The UK runs a unilateral Free Trade Agreement with over 50 developing or least developed countries. In this blog entry, Arne Mielken explores how your business can take advantage.
DCTS – In a nutshell
The UK recently rolled out the so-called Developing Countries Trading Scheme (DCTS). It allows more than 45 “least developed” countries and 18 additional countries or territories classified by the World Bank as low-income countries (LICs) and lower-middle-income countries (LMICs) to bring most goods into the UK market duty-free and quota-free. These are predominantly found in Africa, Central Asia, the Middle East and the Pacific.
It is a generous preferential trading system that seeks to increase commerce with developing nations to help their economic development.
How UK importers and consumers benefit
The DCTS enables UK businesses to access thousands of products from around the globe at lower prices, reducing costs for UK consumers.
How much duty can the UK importer save?
Not all goods imported into the UK instantly enjoy zero tariffs. They are subject to various tariffs based on the DCTS country of origin's preference tier (Comprehensive, Enhanced, or Standard Preferences) and the nature of the exporting goods. The list of countries can be found here.
As of Autumn 2023, for goods coming from countries entitled to Comprehensive Preferences, a 0% import tariff applies on 99.8% of products – all products except arms and ammunition.
For goods coming from “Enhanced Preference”, 0% import tariffs applies on 92% of all product lines. 160 (1.6%) receive preferential but non-zero tariff rates.
Exporters in Standard Preference countries are entitled to 0% tariffs on 65% of product lines, while 26% of product lines have reduced but have non-zero tariffs – this currently only applies to imports from India and Indonesia. China does not benefit from preferences under this arrangement.
Businesses can also use the “DCTS opportunity visualisation tool” to access tariff information. You can choose your country, look up your goods, and learn about tariffs and other pertinent trade-related information.
Understanding the rules of origin for your product
Which imports qualify as "originating" and are subject to favourable tariffs is determined by the rules of origin. As a rule of thumb, products “originate” where considerable manufacturing takes place or where value is added above and beyond the minimum processing requirements.
There are so-called “product-specific rules (PSRs)” and “minimum processing criteria” that need to be followed: As such, a tie made in Sri Lanka from silk imported from China is considered to be Sri Lankan. But a tie made in China, exported to Sri Lanka and then exported from Sri Lanka to the UK is of “Chinese” origin.
To find out whether products are from your nation and what tariffs might be applicable, you need to check and understand the rules of origin. Reach out to customs experts or join Rules of Origin Training.
Claim preferences under the DCTS
To claim preferences under the DCTS, importers must, upon request, submit the relevant proof of origin. Note that it is for the exporters in countries covered under the DCTS to prove the origin of their goods – not the UK importer.
To prove origin, they must:
confirm that you – the UK importer - can claim preferences for the goods imported into the UK
give the person receiving the goods in the UK evidence of origin so that they can claim preferences (there are some exceptions for low-value shipments)
There are 3 ways to proof of origin, including signing an origin declaration, applying the concept of “importers knowledge” or signing a “Form A”. To understand how to issue a correct proof of origin, please contact your customs expert or professionals, seek rules of origin training and download the official HMRC guides below.
Conclusion
If you are importing goods from certain countries in Africa, the Middle East, Central Asia or certain islands in the Pacific, it is worth your while to verify if you can reduce customs duty by leveraging the trade arrangements under the DCTS. For this to be effective, verify if the import can benefit from duty savings using the HMRC visualisation tool, determine the applicable rules of origin and get valid proof of origin. To set up processes and procedures in your business that help you take full advantage, reach out to book a free call with us and join Rules of Origin training. You can also download our cost savings & compliance bundle containing all the official guides and links by HMRC.