Question to the HM Treasury:

To ask the Chancellor of the Exchequer, with reference to paragraph 161 of the White Paper, The future relationship between the UK and the EU, Cm. 9593, published on 12 July 2018, what the evidential basis is for the statement that only 4 per cent of the UK goods trade would be likely to use the tariff repayment mechanism.

The government is seeking to maximise the number of traders who will not need to interact with a voluntary repayment mechanism. For businesses that would be eligible for a tariff repayment, the government assesses that this would lead to neither net costs nor job losses for these businesses. This is because businesses would only enter into the voluntary repayment mechanism if they stand to benefit overall from the UK’s independent trade policy. The Government assesses that the eligibility for a repayment is most likely relevant to imports of intermediate goods from non-EU countries for which a tariff differential could arise which is equivalent to around 4% of total UK trade in goods. Further detail is set out in section 1.2.1 of the publication.

The government estimates that approximately 4% of UK goods trade in 2017 was of imports of intermediate goods from non-EU countries for which tariff differentials with the EU could arise from the UK’s independent trade policy. This trade will be most likely to use the repayment mechanism, since intermediate goods typically have longer and more complex supply chains than finished goods and are less likely to know their final destination or use at the point of import.

The remaining 96% is either: (i) trade with the EU or exports to non-EU countries, for which the tariff differentials at the UK border are not relevant under the FCA; (ii) imports which are unlikely to see tariff differentials with the EU, since they imported under zero MFN tariffs, from existing EU FTA partners or from LDCs; or (iii) imports of finished goods, which we assume will be able to pay the correct tariff at the UK border.