeyer & Edith Brown Weiss, ‘Article XIII GATT’ in WTO—Trade in Goods by Rüdiger Wolfrum, Peter-Tobias Stoll & Holger P. Hestermeyer (eds), para 52 (Leiden: Brill, 2011)

153 Written evidence from Peter Ungphakorn (ETG0005)

154 HM Government, The United Kingdom’s exit from and new partnership with the European Union, Cm 9417, February 2017, p 35: [accessed 13 February 2017]

155 Written evidence from the Department for International Trade (FTG0025)

156 European Union Committee, Brexit: the options for trade (5th Report, Session 2016–17, HL Paper 72); European Union Committee, Brexit: parliamentary scrutiny (4th Report, Session 2016–17, HL Paper 50)

157 European Union Committee, Brexit: the options for trade (5th Report, Session 2016–17, HL Paper 72)

159 Written evidence from Lord Bridges of Headley MBE and Lord Price CVO (FTG0027)

160 European Union Committee, Brexit: the options for trade (5th Report, Session 2016–17, HL Paper 72)

161 Oral evidence taken before the EU External Affairs and Internal Market Sub-Committees, 8 September 2016 (Session 2016–17), Q 3 For more information about the process of establishing UK schedules at the WTO, see our previous report, European Union Committee, Brexit: the options for trade (5th Report, Session 2016–17, HL Paper 72)

162 Written evidence submitted to the EU Internal Market Sub-Committee, 30 November 2016 (Session 2016–17) TAS0085 (UK Trade Policy Observatory, University of Sussex)

163 Written evidence from Prof Peter Wells (FTG0013) and oral evidence taken before the EU External Affairs and Internal Market Sub-Committees, 8 September 2016 (Session 2016–17), 8 (Richard Eglin)

165 For items covered by the WTO Pharmaceutical Agreement (see below).

168 Written evidence from the Chemical Industries Association (FTG0003)

169 During the WTO Uruguay Round, the WTO Pharmaceutical Agreement was signed between Canada, the European Union and its Member States, Japan, Norway, Switzerland, the United States, and Macao (China). The agreement came into force in 1995 and eliminated tariffs on pharmaceutical products and chemical intermediates used in the production of pharmaceuticals in signatory countries for all WTO members on a MFN basis. Office of the United States Trade Representative, ‘Pharmaceuticals’: [accessed 10 February 2017]

171 The UK is a member of the WTO, but is represented by the EU. For a discussion of the re-establishment of the UK’s independent terms at the WTO, see our report: European Union Committee, Brexit: the options for trade (5th Report, Session 2016–17, HL Paper 72)

172 Written evidence from Lord Bridges of Headley MBE and Lord Price CVO (FTG0027)

173 European Union Committee, Brexit: the options for trade (5th Report, Session 2016–17, HL Paper 72) Rectification is possible for “rearrangements which do not alter the scope of a concession … and other rectifications of a purely formal character”. Modification of schedules implies a substantive change of a concession. GATT, L/4962—Decision on Procedures for Modification and Rectification of Tariff Concessions (28 March 1980): [accessed 2 March 2017]

174 Q 4 The original list of 7,000 items has been updated periodically: in 1996, 1998, and 2006. The most recent update began in 2010. Geneva Network, Pharmaceutical tariffs, trade flows and emerging economies (September 2015): [accessed 14 February 2017]

177 Written evidence from CIA (FTG0003) Feedstocks are raw materials used in the manufacture of chemicals. US Energy Information Administration, ‘Today in energy’: [accessed 23 January 2017]; The feedstocks mentioned by the CIA were Iodine, Monoethylene Glycol (MEG) and Purified Terephthalic Acid (PTA).

179 MTA, Brexit priorities, p 2: [accessed 10 February 2017]

180 Ibid.

181 Ibid.

182 WTO, ‘Tariff profile—European Union’: [accessed 10 February 2017]

183 Q 27 (Fergus McReynolds)

184 Written evidence from FDF (FTG0021)

185 FDF, A New UK-EU Relationship Priorities for the food and drink manufacturing industry (July 2016) p 4: [accessed 10 February 2017]

186 Written evidence from AHDB (FTG0007)

187 FDF, A New UK-EU Relationship Priorities for the Food and Drink Manufacturing Industry (July 2016) p 4: [accessed 10 February 2017]

189 Oral evidence taken before the EU External Affairs and Internal Market Sub-Committees, 15 September 2016 (Session 2016–17), Q 31 (Prof John Manners-Bell)

190 Written evidence from AHDB (FTG0007)

191 WTO, ‘Tariff profile - European Union’: [accessed 10 February 2017]

192 Written evidence from AHDB (FTG0007)

193 Written evidence from FDF (FTG0021)

195 Written evidence from AIC (FTG0006)

198 Written evidence from AHDB (FTG0007)

199 Q 35 (Peter Hardwick)

200 Written evidence from FDF (FTG0021)

201 AHDB, Horizon market intelligence—What might Brexit mean for UK trade in agricultural products? (12 October 2016), p 14: [accessed 10 February 2017]

202 European Union Committee, Brexit: UK-Irish relations (6th Report, Session 2016–17, HL Paper 76)

203 Written evidence from FDF (FTG0021)

204 European Union Committee, Brexit: the options for trade (5th Report, Session 2016–17, HL Paper 72)

206 WTO, World Tariff Profiles 2016, Applied MFN tariffs (2016), p 81: [accessed 16 February 2017]

207 Written evidence from Norton Rose Fulbright LLP (FTG0018)

209 Written evidence from Chris Hunt (FTG0020) Such equipment includes pipework, valves, compressors, pumps, electricals and instrumentation, maintenance equipment and cranes, refinery catalysts and chemicals, and technical expertise and services.

210 Written evidence from Chris Hunt (FTG0020)

211 Written evidence from Norton Rose Fulbright LLP (FTG0018)

212 Written evidence from SMMT (FTG0009)

213 Written evidence from Prof Peter Wells (FTG0013)

214 Written evidence from SMMT (FTG0009)

215 Ibid.

216 Written evidence from Prof Peter Wells (FTG0013)

217 Written evidence from the National Franchised Dealers Association (FTG0012)

219 Written evidence from SMMT (FTG0009)

221 Q 76; In March 2017 Mr Carlos Tavares, CEO of Peugeot SA, said that tariffs between the UK and the EU would be an ‘opportunity’ to source more components from the UK. Peter Campbell, ‘Peugeot SA chief pledges to step up UK presence in ‘hard Brexit’’, Financial Times (6 March 2017): [accessed 8 March 2017]

223 Written evidence from Paul Everitt (FTG0016)

224 The plurilateral Agreement on Trade in Civil Aircraft has 32 signatories, including the EU, several of its Member States including the UK, as well as Australia, Canada, Japan, Switzerland, and the US. This is contained in Article II (3) of the Marrakech Agreement establishing the World Trade Organisation. WTO, Marrakesh Agreement Establishing the World Trade Organisation: [accessed 10 February 2017] and WTO, ‘Plurilateral agreement on trade in civil aircraft’: [accessed 10 February 2017]

225 Q 88 (Paul Everitt)

227 WTO, ‘Plurilateral agreement on trade in civil aircraft’: [accessed 10 February 2017]

228 Written evidence from Paul Everitt (FTG0016)

229 Written evidence from Lord Bridges of Headley MBE and Lord Price CVO (FTG0027)

230 Q 88 (Paul Everitt)

231 Written evidence from Paul Everitt (FTG0016)

232 Laurence Gormley, EU Law of Free Movement of Goods and Customs Union (Oxford: Oxford University Press, 2009), p 239

233 World Bank, Duty and tax relief and suspension schemes (2009), p 1: [accessed 10 February 2017] and WTO, ‘Agreement on Subsidies and Countervailing Measures’ (1994): [accessed 16 February 2017]

235 Article 2.5, Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States: [accessed 16 February 2017]

236 Article 14, Protocol concerning the definition of ‘originating products’ and methods of administrative co-operation: [accessed 16 February 2017]

240 European Union Committee, Brexit: the options for trade (5th Report, Session 2016–17, HL Paper 72); The report also considers whether this would be a rectification or a modification of the schedules.

242 Written evidence from AIC (FTG0006)

243 Ibid.

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