United Kingdom / Analyst Insights
The Impact of the New UK Global Tariff Regime

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by Christian Shiba, Industry Analyst
Oct 20 2020

On 1 January 2021, the UK Global Tariff (UKGT) is set to replace the EU’s Common External Tariff (CET) with the end of the transition period. The UKGT is a key element of Britain’s departure from the European Union, as it marks the first time the country has set its own tariff regime in 50 years. The new regime dictates the tariffs that will be imposed on all countries with no trade deal in place at the end of the transition period, including those within the European Union.

What's new?

Overall, the UKGT is set to reduce the average customs duty tariff to 6%, from the average rate of 7% set under the CET. This average rate has been achieved through three main changes to tariff rates:

  • Simplified rates: Whereby the rate has been rounded down or to the nearest even band, such as the rate for fresh sweet peppers being lowered from 7.2% to 5.7%.

  • Reduced rates: When the tariff rate has been reduced below the simplified rate, such as road tractors, which will be subject to a tariff of just 10%, compared with 16% under the CET.

  • Liberalised rates: In effect, this change means that the tariff has been removed. This is the case for all so-called ‘nuisance rates’, which are rates below 2%. Others that have been liberalised are products that are often not made within the United Kingdom and do not warrant protection for British producers, such as crushed spices, for which the rate has been lowered from 12.5% to zero.

The government has stated that this will give UK businesses a competitive edge over EU businesses, with the reduced rates also increasing choice and lowering the price for UK consumers. This is because the liberalised rates will zero the tariffs paid on £30 billion worth of imported goods, which will increase the number tariff-free lines to 47%, up from 27% currently. The rest of the tariff system is set to be streamlined and simpler for business to follow with a lesser administrative burden. However, the benefits of the tariff reductions would be reversed by the potential cost of applying tariffs to EU imports and a likely devaluation of the pound in the event of no trade deal being reached. However, the UK Treasury would retain all tariff revenue, while at the moment it keeps 20% with the rest paid to the European Union.

Protected industries

Despite the reduction in the average custom tariff rate, the new regime was developed with business in order to serve the UK economy. As a result, many tariffs remain in place to protect sensitive or strategic industries. In particular,  the Motor Vehicle Manufacturing industry is expected to receive continued government support, as the UKGT continues the 10% tariff applied in the CET, which will support domestic production. However, it could also result in a significant increase in the importation costs of EU-produced cars if no deal is in place by the end of the transition period, particularly German cars, which are forecast to account for 41.5% of UK motor vehicle imports in 2020-21. However, the rate for basic components for the manufacture of cars have been reduced, which indicates support for the place of British manufacturing in a global supply chain.

The Ceramic Household and Ornamental Article Manufacturing industry is also set to remain protected from external competition, with the government retaining the 12% tariff applied to ceramic tableware, kitchenware and other household articles.

Meanwhile, the UKGT offers many differences to the European Union’s CET for agricultural products but will continue to offer the same level of tariff level protection to UK farmers. The UKGT liberalises or reduces the tariffs applied to products that UK farmers do not produce but that may have provided competition to EU farmers, such as truffles and cocoa powder. However, high tariff levels remain in place for products that provide competition for UK farmers, such as bovine meat, kale and cheese.

Cutting carbon emissions

The UKGT has also been designed to assist the UK government in meeting its policy objectives, including through the targeting of 100 items to have their tariff rates liberalised or reduced to help fight climate change, with the United Kingdom aiming to reach net-zero carbon emissions by 2050. For example, LED lamps have their rates liberalised from 3.7%, vacuum flasks from 6.7% and electronic thermostats from 2.8%. All of these reductions serve to lower the costs associated with implementing minor changes to energy usage, with other products zeroed to boost recycling rates, support the circular economy, and support carbon capture and storage technologies.

Conclusion

While the future relationship between the United Kingdom and the European Union remains unclear, the UKGT gives certainty to the tariff levels faced on imports to the United Kingdom from all countries where no trade deal is in place, in line with World Trade Organisation rules. Many rates have been removed while many more have been reduced, and this is expected to benefit many UK businesses and benefit consumer choice and prices. However, some key tariffs have been kept to provide a level of protection to selected industries, with the aim of securing jobs and the domestic production levels. These protectionist tariffs would also be implemented to EU imports if there is no deal in place and could represent a significant cost to consumers and businesses. The new regime is also set to be targeted to support the government’s policy objective in regards to reducing carbon emissions.

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