Tariffs on sugars explained
Breaking down the complex and often confusing world of EU sugar tariffs. What will they mean post-March 29?
What are international trade tariffs?
According to the World Trade Organisation (WTO), tariffs are “customs duties on merchandise imports”. Essentially, a tariff or customs duty is a tax on imported products, usually levied at the border or any other point of entry, such as a port or airport.
So, let’s say you want to buy a car from the USA and import it. There’s a whole range of complicated factors determining how much import duty you pay, but for a reasonably priced modern car the UK’s tax and customs agency, HMRC, will demand a 10% duty in addition to 20% VAT on top of the car’s value.
Why do countries impose tariffs on imports? Generally, tariffs are imposed for two reasons:
1. To protect a domestic industry from global competition by making imported goods more expensive
2. To generate tax revenue.
While the UK is part of the EU, imports, including sugar, from EU counties have no tariffs. But if you import sugar from outside the EU, when the UK leaves the EU you will probably pay import duty and it could double the cost of your sugar, if there is no deal with the EU 27.
How EU sugar tariffs work
As the UK is currently part of the EU, we’re subject to EU rules. That will change after Brexit, but we don’t yet know how.
The rules on sugar tariffs depend on several variables, such as the country of origin of the raw material – sugar cane or sugar beet – who produces it, a mill or refinery, and whether it is for direct consumption or additional refining. Getting it correct is important because getting it wrong can be expensive: tariffs vary between €419 and €90 per tonne.
The basic tariff for importing direct consumption sugar into the EU is €419 per tonne. So, every tonne of sugar imported from a non-EU country costs an extra €419. Raw sugar imported into the EU is to be further refined into white sugar attracts a tariff of €339 per tonne.
Except not every non-EU country pays the above tariffs. The EU also has what it calls its preferential tariff structure. The import duty for raw sugar is only €98 per tonne if imported from a ‘CXL’ country, which includes Australia, Brazil, Cuba and India. But only for sugar destined to be refined into white sugar.
Least Developed Countries (LDC) and African, Caribbean and Pacific (ACP) countries trading under Everything but Arms (EBA) have unrestricted, tariff-free imports of raw sugar into the EU.
If things weren’t complicated enough, if a mill outside of the EU is producing raw sugar which it sells as, for example, brown sugar for direct consumption, then it pays the full €419 per tonne tariff.
My message to you – don’t try this at home!
How is a sugar mill different from a sugar refiner?
Another complication when trying to work out what tariffs apply to sugar is whether it has been produced by a sugar mill or a sugar refiner. If you look at the different tariffs above, this distinction is more than just semantics; it has a major impact on the tariff.
A sugar mill crushes, or mills, sugar cane, extracting the juice from the cane which is then boiled down into crystalline brown sugar. Molasses is left as a by-product of the process.
What will Brexit mean for sugar tariffs
Imports and exports between EU member states while the UK is part of the EU are tariff-free. Imports into the UK, such as sugar cane, from non-EU countries attract duties, as I’ve explained above.
When the UK leaves the EU, there could be several outcomes for sugar duties, depending on whether there is a deal, or the UK leaves without a deal. We will be discussing the possible outcomes for international trade in sugar in our next two blogs, so make sure you visit our blog page next week or follow us on Twitter or LinkedIn.