UK to drop most chemical tariffs to 0% under no deal Brexit, industry left exposed

Source: ECN

2019/03/14

The UK government is to drop trade tariffs on chemicals and polymers to an average of 0.1% for a year in the event of a no-deal Brexit, removing most tariff protection for UK chemical producers.

The move follows another rejection by the UK’s Parliament late on Tuesday of Prime Minister Theresa May’s Brexit Withdrawal Agreement, which could increase the likelihood of a no-deal exit from the EU. Although Parliament is to hold another vote on Wednesday which could approve a motion to avoid a no-deal Brexit, the default legal position remains that the UK leaves the EU on 29 March with or without a deal. Any extension to the exit date would have to be approved by the EU 27.

Many European politicians have insisted there can be no extension unless the UK Parliament – which is deeply divided on the issue – can agree a position on Brexit. Under World Trade Organisation (WTO) Most Favoured Nation rules, if the UK drops tariffs to 0.1% for the EU, it must also do so for all other WTO members globally.

The move will remove most tariff protection for UK chemicals and polymers producers who are currently protected by WTO chemical and polymer tariffs up to a maximum of 6.5% where no trade deal is in place.

PET AN EXCEPTION

Under the proposals, most chemicals and polymers tariffs will fall to 0% under a no-deal Brexit. The major exception is polyethylene terephthalate (PET) which would attract a 6.5% tariff. Where anti-dumping duties are currently in place – for example on ammonium nitrate – these would also continue. Fertilizers tariffs would drop to 2.1% on average.

The 0.1% move could threaten some UK chemical producers, according to the chairman of consultancy Ready for Brexit, Paul Hodges. “We are moving to a completely new world under WTO, which won’t necessarily give any protection to domestic producers," he said.

"The 0.1% global tariff will risk the viability of a number of companies because they won’t be able to compete in the way they were by being protected in the past.”

Non-tariff regulatory and customs barriers under a no-deal scenario would likely be more disruptive to chemicals trade than tariffs.

“It’s most unlikely that we’ll be able to understand all the problem areas in advance – we’ll only recognise them when they are staring us in the face. It’s the unintended consequences that will be the problem.”

Hodges gave the example of the CE marking which could, under a no-deal Brexit, prevent legal export of plastic toys and electrical equipment from the UK to the EU27, disrupting downstream chemical supply chains.

The marking is a legal requirement for trade in many goods traded in the EU as it certifies that minimum health and safety standards have been met. UK manufacturers may no longer be allowed to use the EU’s CE system under a no-deal scenario.

“We went from a complex system on 31 December 1992 to a much simpler system the next day, when we joined the Single Market and Customs Union. Now we are moving from a simple system to a highly complex one,” said Hodges.

He added that since then global supply chains have developed, further complicating the regulatory environment.

“Not only have we lost all 
the expertise we had in 1992 but the world has moved on 
and we have global supply chains which we didn’t have in 1992. It will be a more complex world and a more complex regulatory environment.”

Visit the ICIS Brexit topic page and scroll down to the Resources section to see a full list of remaining tariffs under no deal Brexit.