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Post-Brexit tariff regime begins to take shape

Posted on 20 May 2020

The UK's Department for International Trade has now 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.

In this article, we explore what this means for businesses and their supply chains.

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%).  Tariffs will also be removed on goods with zero or limited production in the UK, such as certain types of cotton yarn and sewing machine needles.

Some products will 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.

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 levies will apply to trade with any countries with which the UK does not have a preferential deal at the end of the transition period. 

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.  Indeed, the British Retail Consortium has already warned that, absent a free trade agreement, food prices will rise for consumers. 

It must be said that the picture is not entirely clear when it comes to the automotive supply chain.  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.

It is also worth noting that some tariffs are 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.

Customs checks

The removal of frictionless trade between the UK and the EU has also brought back into sharp focus the introduction of customs checks for goods moving between the UK and EU. In addition to increased costs as a result of tariffs, businesses will also be hit with non-tariff costs. Checks at the border are likely to lead to delays, which could hinder both manufacturers with complex supply-chains, as well as retailers with ‘just-in-time’ supply models.  Companies looking to export to the EU are also likely to be hit with additional conformity checks as a result of regulatory divergence (as well as any tariffs that the EU applies).

Recent Government announcements have suggested a phased introduction of border controls vis-à-vis imports from the EU. Initially, controls will apply only to alcohol and tobacco. In April 2021, controls will apply to products of animal origin and from July 2021 to all products. Tariffs on goods imported prior to July 2021 will be payable, but on a postponed basis.

The arrangements for imports to Northern Ireland remain unresolved and, as regards imports into the EU, there are currently no signs of a phased introduction of customs controls and tariffs.

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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