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Behavioral and Economic

The analysis produces a set of estimates for potential changes to UK-EU import tariff costs for each sector group in each scenario, expressed as a percentage of the value of UK-EU trade. It assumes that, compared to today’s arrangements: a. Under the modelled no deal scenario, the UK and EU are assumed to apply the current EU-applied Most Favoured Nation (MFN) tariff schedule. These are the tariffs that EU countries charge other members of the WTO in the absence of preferential arrangements, and can differ significantly across both sectors and products.37 For example, on average, additional tariffs for manufactured goods are equivalent to 3 per cent of the value of trade, and for agri-food 20 per cent of the value of trade.38 A sensitivity analysis assuming UK tariffs are set to zero is also included.39 b. Under the modelled average FTA scenario, the UK is assumed to strike a deal with the EU with zero tariffs. Additional sensitivity analysis considers the impact of applying EU MFN tariffs to agri-food sectors, accounting for the fact that historically, agri-food tariffs have been difficult to eliminate as part of FTAs. c. Under the modelled EEA-type scenario, the UK is assumed to strike a deal with the EU with zero tariffs. For modelling purposes this includes zero tariffs on agri-food products. 37 Within certain sectors, the EU allows improved market access to WTO members at below EU-applied MFN tariff rates for set quantities through the use of tariff-rate quotas (TRQs). However, these have not been considered for the purposes of this modelling. 38 EU applied MFN tariffs are trade-weighted using 2014-16 UK-EU trade data from TradeMap at the HS-8 level to the base GTAP 57 sectors. Tariffs for all GTAP 57 goods sectors are subsequently weighted to the modelling sectors using 2011 GTAP data. ‘UK-EU trade 2014-16’, Trade Map, accessed on 20 November 2018; ‘EU applied MFN tariffs’ Macmap, accessed on 20 November 2018; ‘GTAP 57 2011’, GTAP, accessed on 20 November 2018. 39 Sensitivity analysis included in section 4.9. EU Exit: Long-term economic analysis 21 Agri-food is excluded from current EEA arrangements, so additional sensitivity analysis considers the impact of assigning EU applied MFN tariffs to agri-food sectors. d. Under the modelled White Paper scenario, the UK is assumed to maintain tariff-free trade with the EU, resulting in no new tariff costs