Thread by @DmitryOpines

1/ The UK government is contemplating leaving the EU with higher tariffs on those it doesn't have a trade agreement with (or developing countries it gives preferential access to), than previously planned.

Step by step thread on what's going on here.

2/ The UK's departure from the EU Customs Union means it needs to establish its independent tariff regime.

This is a policy on what level of import tax it will charge on every imaginable type of product.

Previously, all EU Members had the same tariffs, so it didn't need one.

3/ The first step of that process was for the United Kingdom to tell the other 163 World Trade Organization Members the maximum tariffs it agreed to ever apply.

This is the UK's WTO Goods Schedule.

explaintrade.com/articles/2018/…

4/ The UK set these maximums largely by copy pasting the EU's schedule.

In other words, it agreed that its tariffs after Brexit would only ever be set as high as the tariffs of the European Union can legally go.

5/ Having decided to keep the EU's tariff limits, the UK then had to choose what its actual tariffs within those limits would be.

This would be the taxes importers would ACTUALLY pay at the border, where as the WTO schedule was how much the UK COULD legally make them pay.

6/ On 13 March 2019, the Government announced these actual tariffs and that in many cases they would be lower than those the UK charged while still a member of the European Union.

gov.uk/government/new…

7/ This had a political and an economic rationale.

Politically it allowed pro-Brexit campaigners to trumpet an immediate Brexit dividend, claiming goods on supermarket shelves would become radically cheaper.

Hugely exaggerated but probably convincing.

explaintrade.com/articles/2019/…

8/ Economically, it was hoped that reducing tariffs from Brexit day would ease any disruption and offset price increases arising from increased friction at the border.

Economists also generally hold liberalization to be a broadly good thing to for an economy.

9/ The challenge for the government was how to balance this unilateral liberalization (which under WTO rules had to be offered to all WTO Members), with their goal of rolling over the EU's trade agreements and negotiating ambitious new ones of their own.

10/ By unilaterally offering all WTO Members lower tariffs, the compromised its ability to selectively offer lower tariffs to its negotiating partners in exchange for access to their markets.

This quickly proved a problem in the Canada FTA rollover.

buzzfeed.com/alexspence/can…

11/ The Canadians basically said, "In CETA the EU bought access to our market by offering access to its. Now you're offering us and everyone else access to your market for free, why would we pay you for it?"

The UK argued its regime was 'temporary' but Canada wasn't convinced.

12/ This put the UK Government in a quandary.

In trade negotiations, offering to reduce tariffs is a pretty big bargaining chip.

But unilaterally lowering tariffs was one of the benefits it touted from leaving the Customs Union. See idiot headlines:

express.co.uk/news/politics/…

13/ In this latest Telegraph piece, we can see the UK Government flirting with moving the needle back in the direction of initial tariffs it can trade away.

This will strengthen the UK's hand in FTA talks, but undermine an (ok, somewhat spurious) argument for hard Brexit.

14/ Is this going to be a new step toward the UK's Great Global Trade Buccaneering Future?

Maybe.

explaintrade.com/articles/2018/…

15/ For more in depth analysis on this, strongly recommend @DavidHenigUK's very good thread:

https://twitter.com/DavidHenigUK/status/1221006202013921280?s=20