On 19 May, the UK government marked a key step on the road to an independent UK international trade policy by unveiling its post-Brexit tariff rates (the UK Global Tariff, or UKGT). These are the "most favoured nation" tariffs that will apply, where no other arrangements exist, to imports of goods to the UK from 1 January 2021. This follows a short consultation which was run earlier this year.
The Department for International Trade (DIT) presented the new UK Global Tariff as "tailored to the needs of the UK economy", emphasising that the new tariff regime is "simpler, easier to use and lower" than the EU's Common External Tariff (CET), which the UK currently applies. Key changes in this vein include:
- removing tariffs on many products, including scrapping all "nuisance tariffs", i.e. those below 2%;
- removing many "unnecessary" tariff variations;
- rounding tariff rates down to "standardised" percentages;
- abandoning the Meursing table, a complex formula for tariffs applicable to certain food products; and
- expressing any fixed (rather than percentage) tariffs in GBP (applying the average exchange rate of the last five years).
DIT claims that the new UK global tariff will ensure that 60% of trade will come into the UK tariff-free, either on WTO terms or through existing preferential access arrangements. DIT notes that further "successful FTA negotiations" will increase this percentage.
Significant tariffs will largely be maintained in certain sectors, including:
- sectors where tariffs support UK producers (including 10% on most types of vehicle); and
- goods where the tariff supports the preferential access of developing countries to the UK market.
The categories of product for which tariffs have been removed include:
- many consumer and household items;
- many "inputs for production" (i.e. products such as wood and plastic that UK manufacturers import to use in their manufacturing processes);
- many items of which the UK has no or limited production; and
- many items which support green growth industries and the UK's achievement of its Net Zero carbon emission commitment (further "green goods" benefit from targeted tariff reductions).
What effect will the change to UK tariffs have?
The UK government's claim to have simplified the tariffs applicable to UK imports is fair: the standardised percentages, and the removal of many tariff variations, have removed complexity when compared with the EU CET. Furthermore, the effect of the rounding down and tariff removals (i.e. reductions to 0%) has led to an overall reduction in tariff rates.
Many importers will not be affected by the change to the UK's "most favoured nation" tariff rates, for a variety of reasons:
- for many products the import tariff was already 0% under the CET and remains at 0% under the UKGT;
- in some areas, products from developing countries benefit from the Generalised System of Preferences by which they can import on more favourable terms than their competitors in developed countries (with only the latter paying the UKGT); and
- free trade agreements will typically include tariff reduction or elimination as a key part of the agreement – the UK already has some in place, and its stated aim is to have 80% of its international trade covered by trade agreements by 2022.
Other importers to the UK will benefit, notably in relation to products from outside the EU, the tariff rates for which will reduce under the UKGT, either rounded down as part of "standardisation" or reduced to 0% (referred to as "liberalisation").
However, it is likely that some importers, who do not currently pay any tariffs due to the UK's membership of the EU Customs Union, will nonetheless pay tariffs on imports to the UK in 2021. Which importers are in this category will depend on what progress the UK is able to make in 2020 in negotiating free trade agreements. Those potentially in a worse position will include those importing to the UK products to which a tariff applies, and which originate from the EU, or from countries which currently have a free trade agreement with the EU, if the tariff reduction elements of those arrangements are not replicated in a separate UK agreement by the end of this year.
UK Global Tariff relevance to UK free trade negotiations
It is notable that the UK has proceeded to publish its "simpler, easier to use and lower" tariff schedule while negotiations with the EU are still at a relatively early stage. It also follows the recent publication of the UK's approach to negotiations with the US (the negotiations started earlier this month) and with Japan, and it is anticipated that talks are soon to start with Australia and New Zealand. At one level, announcing a lower tariff may be viewed as an unusual move as FTAs offer tariff-free trade, and this prize becomes less valuable if tariffs that would apply absent an FTA are lower or less broad. However, the sticking points in the UK's various trade-deal negotiations are more likely principally to concern other issues, such as non-tariff barriers and liberalisations regarding services, than tariffs. The UK may have concluded that this was an opportunity to bring some certainty to at least one aspect of UK trade in 2021, that it would in all likelihood not materially alter the balance of the negotiations, and that it would send a positive message as to the UK's approach to its new position on international trade – if anything, it might even send a message to those countries whose EU trade agreement will cease to apply to the UK, highlighting the attractions of entering into a fresh UK agreement this year.
- A "temporary tariff" regime published on 13 March 2019 to apply in the event of a "no-deal Brexit" is now rendered irrelevant. ↩
- The consultation was run for one month from 6 February 2020 to 5 March 2020. The summary of public responses, and the government's response, can be found at https://www.gov.uk/government/consultations/the-uk-global-tariff ↩
- Published on 2 March 2020 ↩
- Published on 13 May 2020 ↩