Brexit: What just happened and what does it mean?



Summary:


    

  • On March 12, 2019, the UK Parliament again rejected the Brexit “Withdrawal Agreement” that was negotiated with the EU.  The UK Government announced today (March 13, 2019) that import tariffs will be cut to zero on 87% of imports to the UK as part of a temporary no-deal plan to prevent a £9 billion price shock to business and consumers. Tariffs will still apply to certain goods including beef, lamb, pork, poultry and some dairy products to “support farmers and producers who have historically been protected through high EU tariffs.”Flowchart showing revised timetable for Brexit, as announced by Mrs May on 26 Feb
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Image from: https://www.bbc.co.uk/news/amp/uk-politics-46393399




    

  • The UK Government’s announcements were made in a last-ditch attempt to concentrate the minds of Members of Parliament who will be voting later today to reject a no-deal Brexit. The UK Government described the announcement as a “modest liberalisation” of tariffs designed to minimise disruption to business and avoid price shock in the supermarkets.
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  • The announcements raised immediate concerns about Northern Ireland being turned into a smugglers’ paradise after it was revealed that tariffs would not apply to goods crossing from the Republic of Ireland into Northern Ireland.
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  • Ireland’s European affairs minister, Helen McEntee, said the prospect of tariffs on beef and dairy exports to the UK from the Republic of Ireland would be “absolutely disastrous for Irish agriculture”.
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Analysis:


    

  • Goods from the EU are currently tariff-free, but in case of a no-deal Brexit, World Trade Organization (WTO) taxes would have been the default position without this intervention.
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  • Wednesday’s announcement on Northern Ireland did not include any disclosures about security on the border but it is known that the Police Service of Northern Ireland and the Garda in Ireland are concerned that there could be a “Brexit dividend” for existing criminal networks in the country. Recent reports have shown that criminal gangs involved in smuggling of cigarettes and other goods in Ireland come from all over the world including Asia and the Baltic states.
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  • The UK Government also said it would “not introduce any new checks or controls on goods moving to Ireland or Northern Ireland”, ruling out any customs declarations on “normal goods”.
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  • The new tariff schedule would apply from 11pm on March 29, 2019 in the event of a crash out of the EU and would be in place for up to 12 months.The rates published on Wednesday by the UK Government represent a percentage of the existing EU rate.  They include 53% of the existing EU rate on beef, which equates, for example, to 6.8% on boneless beef, plus €160.10 (£138) per 100kg, and 6.8% on unboned beef, plus €93 per 100kg.
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  • Other rates announced on Wednesday include 60% of the existing EU rate on poultry, butter 32%, cheddar cheese 13%, fish/seafood 11.9%, and 83% on milled and semi-milled grain. The existing EU tariff applied to non-EU lamb will be applied in the UK.
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  • A tariff of 11.3% of the existing EU rate would apply to finished motor cars and trucks with 8% on certain textiles and 8.2% on footwear.
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  • The UK Government trade minister, George Hollingbery, said the measures would protect the poorest families in Britain against price rises, noting that if the UK leaves without a deal “we will set the majority of our import tariffs to zero while maintaining tariffs for the most sensitive industries”.  He added that the approach would “help to support British jobs and avoid potential price spikes that would hit the poorest household the hardest”.
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  • Carolyn Fairbairn, director-general of the Confederation of British Industry, described the situation as “the biggest change in terms of trade this country has faced since the mid-19th century being imposed on this country with no consultation with business, no time to prepare” and referred to the prospect of no deal as a “sledgehammer for the economy”.  She observed that “what we potentially are going to see is this imposition of new terms of trade at the same time as business is blocked out of its closest trading partner”.
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  • In relation to Northern Ireland, the UK Government said its reason for waiving the regime in the region was to avoid a hard border on the island of Ireland. It added that if Britain crashed out of the EU without a deal, the government will “enter discussions urgently with the EU and Ireland” over longer term border arrangements.
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  • The no-checks approach, which has been dubbed an “honesty-box system” in Northern Ireland, would be a “strictly temporary, unilateral approach it would take to avoid a hard border if the UK were to leave the EU without a deal”.  A “small number” of checks would apply on the border between Northern Ireland and Great Britain. However, the UK Government insisted that this would not entail any controls down the Irish Sea.
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  • To protect animal, human and plant health, food products from non-EU countries would “enter Northern Ireland through a designated entry point”.  In addition, “regulated plant material from outside the EU and high-risk EU plant material will require certification and pre-notification” before arriving in the UK including Northern Ireland.
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  • It is understood that there will be little incentive for legitimate exporters to shift operations from Dublin port to the “backdoor” tariff-free Northern Ireland ports and airports because they will have to register their goods in any event with a customs declaration.  Documents would also be needed for goods such as endangered species and hazardous chemicals but this would not involve any infrastructure or checks at the border in Northern Ireland, according to the UK Government.
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What happens next?


    

  • In the coming days MPs will face a number of further crucial votes about what should happen next.  These will include votes on whether to delay Brexit; rule out leaving with no deal or allow the UK to leave the EU with no deal.  The situation is very fluid and could even see Parliament agreeing to hold a second referendum.
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  • To date the Prime Minister has been adamant that UK will leave the EU on March 29, 2019. This is 2 years after formally triggering Article 50 (the formal mechanism for leaving the EU), but it now seems very possible that there could be a request for a delay although any such extension will have to be agreed by the EU.
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