UK to Grant 88% of Imports Tariff-free in Case of No-deal Exit

On 8 October 2019, the UK Treasury and Department for International Trade – as part of the UK’s no-deal preparations – published an update to the UK’s temporary tariff regime that is intended to be put in place should the UK leave the EU without a deal at the end of October. The updated regime allows 88% of imports by value to enter the UK without being subject to tariffs. However, Hong Kong and mainland Chinese exporters should be aware that, among other amendments, the UK government has extended tariffs to additional clothing products. The regime is planned to enter into force upon a no-deal Brexit and be replaced by a permanent tariff regime developed in light of consultation with stakeholders after 12 months.

Ahead of the UK’s initial departure date from the EU in March, the Department for International Trade had published guidance for importers and exporters on the tariff rates which will be applied in the absence of trade agreements when the UK is no longer a member of the EU. More information on this initial publication can be found in previous alert United Kingdom Adopts Temporarily Applicable Policy on Trade Tariffs. Given that the UK did not leave the EU in March and is still a Member State of the EU, these tariff rates have not been applied so far. In light of the new approaching departure date of 31 October, the UK has updated its temporary tariff regime.

Primarily, this measure is intended to provide security and continuity for trade between the EU and the UK, striking a fair balance between protecting UK businesses from cheap imports and shielding UK consumers from high prices. However, Hong Kong companies should be aware that the (often lower) tariff rates 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, of which the UK remains a member. The Most Favoured Nation principle requires that the UK must apply the same import duties to all WTO Members, unless it has entered into a Free Trade Agreement with them, or made other Regional Trading Arrangements such as Customs Unions, or the country is allowed special access due to its status as a developing country. Interestingly, Canada, for example, is therefore reluctant to conclude a free trade agreement with the UK as it expects to be able to export at very low tariff rates even in the absence of such an agreement once the UK applies this new temporary tariff regime.

Based on consultations with industry representatives and consumer groups, the government will introduce three specific changes to the temporary tariff regime that was proposed in March which affect heavy goods vehicles (“HGVs”), bioethanol and – as will be of interest to producers and importers from Hong Kong and mainland China – clothing. The amendments are as follows:

1. Lower tariffs on HGVs entering the UK market to balance the interests of British producers and the SMEs active in the sector and to ensure that fleet replacement programmes to lower carbon emissions can be continued;
2. Adjusted tariffs on bioethanol to retain support for UK producers because the supply of bioethanol is important to critical national infrastructure;
3. The application of tariffs to additional categories of clothing products in order to ensure that current preferential access to the UK market for developing countries is maintained.

The temporary tariff regime grants 88% of total imports by value free access to the UK market. Tariffs on HGVs will be lowered from 22% to 10% and tariffs on clothing will be between 8 and 12%. The affected items include women's or girls' blouses, trousers or jackets made of cotton or wool and male pyjamas, swimwear and woollen cardigans and jumpers. The latter tariffs will not apply to imports from around 70 developing countries as the UK has announced it will apply the General System of preferences to the same countries as the EU does currently (this means mainland China is not covered by the GSP provisions and the tariffs under the temporary regime will apply as listed). This regime is set to apply for 12 months from 23:00 GMT on 31 October 2019 in the event of no deal. During this period, an on-going review mechanism will be put in place and new, permanent tariff quotas will be developed in consultation with businesses and consumers to be implemented after the expiry of the temporary regime. Dr Meredith Crowley, international trade economist from the University of Cambridge, said that tariffs will inevitably have to be adjusted when it becomes clear which UK sectors are most affected.

The Department for International Trade reassured stakeholders that the tariff rates, as amended, will enable UK supply chains to continue to operate smoothly and keep prices for consumers down. Trade Policy Minister Conor Burns commented that “[t]he UK will be leaving the EU on 31 October and we are working with businesses to ensure the UK is ready to trade from day one.”

It is less than a month before the UK is scheduled to leave the EU, with Prime Minister Johnson insisting that this will happen even if no deal is in place. This update on temporary tariffs comes as part of preparations for a no-deal scenario intended to preserve business flows across the UK borders when EU tariffs cease to apply to the UK. Intended primarily to reassure UK businesses, it also provides some clarity as to the import duties to be paid by third country traders, including those from Hong Kong and mainland China exporting their goods to the UK.