14 March 2019
United Kingdom Adopts Temporarily Applicable Policy on Trade Tariffs
On 13 March 2019 – following a firm rejection, for the second time, of the EU Withdrawal Agreement by the UK parliament on the previous day – the UK government adopted a policy, set out in the Tax Information and Impact Note, establishing and giving effect to a UK Tariff. This would apply should the UK leaves the European Union without an agreement. The policy (hereinafter, ‘the measure’) will have a direct impact on Hong Kong companies exporting goods to the UK market, when those goods arrive at the frontier of the UK customs territory after the UK’s withdrawal from the EU. Hong Kong companies involved in trade with the UK should be aware that the measure could have an effect on all imports entering the UK as early as 29 March 2019 as from 11 pm GMT.
On 12 March 2019, the UK parliament rejected the UK-EU Withdrawal Agreement by a thumping majority for the second time. As a result, the chances of a no-deal scenario are felt to have increased, forcing the UK government to adopt policies that will take effect as from the withdrawal date. On 13 March 2019, the UK government published a Tax Information and Impact Note, which reflects the UK’s policy on the UK Trade Tariff post-Brexit.
The aim of the package of instruments is to mitigate some of the impact on the UK from increased costs of imports from the European Union for companies and consumers. Under the current EU framework, the entry of goods transported from Member States of the European Union to the UK are tariff-free. After the withdrawal, the UK Tariff will set out the rules governing the classification of goods, and it will contain rules for determining the amount of duty applicable to them. The measure will also set the level of import duty for all goods.
Under the UK Tariff, classification of goods will, in most cases, remain the same in order to provide continuity to companies currently interacting with the EU system so as to minimise disruption for traders. In the event of no deal between the EU and the UK, UK trade-related matters will not be governed any longer by EU regulations, including the Common Customs Tariff. There is no status quo option for the UK’s import duty policy. The current measure is only applicable temporarily, and Hong Kong traders might feel encouraged to benefit from the potentially lower import duties when trading with the UK.
Indeed, the tariffs under the UK measure will not only apply to goods imported from the European Union. Hong Kong companies should be aware that the (often lower) tariffs equally apply to their exports to the UK, due to the Most Favoured Nation principle, which applies under the rules of the World Trade Organisation, to which the UK remains a member. The Most Favoured Nation principle requires that all WTO members are to be charged the same import duties by the UK, except for countries that entered into a Free Trade Agreement with the UK, other Regional Trading Arrangements such as Customs Unions, or on the basis of special access for developing countries.
As a result of the measure, the vast majority of import duties will be set to 0%. The measure will, however, only apply for a temporary period of up to 12 months. Hong Kong companies trading with the UK post-Brexit, should keep in mind that the rather favourable import duties could apply for a period shorter than 12 months.
In some cases, where the import duty is not set to 0%, the UK will allow for a reduced or zero rate of duty for a limited quota of goods over a given period. The measure sets tariffs on approximately 95% of tariff lines to 0%. On the basis of average trade flows between 2017 and 2018, as calculated on the basis of the UK’s customs authority, this amounts to approximately 87% of imports by value.
Tariffs have been retained on finished vehicles, including cars, goods vehicles, road tractors, buses and motorcycles. Non-zero duty rates are also established for, among others, certain agricultural products and meat products.
HMRC, the UK’s tax, payments and customs authority, is responsible for the administration of the UK Tariff. The UK government has indicated that it will launch a formal consultation on a long-term tariff policy in the coming 12 months to get representation from interested parties. There will also be a review mechanism for companies to offer their views on the impact of the measure.