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Post-Brexit tariff regime begins to take shape

Posted on 20 May 2020

This week the UK's Department for International Trade set out the details of the UK's new tariff regime, the UK Global Tariff (UKGT). The new regime will replace the EU’s Common External Tariff on 1 January 2021 at the end of the Transition Period.

Increased tariff-free trade in certain areas

The UKGT seeks to expand tariff free trade in certain areas by eliminating tariffs on a wide range of products.  According to the Department for International Trade, the UKGT will see 60% of trade come into the UK tariff free from January 2021. Successful FTA negotiations would increase this number further.

Almost all pharmaceuticals and most medical devices will be tariff free under the UKGT.  However, some products used to fight COVID-19 do have an associated tariff.  To ensure those working on the frontline can access vital equipment easily, the Government has introduced a temporary zero tariff rate on these products.

The regime will also aim to protect UK production by removing tariffs on "£30 billion worth of imports entering UK supply chains". According to the Department for International Trade, 0% tariffs are to applied to products used in UK production, including copper alloy tubes (down from 5.2%) and screws and bolts (down from 3.7%).

The UKGT also looks to promote a sustainable economy by cutting tariffs on over 100 products in areas such as renewable energy and carbon capture.

Tariffs to be imposed in relation to protected industries

However, the UKGT will maintain tariffs on a number of products in order to support certain UK industries such as agriculture, automotive and fishing. The UKGT will include 10% duties on cars, and levies on beef, butter and poultry. There will also be protections built in for the ceramics industry.

The picture is not entirely clear when it comes to the automotive supply chain however. The UKGT proposes tariffs for certain relevant inputs while also noting that an autonomous suspension is currently in force (allowing the duty-free importation of components and semi-finished products) and that this approach will be reviewed in due course.

If the UK and EU fail to reach an agreement on their post-Brexit trade relationship, we will therefore see a significant rise in the costs of certain products coming into the UK from the EU. The levies will also apply to trade with any countries with which the UK does not have a preferential deal at the end of the Transition Period.

Certain products will also be subject to tariff-rate quotas, meaning that businesses can apply to import a limited amount at a reduced customs duty rate. The government will publish further advice on tariff-rate quotas later in 2020.

Finally, some tariffs are also being maintained to support imports from developing countries that benefit from preferential access to the UK market. Eligible developing countries will be able to get trade preferences through the UK Generalised Scheme of Preferences (GSP) from 1 January 2021.

Looking forwards

These changes will not apply until 1 January 2021 (assuming that there is no extension to the Transition Period) and so will not affect the cost of imports straight away. However, businesses should begin to factor these in to future forecasts and continue to monitor the progress of the Brexit negotiations and any non-tariff trade barriers (such as regulatory standards) that may arise in addition to increased tariffs. Attention should also be paid to the tariffs that third countries may apply to UK exports once it no longer benefits from any trade deals negotiated on its behalf by the EU.

The UK Government has prepared a UK Global Tariff tool (available here) to check the tariffs that will apply to goods that your business imports from 1 January 2021.

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