In line with its new International Development Strategy, the UK government has published a policy paper introducing the Developing Countries Trading Scheme (DCTS). The DCTS will replace the UK’s Generalised System of Preferences (GSP) in early 2023.
The UK GSP provides reduced tariffs on eligible goods imported from eligible developing countries. Its replacement, the DCTS, is designed to:
- contribute to developing countries’ integration into the global economy;
- create stronger trade and investment partners for the future; and
- strengthen supply chains.
It will provide duty-free, quota-free trade to Least Developed Countries (LDCs) on everything but arms. Duty-free and quota-free trade will be available on 85% of eligible goods to most Low Income Countries (LICs) and Lower-Middle Income Countries (LMICs). It does not apply to LICs and LMICs with a free trade agreement with the UK.
The scheme has been developed following a public consultation conducted from July until September 2021. The consultation focused on four areas:
- rules of origin;
- goods graduation; and
The policy paper sets out the government’s approach to these areas and how the consultation informed this approach.
Rules of origin
As well as low tariffs, the government has committed to supporting LDCs by offering simpler rules of origin. Rules of origin are used to determine where goods are from for the purposes of determining tariffs.
Improvements in the DCTS are being made through the simplification of rules of origin by:
- simplifying product specific rules (PSRs); and
- extending cumulation.
PSRs are the processing rules for a product to be considered as originating from the country that claims preferential tariff rates. Cumulation allows a material from specified other countries to be considered as “originating” when used in the production of a product.
These changes should make it easier for LDCs to participate in regional and global supply chains serving the UK. For example, goods made in country A with material from country B may now qualify for a preferential duty rate when imported into the UK, where they did not before.
The DCTS will:
- lower or remove tariffs on an additional 156 products (compared to the GSP);
- allow all economically vulnerable countries to access DCTS Enhanced Preferences (a more generous tier of preferences);
- simplify seasonal tariffs, (tariffs that vary according to the time of year);
- simplify nuisance tariffs (tariffs set to less than 2%); and
- maintain tariffs on products where there are LDC sensitivities.
These changes are in line with the UK’s broader policy goals of trade liberalisation.
Goods graduation is the suspension of preferential rates of duty on imports that are deemed to no longer need preferences to compete in the UK market.
Under the DCTS, the government will graduate goods on the basis of Harmonised System (HS) chapters rather than GSP sections. This should ensure that graduation is more objective and more specific.
The GSP has conditions which, if not met, allow for the suspension or variation of preferences from any beneficiary in any tier of the scheme.
Under the DCTS, the government will retain the power to suspend a country’s preferences for serious and systematic violations of human rights and labour rights based on international conventions. It is also expanding the list of international conventions that form the basis for suspension to include conventions on anti-corruption, climate change and the environment.
What’s to come
The government should confirm the official start date of the DCTS in due course. Any other changes will also be announced.
Cumulation allows material from another country to be considered as ‘originating’ when used in the production of a product, provided that the final product has been processed beyond minimal levels.
Generalised system of preferences (GSP) is a scheme that reduces or removes tariffs for 70 developing countries.
Goods graduation is the suspension of preferential rates of customs duty on certain imports deemed to be highly competitive and to no longer need preferences to compete in the UK market.
LDC: Least Developed Country (as defined by the GSP Least Developed Country Framework)
LIC: Low Income Country (as classified by the World Bank)
LMIC: Lower-Middle Income Country (as classified by the World Bank)
Product specific rules are the list of processing rules a product needs to meet to be considered as originating from the country that claims preferential tariff rates. The rules depend on the type of product.
Rules of origin are used to determine where goods are from. For example, where they have been produced or had substantial work done to them. This is used in determining appropriate tariff rates, access to preferential trade arrangements or in the application of trade sanctions.
Tariffs, also known as import duties or customs duties, are taxes applied to imports. Importers are responsible for paying tariffs.
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