Impacts of Brexit on Tariffs Between the UK and EU
Following the United Kingdom's (UK) departure from the European Union (EU), the two entities are no longer within a tariff-free framework. As of January 1, 2021, the UK became a Third Country for customs purposes, which resulted in the imposition of tariffs on imports into the UK. This article explores the tariff implications post-Brexit, focusing on the customs agreement, the impact on prices, and the challenges faced by businesses in both regions.
The EU-UK Trade and Cooperation Agreement (TCA)
The EU-UK Trade and Cooperation Agreement (TCA) aimed to facilitate a smooth transition from the EU to the UK. As of May 1, 2021, the TCA provisionally entered into force, providing for zero tariffs and zero quotas on all trade of EU and UK goods that comply with the appropriate rules of origin. However, this agreement does not apply universally and there are still certain goods that may be subject to tariffs, depending on the specific rules and terms of the agreement.
Protectionism and Tariffs
The EU is known to operate under a protectionist framework, which means that non-EU countries, including the UK, may face import tariffs to protect EU farmers from competition. The UK, on the other hand, has the flexibility to source from the best deal available, which allows UK growers to compete in a more open market. If the products do not meet the EU standards, a tariff may be imposed to ensure the quality and support local farmers.
Initial Tariff Negotiations
Initially, there were concerns that the UK and the EU might impose reciprocal tariffs on each other's products, similar to the tariffs they apply to goods from non-EU countries. This would have created significant barriers to trade and potentially led to higher costs for consumers in both regions. However, both sides opted for tariff-free access to each other's markets, allowing for freer trade.
Consequences of the Customs Change
Despite the agreement, the practical implementation has had several consequences:
Price Increases: The imposition of tariffs has led to inevitable price increases. These increases are likely to be seen in both physical stores and online platforms. Consumers can expect higher costs for goods imported from the EU.
New Customs Checks: Introducing customs checks has increased administrative burdens. Businesses will need to comply with new regulations, which can lead to additional costs. These costs may be passed on to the end consumer.
Additionally, many British companies have suspended or stopped supplying to the EU, leading to significant changes in the market. Some EU import prices have doubled as a direct result of these actions. British firms may raise prices to reflect the new economic realities and compensate for any losses in EU trade.
VAT and Importation Challenges
The UK government's changes to how VAT is collected by HMRC (Her Majesty's Revenue and Customs) have introduced further challenges. Companies now need to register with HMRC and collect VAT due before exporting goods to the UK. This change can be challenging for larger firms with a significant presence in the UK. However, many smaller international firms may find the process too cumbersome and choose not to comply.
Conclusion
The imposition of tariffs on goods between the UK and EU has significant implications for both businesses and consumers. The EU-UK Trade and Cooperation Agreement provides a framework for a more open trade environment, but the practical implementation has led to increased costs and administrative burdens. Understanding the current tariff landscape is crucial for businesses looking to navigate the post-Brexit market.