Developing Countries Trading Scheme
The Government is changing the preferential trading arrangements for developing countries, revising the current GSP scheme, from 2023. It is important you and your supply chain understand it and keep up to date to maximise beneficial tariff and production rules. Here is a short briefing on the proposed changes.
Developing Countries Trading Scheme (DCTS)
Background
The Government has announced how it will encourage trade with developing countries. This will replace the current Generalised Scheme of Preferences (GSPs) which the UK adopted following Brexit and is designed to maximise trade opportunities for developing countries. Whilst similar to GSPs there are some changes which go further than the current scheme. A full copy of the proposals is available here
Introduction of DCTS
The current plan is to introduce DCTS from early 2023; secondary legislation will be laid this Autumn to make the changes next year. Government is aware the changes to GSP could have an impact on trade and have agreed to give as much notice and visibility of the changes for retailers and their supply chains. They also recognise in the longer term as countries move within the tiers of DCTS with reduced benefits they will give visibility of those changes. As part of that work we have invite Department for International Trade (DIT) to join our Trade Community for discussion and to answer your questions.
There are 65 developing countries covered by the DCTS. The Scheme, similar to GSP, has three tiers; GSP LDC Framework (the poorest countries) becomes DCTS Comprehensive Preferences. The GSP Enhanced Framework (the next tier up in terms of level of income who have agreed to conventions on human rights and other issues) becomes DCTS Enhanced Preferences and the GSP General Framework becomes DCTS Standard Preferences (the more developed countries, India and Indonesia). As with GSP each tier has advantages in terms of tariff reductions and access, countries will move through the categories as their economies improve. The Government recognises it will need to give businesses good visibility as categories change and benefits diminish to smooth the transition for benefiting countries; for example Bangladesh is expected to move out of the Comprehensive Preference category in 2030.
Key Changes from GSP
Although much of the scheme, in terms of benefits remain similar, the scheme has some differences in 4 areas; rules of origin, tariffs, goods graduation and conditions.
- Rules of Origin
For those Least Developed Countries in the DCTS Comprehensive Preference the UK will offer less prescriptive Product Specific Rules (PSRs) to encourage more manufacturing in those countries. It will also allow for much wider cumulation, allowing the LDCs to use materials from more countries and retain its duty free status. The Government believe this will increase regional co-operation and increase the range and quality of goods LDCs can export to the UK duty free.
The Government will increase the range of tariff free product ranges under the DCTS Enhanced Preference Scheme taking the % of eligible tariff free lines to 85% from 80%. It has removed a number of seasonal tariffs on fruit and vegetables to help developing countries, removing them completely for those in the Enhanced Scheme. It will however, maintain tariffs on agricultural commodities in the Enhanced and Standard scheme where competition could impact adversely on the poorest countries; this includes bananas and sugar.
This is where tariff preferences are removed when a country has a significant proportion of the market or it is felt can compete with other countries without the preference. It is intended to ensure the market is available to all developing countries, especially the poorest. In GSP goods graduation applies to those in the General Framework. Under DCTS it will apply to those in the Standards Preference Scheme, which means India and Indonesia. This means a slight reduction in the overall benefit to both countries, the most obvious area for retail is a reduction in the benefit to Indian exports of leather.
All countries in the GSP risk losing their preferential access if they are found to be breaching international conventions of human rights and labour rights. The UK scheme adds conventions on anti-corruption, climate change and the environment. Technically, the UK can be more demanding of current GSP countries in the future. The Government has also reviewed the basis on which economically vulnerable countries can become eligible for the Enhanced Preferences scheme.
Next Steps
The Government will publish secondary legislation later this year to put the changes in place for 2023. Until then the current GSP system will continue.