Insight into a low tariff ceramic industry in a ‘no-deal’ Brexit

Materials World magazine
25 Mar 2019

In the event of a hard Brexit, the UK government has said there would be low to no tariffs on goods imported from outside the EU. According to exports, lowering these tariffs could have a disastrous impact on the ceramics industry. Shardell Joseph investigates. 

In a time of economic uncertainty due to Brexit negotiations, the UK government has been drawing up plans for international trade considering the possibility of a no-deal Brexit. Since the Secretary of State for International Trade Liam Fox indicated he wanted to move to zero tariffs for as many areas as possible last month, the ceramics and other manufacturing sectors have persistently warned about the devastating affects this could have on their industries – putting thousands of jobs at risk.

In mid-March, the government announced that most imports into the UK would not attract a tariff in the event of no deal. In an attempt to prevent a £9bln price shock to businesses and consumers, the 12-month scheme will make 87% of imports by value eligible for zero-tariff access, as opposed to the current 80% tariff-free imports.

Trade Policy Minister George Hollingbery said securing a deal with the EU would avoid disruption to the UK’s global trading relationships, but the country must prepare for all eventualities. ‘This balanced approach will help to support British jobs and avoid potential price spikes that would hit the poorest households the hardest,’ he said.

Fearing the worst in the event of no deal, experts from the ceramic industry lobbied parliament in an effort to protect the industry from what could shatter it. GMB Union National Secretary Jude Brimble says, ‘put simply, zero tariffs would devastate the ceramics industry, putting thousands of highly skilled jobs at risk and destroying a proud British trade with a long and rich heritage.’

Following this, the government said some tariffs would remain to protect certain industries, including ceramics, to prevent the floods of cheap imports distorting the market. The government announced ceramics would have a 1.2% tariff imposed on non-EU imports, reduced from 4.8% – still arguably a significant drop. Other industries such as aluminium, wood, steel and iron would be tariff-free.

The confirmed tariffs, however, have not been welcomed by the ceramics industry. The industry’s representative, the British Ceramics Confederation (BCC), refuses to recognise the proposed 1.2% tariff for ceramics claiming the calculations used across products do not make any sense, and does not apply to all ceramics.

‘We are shocked and alarmed by the announements made on zero tariffs,’ said the British Ceramics Confederation Chief Executive, Laura Cohen. ‘Under the EU, taxes are levied on more than 50 different ceramic products imported into this country from across the world.

‘At the stroke of a pen, politicians are removing these, and have decided to continue just six. They have not even included all the products that have additional anti-dumping remedies.

‘Government says “they’ll see how it goes for a year” but that just isn’t good enough. Our successful businesses have already tied up most of their cash in Brexit preparations, in stocks or raw materials and finished goods, and paying overtime to deal with a spike in export orders.’

There are specific concerns for bathroom and tile manufacturers. According to the announcement, the tariff code for imported basins, pedestals, toilets and cisterns will all be zero.

‘We are one of just a handful of British ceramic bathroom manufacturers left in this country with over 90% having disappeared in the last 20 years,’ said Neil Gore, Managing Director of The Imperial Bathroom Company, Aldridge.

Gore stated the changes in tariffs ‘gives another significant benefit to our competitors whilst our exports to those markets being charged tariffs.’ He added, ‘I urge government to reconsider, we need action to support the manufacturing sector, not destroy it.’

What zero tariff ceramics would look like

Since government proposed zero tariffs, tensions between the government and manufacturers have grown, represented by the
hashtag #StopZeroTariffs trending on Twitter. Business groups have criticised the lack of consultation and short time to prepare for
the changes.

‘If zero tariffs are introduced unilaterally in a no-deal Brexit, a Brazilian dinner plate or one from the UAE – currently subject to 12% most favoured nation import tariff – would be reduced to zero,’ Cohen told Materials World. ‘This would lead to a flood of imports and threaten the domestic market for many of our tableware manufacturers.’

Cohen said there are 22,000 direct jobs in the ceramic manufacturing sector, which would be threatened by this. The implications of such a policy would go far beyond this sector.

‘There are about 15,000 import tariff codes for goods coming into this country – some at a much higher rate than tableware – reducing those to zero overnight would have far-reaching consequences for British manufacturing, impacting our economy and affecting people’s jobs and businesses,’ she says.

‘Moreover, it weakens our hand when making trade deals if we give away access to Britain for free.’

Dumping – the effect of price discrimination where the price of a product sold in the importing country is less than its price in the market of the exporting country – is a situation sectors including ceramics are concerned about.

Because the price of the import is much cheaper, UK manufacturers would have to compete with them and so demand for British products would decline. There is an anti-dumping agreement – Article VI of GATT 1994 – a number of basic principles applicable in trade between members of the World Trade Organisation.

However, imposing zero tariffs in an already challenging political and economic climate could make British ceramics and other manufacturers vulnerable to the affects of dumping. The biggest threat of dumping would most likely be from China, which was accused in the past of dumping its steel products in the EU and selling them for a lot less than they are worth. Considering the recent events of the USA imposing new tariffs on Chinese imports, it is likely that China will be seeking alternative markets.

Cohen said, ‘It’s already known that the tableware and tiles sectors have had dumped Chinese product, and there are measures currently in place from the EU. These will carry over initially, but will be reviewed after Brexit by the new UK authority.

‘However, the rules aren’t yet finalised and aren’t going to be subject to parliamentary scrutiny. They are a weakening of what we currently have in place in Europe. All we want is a level playing field when others don’t play by the rules.’

The government has attempted to ease any worries, committing to maintaining anti-dumping measures to protect certain industries. The measures would allow the UK to impose duties on artificially cheap ceramic imports in order to protect British manufacturers. Fox, who made the decision to maintain the trade remedies after lobbying by the BCC and MPs, said the measures would provide UK industry with ‘a level playing field’.

PwC trade expert Phil Brown said ceramic imports from China would still be protected from dumping, even if zero tariffs were placed on those products.

‘That is probably less of an issue. For Chinese imports, it will be more about global competition,’ he said. ‘So at the moment, countries that don’t have a trade deal with the EU would have a standard rate of 12% applied on those products. And going forward, that 12% would be 0% if the UK does eliminate tariffs.

‘That’s where the competition will be felt primarily more so than China, specifically because of this anti-dumping measure that would still continue to be in place, even if the overall policy is zero.’

Appearing to have protection for the time being from a zero-tariff industry, ceramic and trade experts remain cautious, eager not to allow the political Brexit climate to destroy an industry and distort
the market.

Cohen said the ceramics industry is proud of making and exporting great products and wants to play a part after Brexit. ‘But if trade policy changes it means British manufacturers will struggle to compete, that will threaten that future of our sector and others.’

Are zero tariffs worth it?

Ceramics is not the only industry with significant tariff changes imposed on them. According to the list, tariffs on imports of base metals, excluding aluminium, would be reduced from 1.8% to 0%. Aluminium will be cut from 6.3% to 0%, with steel and iron dropping from 0.8% to 0%.

The core argument for imposing zero tariffs in a no-deal Brexit scenario is offsetting the £9bn impact on the economy. In a statement, the Department of Business, Energy and Industrial Strategy said the UK’s temporary tariff regime for a no-deal Brexit is ‘designed to minimise costs to business and consumers while protecting vulnerable industries.

‘The regime would apply for up to 12 months, while a full consultation and review on a permanent approach to tariffs is undertaken.’

However, the full extent of removing tariffs is still a huge concern shared by manufacturing industries and financial experts, arguing that there will be an immanent threat to the survival of major sectors.

‘If the aim is to keep prices down for consumers should the UK leave without a deal, then analysis has shown that unilaterally reducing tariffs to zero would have little impact,’ said the British Chambers of Commerce Head of Economics and Business Finance, Suren Thiru. ‘Instead you risk losing businesses, and therefore jobs, in some sectors across the country, as firms find themselves priced out of being competitive overnight. In short, nobody wins.’

British Chambers of Commerce Director General, Adam Marshal, said, ‘Decisions of this scale and consequence should only be taken after deep engagement with those most likely to be affected, and must take into account the potential long-term impacts on both trade and inward investment. None of this has happened.’