18 Feb 2020
Independent UK Tariff Schedule in the Works
Since the United Kingdom left the European Union on 31 January 2020, its Government has been working on a trade policy to replace the transitional regime that extends the application of the EU Common External Tariff until 1 January 2021. In February, the UK Government’s Department for International Trade (the “UK DIT”) published two documents that shed further light on the system that is set to replace the transitional regime and will introduce the UK’s fully independent tariff schedule. These documents provide some detail on the proposed changes and include a call on stakeholders to provide their views on the proposed changes by 5 March 2020.
The first document is titled “Approach to MFN Tariff Policy: Designing the UK Global Tariff for 1st January 2021” and sets out some features of the proposed UK Global Tariff (the “UKGT”). The publication indicates that the UKGT will be a Most Favoured Nation (“MFN”) tariff schedule and that it will enter into force on 1 January 2021. The schedule will not apply to countries benefitting from the Generalised System of Preferences (“GSP”) or other preferential regimes pursuant to Free Trade Agreements (“FTAs”) which the UK will negotiate. Imports from Northern Ireland and Ireland will be subject to a special arrangement, as announced in the Withdrawal Agreement which includes the Protocol on Ireland/Northern Ireland.
The UK DIT also provides guidelines which it intends to follow in setting tariff rates. Specifically, the UK DIT lists three guiding principles.
1. Simplifying and tailoring the UK tariff schedule. The UK DIT proposes the elimination of “nuisance tariffs”, consisting of tariffs of 2.5% or less, and tariff banding, whereby tariffs under 20% would be rounded down to the nearest multiple of 2.5%, tariffs between 20% and 50% would be rounded down to the nearest multiple of 10% and tariffs above 50% would be rounded down to the nearest multiple of 10%. E.g. 6.3% becomes 5%, 32% becomes 30% and 68% becomes 60%.
2. Removing tariffs on key inputs to production. “Key inputs” are intermediate products and the UK DIT cites the example of textile fabrics to produce clothing. The UK will classify goods as intermediate goods by following the Broad Economic Categories (BEC) list, the list of tariff suspensions that currently apply on inputs to production, and the list of goods that applied for inward processing in 2019.
3. Removing tariffs where the UK has zero or limited domestic production. The UK DIT defines domestic production as goods produced entirely in the UK and not imported from somewhere else. The UK will classify goods as being domestically produced by looking at the list of tariff suspensions that currently apply on inputs to production, although it warns that this list is non-exhaustive.
These guidelines may be of interest to Hong Kong traders involved in industries that are not indigenous to the UK. These guidelines may also suggest that where UK industries are subject to competition, tariffs may be adjusted upward as compared to the currently applicable EU Common External Tariff.
The second document is titled Public Consultation on the UK Global Tariff: Developing the UK Global Tariff Policy. It calls on UK businesses, civil society and international stakeholders to provide:
- views on a potential series of amendments being considered to the tariffs the UK currently applies through the EU’s Common External Tariff. Specifically: simplifying and tailoring the UK Global Tariff policy, removing tariffs on goods imported by UK businesses to manufacture other goods and where the UK has zero or limited domestic production;
- specific feedback on specific products or commodity codes of importance to them, including on the corresponding tariff rate; and
- information on their interactions with the MFN tariffs of other countries and the importance of tariffs to their sectors.
The UK DIT notes that “[t]he Government will introduce the UK’s Global Tariff policy once it has considered all the evidence, including the response to the consultation, in line with the Government’s stated strategic objectives, such as the delivery of the UK’s trade ambitions and FTA trade agenda, and to maintain the Government’s commitment to developing countries to reduce poverty through trade. The points for consideration set out in the consultation do not represent a final policy position.” Importantly, consultations will only last until 5 March 2020, 23:59 GMT.
These publications provide a first glimpse at the post-Brexit trade policy of the UK. The UK’s legislative agenda is quite tight, considering that the deadline for enacting an independent trade policy is 1 January 2021. Nevertheless, Hong Kong traders are eligible to participate as international stakeholders and may wish to do so, considering the implications of the new trade policies for key industries.