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What Boris Johnson’s Brexit deal means for retail

Whatever your opinion of Boris Johnson’s Brexit negotiating team, one thing is clear. After months of the EU saying “the deal is the deal, there is only one deal”, another one has miraculously been conjured up.

Although most of the provisions in Theresa May’s deal are identical to Johnson’s, there are two significant differences that could affect retailers’ sourcing costs.

These are found in the respective protocols for Northern Ireland and the political declarations, which set out the aspirations of the two parties for their future relationship.

Overall, both agreements would provide a high degree of regulatory continuity for retailers operating in Northern Ireland:

  • Northern Ireland retail will remain subject to EU regulation on a range of trade policy including anything from general product safety and animal welfare to textiles labelling
  • Northern Ireland retail is able to source goods from the Republic of Ireland free of all customs duties and quantitative restrictions and checks
  • Northern Ireland retail is able to source goods free of duty from the rest of the UK

However, under the Johnson agreement, Northern Ireland importers including retailers may have to demonstrate that products they are sourcing from the UK are for the Northern Ireland market. Otherwise, such goods could face customs duties at the EU level.

The Johnson deal also requires imports into Northern Ireland from outside the EU to be subject to UK tariff rates, though importers may have to demonstrate again that the goods are for the Northern Ireland market, not the EU.

Crucially, Johnson’s deal leaves the UK outside the EU customs union and free to set its own tariff rates.

On the evidence of the government's tariff plans for a no-deal Brexit, we could expect independent UK tariffs to be no higher than those applied by the EU and in some cases considerably lower, especially for products where the UK has insufficient domestic production.

But, in some cases, UK retailers may face higher tariffs. That would happen where the UK has been unable to replicate free trade deals the EU already has in place and where the UK tariff rate is higher than the preferential tariff rate applied by the EU.

Major differences

However, the major differences arise in the future partnership outlined in the political declaration.

This is not a legally binding document but is a statement of intention and aspiration from the two sides. The May and Johnson political declarations are remarkably similar, but with a crucial difference on trade.

May’s declaration said: “The economic partnership should… build and improve on the single customs territory [emphasis added] provided for in the Withdrawal Agreement.”

But according to Johnson’s declaration: “The parties envisage having an ambitious trading relationship on goods on the basis of a free trade agreement.”

In other words, the May deal would have set the direction of travel towards a full, permanent customs union, whereas the Johnson deal sets the direction of travel to a preferential trade agreement.

A full customs union with the EU, which MPs may still attempt to seek, would go a considerable way to ensuring “free and frictionless” trade with the EU, with no tariffs, quotas or rules of origin.

Some basic customs documentation might still be required, but the burden of would likely be quite light.

On the other hand, a free trade agreement would certainly see imports subject to rules of origin and possibly also some tariffs and other restrictions, depending on the negotiations.

It is important to remember that the political declaration is only aspirational; it is not binding. And it is possible that post-Brexit negotiations may fail. That would lead to two very different outcomes under the two deals.

In the case that the UK had left the EU under the terms of the May deal, and subsequent trade negotiations failed, the default would have been for the UK to remain indefinitely in a customs union with the EU, with the UK engrossed with all the accompanying features.

In the case that the UK leaves the EU under the terms of the Johnson deal and the subsequent negotiations fail, the default would be that the UK’s relationship with the EU will fall back on WTO terms (with the exception of Northern Ireland, which will continue to be bound by the Northern Ireland protocol, subject to the consent of the relevant parties in Northern Ireland).

A hard Brexit is therefore still quite possible under Johnson’s plans.

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