On 19 May 2020, the UK Government published the details of its new UK Global Tariff (UKGT), which will replace the EU’s Common External Tariff following the end of the Brexit Transition Period (currently scheduled to last until 31 December 2020).
As the on-going negotiations between the UK and EU for the post-Transition Period trade relationship again move up the political agenda, businesses should not lose sight of the importance of the UKGT regime. It will provide the baseline for tariffs applied on imports into the UK from all countries with which the UK has not secured a preferential agreement and therefore should form an important part of post-Brexit business planning for importers into the UK.
In July of last year, the UK Government submitted its schedule of “bound” most favoured nation (MFN) tariffs to the World Trade Organisation. These tariffs, which were largely based on the EU’s own schedule, provide the ceiling for the UK’s post-Transition Period tariffs to be applied on imports from countries with which the UK does not have a free trade agreement. By contrast, the UKGT provide us the tariff rates which the UK Government intends to apply to such imports and therefore is far more relevant for business planning purposes.
The Government’s applied tariff policy has been underpinned by a number of principles which have informed the detailed schedule of rates. These include:
- Simplifying tariffs – so-called “nuisance” tariffs (of less than 2%) are being eliminated. Higher tariffs are being rounded down (rather than up) to the nearest standardised band.
- Tariff liberalisation – tariffs are being removed and reduced for goods which are considered key inputs to UK manufacturing (including wood, machinery input and plastics), and in areas where the UK does not have a significant domestic industry to protect (including cotton, bicycle parts and footwear).
- Protecting British producers – by contrast, tariffs are being retained across 5,000 products where the UK has defensive interests. The agriculture, biofuel and automotive sectors are all cited as examples in the Government’s policy document.
- Preferential treatment for developing nations – the Government has reaffirmed its commitment to allowing mostly tariff-free access to less economically developed countries (under the Generalised Scheme of Preferences). This will affect agricultural and textile imports, in particular.
- Green goods – around 100 environmentally-friendly products are to become tariff free in an attempt to help the UK meet its Net Zero commitment by 2050.
The Government has confirmed that the UKGT will result in 60% of relevant imports into the UK being tariff free (as compared to 47% under the EU’s Common External Tariff). It is interesting to note that this is a significant shift from the “temporary” MFN tariff schedule published in March 2019 (which would have come into effect in the event of the UK having left the EU without a withdrawal agreement). The “no deal” temporary tariff schedule would have made 88% of all relevant imports tariff free. Whereas the temporary schedule included tariff reductions in the automotive and agricultural sectors, under pressure from stakeholders the Government has retained tariffs in these areas under the UKGT.
Businesses should carefully analyse the UKGT to understand the potential impact of its application to goods that they import into the UK. However, the UKGT is not the end of the story. Any analysis of the commercial implications of these new tariffs should bear in mind that they will apply only to the extent that the UK does not have preferential agreements in place with a trading partner before the end of the year. The Government has been pursuing both a continuity negotiations programme (i.e. to roll over existing EU-third country agreements) and an ambitious future trade agreements programme with priority partners including the United States in parallel. Until more is known about the prospect of these preferential agreements being in place before the end of the Transition Period and the tariffs agreed, importers would be well advised to plan on the basis of the UKGT as a reasonable worst case scenario.
Please get in touch with John Forrest, Paul Hardy or Daniel Jones for help and advice in understanding the impact of these developments on your business.