Policy paper

The UK’s Integrated Tariff Schedule

Published 13 January 2021

1. Who is likely to be affected

These measures affect:

• importing goods into the UK
• businesses who import the inputs of production
• consumers if the price of goods change

2. General description of the measures

These measures establish and give effect to the UK’s Integrated Tariff Schedule, setting out the rules governing the classification of goods and the approach for determining the tariff applicable to those goods.

The UK’s integrated tariff is based on the UK’s Most Favoured Nation (MFN) tariff schedule called the UK Global Tariff (UKGT), which the government announced in May 2020.

In line with the World Trade Organization (WTO) MFN principle, UKGT tariff rates apply to all trading partners which the UK has no alternative agreements with. For example:

• free trade agreements
• other regional trading arrangements
• preferential access schemes (such as, the Generalised Scheme of Preferences for developing countries)

The UK’s Integrated Tariff Schedule includes:

• suspensions
• reliefs
• tariff rate quotas
• trade remedy measures
• preferential tariffs
• rules of origin^{[footnote 1]}for free trade agreements
• preferential access schemes

3. Policy objective

3.1 The UKGT

These measures introduce the UK’s independent tariff policy, setting the import duty rates in our MFN tariff schedule.

In considering the tariffs that apply to imported goods, section 8 of the Taxation (Cross-border Trade) Act 2018 obliged HM Treasury to consider the:

• interests of consumers in the UK
• interests of producers in the UK of the goods concerned
• desirability of maintaining and promoting the external trade of the UK
• desirability of maintaining and promoting productivity in the UK
• extent to which the goods concerned are subject to competition

Due to these legal considerations, from February to March 2020 the Department for International Trade ran a public consultation to inform the development of the UK’s first independent tariff schedule for nearly 50 years.

We received input and evidence from a range of:

• individuals
• charities
• businesses
• business representatives
• public organisations

The government has sought to balance strategic trade objectives, such as, the delivery of the UK’s trade ambitions and the free trade agreement trade agenda, whilst maintaining the government’s commitment to developing countries to reduce poverty through trade.

Following an internal policy development process informed by these consultation responses, the UKGT was announced in May 2020. It has been in place since 11pm on 31 December 2020, following the end of the UK’s transition period with the EU.

The UKGT is a tariff schedule tailored to the UK economy, it has been designed to balance the interests of consumers and producers.

The UKGT is simpler and easier to use than the EU’s Common External Tariff (CET) and is denominated in pounds, not euros.

When compared to the EU’s CET, the UKGT almost doubles the number of tariff lines that have zero import tariffs, with just under half of all UK MFN tariff lines now set at 0%. This is calculated using 8-digit commodity codes.

Under the UKGT, tariffs are zero on^{[footnote 2]} :

• around £30 billion worth of imports of inputs to production, supporting supply chains for UK businesses
• £10 billion worth of imports that have little to no UK production, lowering the cost for UK consumers
• around £15 billion worth of imports which had comparatively low tariffs (less than 2%), reducing administrative costs for businesses and the government
• £800 million worth of imports of green goods, supporting the UK’s commitment to reach net zero carbon emissions by 2050^{[footnote 3]}

The UKGT when combined with all other trade measures (including free trade agreements) means that approximately £445 billion worth of imported goods will be able to enter the UK tariff free per annum^{[footnote 4]}.

This amounts to approximately 91%^{[footnote 5]} of the value of all goods imported into the UK^{[footnote 6]}.

Where tariffs are retained (for example, to underpin our free trade agreement ambitions, and to protect preferential access for developing nations), they are largely the same as, or lower than, CET levels.

The classification of goods has broadly remained the same as under the CET to provide continuity and minimise disruption to businesses that are used to working with the EU classification code system.

3.2 Suspensions and Reliefs

These measures include provisions enabling the government to suspend tariffs under certain conditions, and to provide relief from customs duty.

The UK’s new and independent tariff suspensions regime entered into effect following the end of the transition period when it replaced the EU’s suspensions regime.

It specifies the legal framework for tariff suspensions, setting out how they can be initiated and implemented.

It expands the range of products within the scope of suspensions compared with the EU’s regime, and makes clear which suspensions have been applied since 11pm on 31 December 2020.

These changes ensure the UK has a functioning, independent tariff suspensions regime that retains the benefit of existing suspensions for UK businesses and consumers.

The government is replacing existing EU coronavirus (COVID-19) related tariff reliefs with suspensions to ensure that goods deemed critical for coronavirus (COVID-19) by the World Health Organization (WHO) can continue to enter the UK tariff-free in 2021, which all importers will be able to access.

These changes ensure that the government can take pro-active steps to support supply chain continuity as necessary and retains the ability to mitigate price increases for businesses or consumers in moments of economic shock where a permanent MFN change is not appropriate.

Embedding this process in legislation will ensure additional transparency and certainty for businesses.

These measures enable the government to continue providing relief from customs duty for certain goods under specific circumstances.

The measures define which goods may be eligible for:

• full relief of import duty
• partial relief of import duty
• who can claim each relief
• the conditions which apply

3.3 Free Trade Agreements

The UKGT unilaterally reduces the tariffs applied to imports into the UK. But the UK has also agreed free trade agreements bilaterally to remove, or reduce, tariffs on the majority of trade with many key trading partners.

These measures give effect to the tariff and rules of origin provisions of free trade agreements that will form part of the UK’s Integrated Tariff Schedule.

Rules of origin are the criteria needed to determine the national origin of a product, and therefore, eligibility for preferential tariff rates. Rules of origin provisions exist in all free trade agreements.

On 24 December, the government concluded a free trade agreement with the EU, which was signed on 30 December and provisionally came into force at 11pm on 31 December 2020.

This free trade agreement is based on preferential terms of zero tariffs and zero quotas. The tariff and rules of origin provisions of this deal were given effect under an amendment to the Preferential Trading Arrangements statutory instrument.

In 2019, the UK imported £267 billion worth of goods from the EU, with total bilateral trade of goods at around £438 billion. When accounting for services, total UK-EU bilateral trade (goods and services) was worth £668 billion in 2019. The free trade agreement provides that this goods trade between the UK and EU will be tariff free, subject to traders meeting rules of origin requirements.

The government has signed ‘roll over’ trade agreements with most of the EU’s free trade agreement partners, and further continuity agreements will follow.

Examples of agreements being rolled over include those with Chile, South Korea, and Switzerland.

The preferential trade arrangements statutory instrument has given effect to the tariff and rules of origin provisions of these and other trade agreements, including the Comprehensive Economic Partnership Agreement with Japan, which was signed in October 2020.

When further free trade agreements are agreed, legislation will be amended to give effect to the tariff and rules of origin arrangements under those agreements.

Through these measures, the government has provided developing countries with preferential tariff rates under the UK’s Generalised Scheme of Preferences, as well as tariff-free access for British Overseas Territories.

The measures established a tariff quota and licensing system, which allows a certain volume of goods, typically related to agrifood, to be imported into the UK at a lower rate than would otherwise be applied under the UKGT.

3.4 Background to these measures

Following the end of the transition period, the UK now has the power to set its own tariff rates.

After an internal policy development process informed by the UKGT consultation responses, the UKGT was announced in May 2020 to be the UK’s long-term MFN tariffs schedule.

These measures form the UK’s Integrated Tariff Schedule and came into effect from 11pm on 31 December 2020.

4. Detailed proposal

4.1 When will the measures apply

These statutory instruments apply to all imports from 11pm on 31 December 2020, when the transition period with the EU ended.

4.2 Previous law

The main provisions governing tariffs for the UK were set out in directly applicable EU regulations. Council Regulation (EEC) No. 2658/87 on the tariff and statistical nomenclature and on the Common Customs Tariff, as amended (most recently by Council Regulation (EU) No. 2020/1577), forms part of a body of EU legislation which sets out the overarching legislative framework for customs adhered to by all EU Member States.

4.3 Revisions

Following the end of the transition period, paragraph 1 of Schedule 7 to the Taxation (Cross-border Trade) Act 2018 was commenced.

This means that the EU regulations (which now form part of the law of the UK as a result of section 3 of the European Union (Withdrawal) Act 2018) where they impose or otherwise apply in relation to any EU customs duty, ceased to have effect unless otherwise provided for under Part 15 of the Customs (Import Duty) (EU Exit) Regulations 2018.

This is the first time the powers in the Taxation (Cross-border Trade) Act 2018 have been used to establish an independent UK tariff schedule.

The following statutory instruments have been laid to support the implementation of the UK’s Integrated Tariff Schedule.

4.4 Descriptions of the Taxation (Cross-border Trade) Statutory Instruments

The Customs Tariff (Establishment) (EU Exit) Regulations 2020

The Customs Tariff (Establishment) (EU Exit) Regulations 2020 establishes the UK MFN tariff rates that apply to imported goods unless:

• an exception applies, such as a relief or tariff suspension
• the goods come from countries that are part of the Generalised Scheme of Preferences and meet preferential criteria
• the country imported from has a trade agreement with the UK and the good meets preferential criteria

The statutory instrument establishes the UK’s commodity code structure, which classifies goods imported to the UK and ensures the correct tariff is paid.

The Customs Tariff (Preferential Trade Arrangements) (EU Exit) Regulations 2020

The Customs Tariff (Preferential Trade Arrangements) (EU Exit) Regulations 2020 implements the preferential tariff rates and rules of origin that have been agreed in bilateral and plurilateral free trade agreements.

This includes new free trade agreements, such as, the UK-Japan Comprehensive Economic Partnership Agreement, in addition to continuity trade agreements that replicate the effects of EU agreements, such as, for Chile and South Korea.

The Customs (Tariff Quotas) (EU Exit) Regulations 2020

The Customs (Tariff Quotas) (EU Exit) Regulations 2020 establishes:

• WTO and autonomous tariff rate quotas for certain goods imported into the UK
• an administration system for tariff rate quotas based on chronological order of submission of applications (the first-come first-served system)
• a licence-based system for tariff rate quotas managed by the Rural Payments Agency, which provides more certainty for businesses than the first-come first-served system

Tariff rate quotas allow a specified volume of these goods to come into the UK at a lower (or zero) rate of tariff duty than the UKGT. The tariff rate quotas created are typically in the agri-food sector

The Customs (Origin of Chargeable Goods) (EU Exit) Regulations 2020

The Customs (Origin of Chargeable Goods) (EU Exit) Regulations 2020 establishes the UK’s rules of origin regime that applies to imports from countries which the UK does not have a preferential trading arrangement.

Non-preferential rules of origin allows the implementation of several commercial policy measures such as:

• anti-dumping duties
• countervailing duties
• trade embargoes
• safeguarding measures
• quantitative restrictions
• tariff quotas

They are also used for trade statistics, public tenders and origin marking.

The Customs (Tariff-free access for Goods from British Overseas Territories) (EU Exit) Regulations 2020

The Customs (Tariff-free access for Goods from British Overseas Territories) (EU Exit) Regulations 2020 implements an arrangement with British Overseas Territories to provide tariff-free access to UK markets following the end of the transition period, on the same conditions that previously applied.

For example, British Overseas Territories must not give the UK less favourable tariff treatment than any other major trading economy, and must respect principles such as good governance, human rights and sustainable development.

The Trade Preference Scheme (EU Exit) Regulations 2020

The Trade Preference Scheme (EU Exit) Regulations 2020 establishes the UK’s trade preference scheme.

Under the Generalised Scheme of Preferences, an importer of a good from an eligible developing country may claim a lower rate of import duty than would otherwise be the case. This scheme largely provides continuity from the EU scheme and was developed using criteria determined by the UN and World Bank.

The Customs (Origin of Chargeable Goods: Trade Preference Scheme) (EU Exit) Regulations 2020

The Customs (Origin of Chargeable Goods: Trade Preference Scheme) (EU Exit) Regulations 2020 establishes rules of origin for imports into the UK under a trade preference scheme for developing countries (the Generalised Scheme of Preferences).

For example, it provides the rules for a t-shirt to qualify as sufficiently from a given country listed in the scheme to enjoy reduced tariff access.

WTO rules permit such a scheme, which offers zero rate or lower import duties, on goods imported from developing countries, without asking for any market access in return.

Rules of origin determine the country of origin of a product for import and export duty purposes and are therefore required to underpin the UK’s Generalised Scheme of Preferences.

The Customs (Reliefs from a Liability to Import Duty) (EU Exit) Regulations 2020

The Customs (Reliefs from a Liability to Import Duty) (EU Exit) Regulations 2020 allows certain imported goods to be fully or partially relieved from import duty if certain conditions are met and specifies how a claim for such a relief may be made.

For example, certain educational or cultural goods to be displayed in a museum are eligible for a relief from the standard MFN rate.

The statutory instrument makes provision for a lower rate of import duty to apply to goods used for specific purposes, referred to as “authorised use”, such as the importation of broadcasting equipment for use on sea vessels or vegetables imported for the industrial manufacture of certain oils.

The Customs Tariff (Suspension of Import Duty Rates) (EU Exit) Regulations 2020

The Customs Tariff (Suspension of Import Duty Rates) (EU Exit) Regulations 2020 establishes the UK’s independent tariff suspensions regime enabling the suspension of import duty on goods and maintaining suspensions that were in place under the EU regime.

In addition to business requests, it created new powers for the government to initiate the implementation of tariff suspensions in exceptional circumstances and expands the product scope of the new regime. This statutory instrument includes a list of tariff liberalisations on coronavirus (COVID-19) related goods.

The Customs (Import Duty Variation) (EU Exit) Regulations 2020

The Customs (Import Duty Variation) (EU Exit) Regulations 2020 continues the additional duties imposed following the US imposition of increased tariffs on certain steel and aluminium products.

These countermeasures impose additional tariffs on certain products originating from the US in accordance with the WTO agreement on safeguards.

The Customs Tariff (Preferential Trade Arrangements and Tariff Quotas) (Amendment) (EU Exit) Regulations 2020

The Customs Tariff (Preferential Trade Arrangements and Tariff Quotas) (Amendment) (EU Exit) Regulations 2020 makes amendments to 2 of the statutory instruments:

• The Customs Tariff (Preferential Trade Arrangements) (EU Exit) Regulations 2020
• The Customs (Tariff Quotas) (EU Exit) Regulations 2020

It implements the preferential tariff rates and rules of origin that have been agreed in additional free trade agreements the UK has entered into, such as the Trade and Cooperation Agreement with the EU.

The statutory instrument amends the list of qualifying countries for UK erga omnes tariff rate quotas to remove the EU as agreed by both parties.

4.5 Summary of impacts

4.6 Exchequer impact

2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025	2025 to 2026
-	-	-	-	-	-

The Office for Budget Responsibility have included the impact of EU Exit in Annex A of the Economic and Fiscal Outlook November 2020 which includes the impact of these measures.

This will be reviewed in the round at the next fiscal event. As a member of the EU Single Market and Customs Union, the UK collected customs duty on behalf of the EU.

After the end of the UK’s transition period with the EU, HMRC will retain all the customs duty the UKGT collects. This is including duties applying to goods imported to Northern Ireland and remaining subject to the EU’s Common External Tariff under the terms of the Protocol on Northern Ireland to the Withdrawal Agreement.

4.7 Economic impact

The UKGT

The UKGT supports the UK economy by making it easier and cheaper for businesses to import goods from overseas relative to the EU’s CET.

If we had retained CET tariff levels, about 86% of the UK’s imports would come in tariff free, compared to approximately 91% under the UKGT^{[footnote 7]} (subject to satisfying rules of origin).

The UKGT nearly doubles the percentage of tariff-free lines from 27% under the CET, to 47% under the UKGT.

Compared to the CET, the UKGT liberalises over 700 tariffs on inputs to production, to support productivity and competitiveness. External literature and cross-government analysis highlighted the positive macroeconomic benefits of eliminating import tariffs, particularly in reducing consumer prices and boosting Gross Domestic Product.

Economic theory^{[footnote 8]} suggests that taxes should generally be levied on final goods alone as taxes on inputs to production distort business production decisions.

The International Monetary Fund have found that a 1% decrease in input tariffs in a sector raised that sector’s productivity by 2%.

Examples of inputs to production which have been liberalised under the UKGT include:

• prepared baking powders (from 6.1% to 0%)
• salt for industrial uses (from €1.7/Tonne to 0%)
• photographic film (from 6.5% to 0%)

However, this must be balanced against wider objectives, so tariffs have been retained on certain inputs.

Current Free Trade Agreements

In under two years, the UK government has agreed trade deals with 63 countries plus the EU, which account for approximately £885 billion of UK bilateral goods and services trade.

This number includes both imports and exports and represents £576 billion of UK bilateral goods trade.

These agreements will be legislated for across several statutory instruments. The most significant free trade agreements, in terms of value of goods trade, are:

• EU - in 2019, total imports from the EU were worth £267 billion and total trade in goods between the UK and EU was worth £438 billion, accounting for 50% of total UK goods trade
• Norway and Iceland - in 2019, total trade in goods between the UK and Norway and Iceland was worth £20.8 billion, accounting for 2.4% of total UK goods trade
• Switzerland - in 2019, total trade in goods between the UK and Switzerland was worth £19.7 billion, accounting for 2.3% of total UK goods trade
• Japan - in 2019, total trade in goods between the UK and Japan was worth £17 billion, accounting for 2% of total UK goods trade
• Turkey - in 2019, total trade in goods between the UK and Turkey was worth £15 billion, accounting for 1.7% of total UK goods trade

All trade data in this section can be found at the Office for National Statistics UK Balance of Payments, The Pink Book: 2020.

Suspensions and Reliefs

The UK has rolled over most of the EU’s suspensions, so that businesses that previously benefitted, by accessing inputs to production tariff-free, have continued to do so.

The suspensions statutory instrument lowers the threshold for companies applying for a tariff suspension and enables government to initiate the suspension of additional tariffs in exceptional circumstances.

Likewise, the UK has in large part rolled over the EU’s reliefs, ensuring that a diverse range of organisations and individuals do not face a new requirement to pay customs duty on certain imported goods, and introduced four new reliefs considered appropriate at the end of the transition period.

The new reliefs cover:

• fuel in the tanks of road transport (including in rail locomotives)
• defective domestic goods being re-imported to the UK after repair
• goods sent to the EU for repair before the end of the Implementation Period but returning within 6 months after the end of the Implementation period
• commercial goods carried by travellers in accompanied baggage which now only use a single flat rate of import duty

4.8 Impact on individuals, households and families

Tariffs have been eliminated on a wide range of household products, such as:

• fridges (from between 1.9% - 2.5% to 0%)
• freezers (from 2.2% to 0%)
• cocoa powder (from 8% to 0%)
• dried bakers’ yeast (from 12% to 0%)

The government hopes that the shift from the CET to the UKGT, with MFN tariffs being cut on a range of inputs to production and goods will result in some cost savings for customers.

Customer experience is expected to remain broadly the same as these measures do not change how individuals interact with HMRC. These measures are not expected to have an impact on family formation, stability or breakdown.

4.9 Equalities impacts

Relative to continuing to apply tariffs at the level of the EU’s CET, the impacts of the UKGT on the UK economy are expected to be positive overall and positive for most sectors of the economy.

As businesses pass the changes in their costs from tariffs on to consumer prices, compared to applying the CET, applying the UKGT would be expected to put a degree of downward pressure on consumer prices on a broad range of goods, with all else held equal.

Individuals with protected characteristics are not expected to be disproportionately affected by these tariff changes.

There is a risk that some businesses, particularly in manufacturing, will face adjustment costs as a result of greater competition from the rest of the world following tariff reductions (compared to the CET).

But lower tariffs on inputs into manufacturing may support the viability of employment in manufacturing sectors. Women, disabled people, and ethnic minorities are less likely to be employed in manufacturing than the rest of the population.

The government will monitor the impact of the UKGT. If the government discovers or is made aware that individuals with protected characteristics are disproportionately affected, it will consider appropriate action.

4.10 Impact on business including civil society organisations

These measures will impact businesses who import goods into the UK. Where previously goods were subject to MFN tariffs in the form of the CET, they will now be subject to the UKGT.

Through the UKGT, the government has sought to simplify tariffs for the benefit of business. Not only is the UK’s new tariff schedule in pounds not euros, all nuisance tariffs (tariffs at less than 2%) have been liberalised to reduce administrative costs.

Tariffs have been rounded down into set bands, making the tariff schedule more regimented and easier to understand. The UKGT removes a range of complex EU tariffs which make it difficult to determine the correct tariff. This includes the EU’s Meursing table^{[footnote 9]} which results in over 13,000 tariff variations on products like biscuits, confectionery, and spreads.

The UKGT maintains tariffs on certain sensitive products, to underpin our free trade agreement ambitions and to protect preferential access for developing nations. This includes certain agricultural products, road vehicles and ceramics.

The impact on businesses will vary depending on their circumstances. The reductions in tariffs on many inputs to production in the UKGT, compared to the CET, will be a benefit to many businesses, allowing them to source cheaper inputs from a wider range of sources.

Where tariffs are eliminated, imports from preferential trading partners are no longer required to prove they meet the rules of origin to pay lower tariffs, eliminating the associated administrative burdens.

However, for other businesses, lowering the UK’s tariffs could expose them to greater levels of competition from the rest of the world, which may create adjustment costs for these firms.

One-off costs will include familiarisation with the new rates, though noting that the UKGT has been public since May 2020. There are not expected to be any continuing costs.

It is important to note that changing tariffs is not the only measure which has required businesses to adjust from 11pm on 31 December 2020. For instance, in order to access the zero tariffs in the EU free trade agreement, UK businesses need to comply with the rules of origin requirements in free trade agreements.

These and other wider trade-related costs are not covered here as this TIIN focuses on the UK’s integrated tariff policy.

There is expected to be no impacts on civil society organisations.

4.11 Operational impact (HMRC or other)

HMRC is responsible for the administration of the UKGT. HMRC requires short term resource to effect the changes necessary to implement the new UKGT. Other government departments, including HM Treasury and the Department for International Trade, require resource to replicate EU functions for setting the tariff. These costs form part of the wider cost of leaving the transition period with the EU and are not calculated separately.

4.12 Other impacts

In addition to domestic impacts in the UK, the tariff reductions provided under the Trade Preference regulations are expected to make products from developing countries more attractive to UK importers, enabling businesses in developing countries to grow and prosper and supporting jobs in these economies.

4.13 Monitoring and evaluation

In developing the UKGT, the government conducted a full public consultation to inform the final schedule. As with any new policy, the government will monitor its impact.

4.14 Further advice

If you would like additional information about classification of goods, see further guidance on finding commodity codes for imports or exports.

If you have any questions about this policy, contact the Department for International Trade.

Declaration

The Rt Hon Jesse Norman MP, Financial Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of these measures.

1. The conditions which goods must meet to benefit from preferential tariff treatment. ↩

2. To note: some of the products in this category already come in tariff free from the EU and preferential partners. ↩

3. This data includes all preferential trading arrangements the UK has agreed as of 5 January 2021. ↩

4. This will increase as the UK agrees more FTAs in the future. It is an indicative estimate based upon government calculations using trade data from HMRC (2017-19 average at CN8 level) and estimates for tariff rates. These estimates do not account for: any changes in trade in the future, costs associated with satisfying rules of origin which will reduce overall tariffs avoided, or any impact of plurilateral agreements like those covered in civil aviation and pharmaceuticals. It assumes full utilisation of preferential tariffs. Different approaches and data sources for this analysis are likely to yield different results. ↩

5. Subject to satisfying rules of origin ↩

6. The numbers in this section have changed since the May 2020 announcement of the UKGT as they reflect most up to date HMRC 2017 to 2019 Average Trade Flow data, the final outcome of the UK and EU trade agreement and progress on the UK’s trade continuity programme. ↩

7. Indicative estimate based upon government calculations using trade data from HMRC (2017-19 average at CN8 level) and estimates for tariff rates. These estimates do not account for: any changes in trade in the future, costs associated with satisfying Rules of Origin which will reduce overall tariffs avoided, or any impact of plurilateral agreements like those covered in civil aviation and pharmaceuticals. It assumes full utilisation of preferential tariffs. Different approaches and data sources for this analysis are likely to yield different results ↩

8. Mirrlees review: https://scholar.harvard.edu/files/mankiw/files/optimal_taxation_in_theory.pdf ↩

9. The Meursing table is used to determine which tariff code is applicable to certain goods when importing them into the EU. This is mainly used for composite agrigoods. ↩