7 Reasons Why EU Tariff Changes Will Affect Your Business in 2023

The European Union (EU) is one of the largest and most influential trading blocs in the world. It has a common market of over 450 million consumers and a GDP of more than 15 trillion euros. The EU also sets tariffs, or taxes on imports, for goods coming from outside the bloc.

However, the EU tariff system is undergoing some major changes in 2023, which will have significant implications for businesses that trade with the EU or source products from third countries. Here are seven reasons why you need to be aware of these changes and how they will affect your business.

1. The EU is simplifying its tariff structure and reducing its tariff rates.

The EU is planning to simplify its tariff structure by reducing the number of tariff lines from over 20,000 to around 5,000. This means that many products will have a single tariff rate instead of multiple rates depending on their origin, composition, or processing. The EU is also lowering its average tariff rate from 5.2% to 4.7%, which will make imports cheaper and more competitive.

2. The EU is introducing new rules of origin and preferential tariffs for developing countries.

The EU is revising its rules of origin, which determine the nationality of a product and whether it qualifies for preferential tariffs under trade agreements or special schemes. The new rules will be more flexible and transparent, allowing more products to benefit from lower or zero tariffs. The EU is also updating its Generalised Scheme of Preferences (GSP), which grants preferential tariffs to developing countries. The new GSP will focus on the least developed countries and those that need more support to comply with international standards on human rights, labour rights, environmental protection, and good governance.

3. The EU is implementing its carbon border adjustment mechanism (CBAM).

The EU is introducing a carbon border adjustment mechanism (CBAM) in 2023, which will impose a charge on imports of certain goods based on their carbon content and the price of carbon in the EU. The CBAM aims to prevent carbon leakage, or the relocation of production to countries with lower environmental standards, and to encourage global climate action. The CBAM will initially cover sectors such as cement, steel, aluminium, fertilisers, and electricity, but it may be extended to other sectors in the future.

4. The EU is enforcing its digital services tax (DST).

The EU is imposing a digital services tax (DST) on large companies that provide online services such as advertising, social media, e-commerce, and streaming. The DST will apply a 3% levy on the revenues generated by these services in the EU, regardless of where the company is based or where the service is delivered. The DST aims to ensure that digital companies pay their fair share of taxes in the EU and to address the challenges of taxing the digital economy.

5. The EU is strengthening its trade defence instruments (TDIs).

The EU is enhancing its trade defence instruments (TDIs), which are measures that protect EU producers from unfair trade practices such as dumping, subsidies, or surges of imports. The EU is increasing its capacity to investigate and impose anti-dumping and anti-subsidy duties, as well as safeguard measures that limit imports temporarily. The EU is also applying stricter rules on foreign subsidies that distort the internal market and harm EU businesses.

6. The EU is diversifying its trade partners and agreements.

The EU is expanding its network of trade partners and agreements, which provide preferential access to markets and create opportunities for businesses. The EU has recently concluded trade deals with Japan, Canada, Singapore, Vietnam, and Mercosur, and is negotiating with Australia, New Zealand, India, Indonesia, and others. The EU is also updating its existing agreements with Mexico, Chile, Turkey, and South Africa. Moreover, the EU is pursuing closer cooperation with strategic partners such as the United States and China on trade-related issues.

7. The EU is promoting its values and interests through trade policy.

The EU is using its trade policy as a tool to promote its values and interests in the world. The EU is incorporating provisions on sustainable development, human rights, labour rights, environmental protection, climate change, gender equality, and corporate social responsibility into its trade agreements. The EU is also enforcing these provisions through monitoring mechanisms and dispute settlement procedures. Furthermore, the EU is supporting multilateralism and reforming the World Trade Organization (WTO) to make it more effective and responsive to global challenges.

The EU tariff changes in 2023 will have a significant impact on businesses that trade with the EU or source products from third countries. These changes will affect the cost, competitiveness, compliance, and opportunities of doing business with the EU market. Therefore, businesses need to be aware of these changes and prepare accordingly to adapt and thrive in the new trade environment.

How EU Tariffs Affect Global Demand

The European Union (EU) is one of the largest and most open economies in the world, trading goods with almost every country and region. The EU has a common trade policy, which means that it negotiates trade agreements and sets tariffs on imports on behalf of its 27 member states. Tariffs are taxes that are charged on goods that enter the EU from other countries. They can affect the global demand for these goods by making them more or less expensive for consumers and producers in the EU and abroad.

The EU’s Tariff Policy

The EU’s tariff policy is based on the principle of non-discrimination, which means that it applies the same tariffs to all countries, unless they have a preferential trade agreement with the EU or benefit from a special scheme for developing countries. The EU’s tariffs are determined by the Common Customs Tariff, which is a database that integrates all measures relating to EU customs tariff, commercial and agricultural legislation. The Common Customs Tariff is based on the Harmonized System, which is an international classification of goods that is used by most countries in the world.

The EU’s tariffs vary depending on the type and origin of the goods. For example, in 2022, around 71% of the imports that entered the EU did so at zero tariff, meaning that they were not subject to any tax. These imports mainly came from countries that have a free trade agreement with the EU, such as Canada, Japan, South Korea, or from countries that benefit from the Generalised System of Preferences (GSP), which is a scheme that grants lower or zero tariffs to developing countries. The GSP includes a special arrangement called Everything But Arms (EBA), which grants duty-free and quota-free access to the least developed countries for all products except arms and ammunition.

On the other hand, some imports were subject to higher tariffs, depending on the product category and the level of processing. For example, agricultural products tend to have higher tariffs than industrial products, and finished products tend to have higher tariffs than raw materials or intermediate goods. This is because the EU aims to protect its domestic producers from foreign competition, especially in sensitive sectors such as agriculture, textiles, or footwear. The EU also imposes trade defence instruments, such as anti-dumping duties or safeguard measures, to counter unfair trade practices or sudden surges of imports that may harm its industries.

The Impact of EU Tariffs on Global Demand

The impact of EU tariffs on global demand depends on several factors, such as the price elasticity of demand and supply, the degree of competition in the market, and the availability of substitutes. In general, higher tariffs tend to reduce the demand for imported goods in the EU market, as they make them more expensive relative to domestic or other foreign goods. This may also reduce the supply of these goods from exporting countries, as they may face lower profits or higher costs. However, lower tariffs tend to increase the demand for imported goods in the EU market, as they make them more affordable relative to domestic or other foreign goods. This may also increase the supply of these goods from exporting countries, as they may face higher profits or lower costs.

The impact of EU tariffs on global demand may also vary across different regions and sectors. For example, countries that have preferential access to the EU market may benefit from higher demand for their exports, as they face lower or zero tariffs compared to other competitors. This may also stimulate their production and employment in these sectors. On the other hand, countries that do not have preferential access to the EU market may suffer from lower demand for their exports, as they face higher tariffs compared to other competitors. This may also discourage their production and employment in these sectors.

The impact of EU tariffs on global demand may also have spillover effects on other markets and countries. For example, higher demand for imported goods in the EU market may increase the demand for inputs or complementary goods from other countries, creating positive linkages and multiplier effects. On the other hand, lower demand for imported goods in the EU market may decrease the demand for inputs or complementary goods from other countries, creating negative linkages and multiplier effects.

References:

http://www.avrupa.info.tr/fileadmin/Content/Downloads/PDF/Custom_Union_des_ENG.pdf

https://taxation-customs.ec.europa.eu/system/files/2018-03/amendment_ucc_20180302_en.pdf

https://ec.europa.eu/eurostat/statistics-explained/index.php/International_trade_in_goods_-_tariffs
https://taxation-customs.ec.europa.eu/customs-4/calculation-customs-duties/customs-tariff/eu-customs-tariff-taric_en
https://www.mdpi.com/2076-0760/8/9/261

https://trade.ec.europa.eu/doclib/docs/2021/january/tradoc_159438.pdf

https://trade.ec.europa.eu/doclib/docs/2021/january/tradoc_159437.pdf

https://ec.europa.eu/info/strategy/priorities-2019-2024/european-green-deal/actions-being-taken-eu/carbon-border-adjustment-mechanism_en

https://ec.europa.eu/taxation_customs/business/company-tax/digital-services-tax_en

https://trade.ec.europa.eu/doclib/docs/2013/april/tradoc_150987.pdf