As we rapidly approach the end of the post-Brexit transition period on 31 December 2020, an agreement on a potential UK-EU Free Trade Agreement is not in sight. One thing is certain however, UK businesses will no longer enjoy frictionless trade with the EU and both importers and exporters must prepare for significant disruption.
As part of its negotiating tactics and to provide a degree of clarity for UK and EU business, on the 19th May, the UK Government published the post-Brexit tariff schedule – the UK Global Tariff (UKGT). The UKGT clarifies the rates of customs duties the UK will apply to imports from 1st January 2021.
The tariffs cover all goods imported into the UK unless, an exception such as a preferential arrangement applies or goods originate in a country with a Free Trade Agreement in place.
Interestingly, the UKGT offers a lower tariff regime than the EU’s Common External Tariff (EU CET) and goes a long way to streamlining and simplifying tariff lines. This includes scrapping unnecessary tariff variations, rounding tariffs down to standardised percentages, and getting rid of all “nuisance tariffs” (those below 2%).
Furthermore, it also expands tariff free trade by eliminating tariffs on a wide range of products, ensuring that 60% of trade will come into the UK tariff free on WTO terms or through existing preferential access.
The publication of the UKGT allows businesses to more accurately model their financials and prepare post-Brexit plans. However, any analysis of the commercial implications of these new tariffs should bear in mind that they will apply only to the extent that the UK does not have preferential agreements in place with a trading partner before the end of the year.
The Government has been pursuing both a continuity negotiations programme (to roll over existing EU-third country agreements) and an ambitious future trade agreements programme with priority partners including the United States in parallel. Until more is known about the prospect of these preferential agreements being in place before the end of the Transition Period and the tariffs agreed, importers would be well advised to plan on the basis of the UKGT as a reasonable worst case scenario.
Businesses need to review their business models to assess whether current supply chains and manufacturing locations are fit for purpose. Only those firms that use the upcoming months to optimise their operations for the post-Brexit environment will thrive.
