In less than a month, the Brexit transition period will end. And with it, the United Kingdom (UK) will begin implementing new trade rules—including a new Generalized System of Preferences (GSP). For UK importers, understanding how the new system will be applied, and its impact on rules of origin and landed costs, is vital.
Defining GSP and How It Works
In a nutshell, the GSP will reduce or remove tariffs on imports from eligible developing countries into the UK.
Up until the transition, while the UK is still a member of the EU, the EU’s GSP stands; a new framework will take effect immediately, post transition. This helps ensure that any country currently covered under the least developing country framework will have the same or similar treatment come January 1, 2021.
Initially the UK GSP will provide trade preferences to the same countries as the EU based on these three frameworks:
- Least Developed Countries Framework For countries listed by the United Nations as Least Developed Countries (LDCs), imports will have quota-free access and 0% duties on all goods other than arms and ammunition. A link to the full list of countries can be found here.
- General Framework For low-income and lower-middle income countries, as defined by the World Bank, some imports from these countries will see a reduction in duties. The UK Generalized Scheme of Preferences outlines which specific goods are covered.
- Enhanced Framework Like the General Framework, the Enhanced system will apply to countries that have been classified by the World Bank as low-income and lower-middle income countries, with an exception: Countries that have been established as economically vulnerable due to lack of export diversification and low level of integration with the international trading system will receive additional duty reductions. To qualify, they must have also signed and implemented the 27 conventions relating to human and labor rights, the environment, and good governance. If the criteria are met, the duty rate for some goods will be 0%. Check the UK Generalized Scheme of Preferences to check which specific goods are covered.
Rules of Origin and the New UK GSP
Rules of origin are the standards that must be met to prove which country goods in question have originated, in order to receive the benefits of the GSP. Importers that can’t provide the proof of origin necessary at the UK border will have to pay the full non-preferential duty rate for the goods.
The UK GSP will accept the following as evidence of origin beginning January 1, 2021:
- A UK GSP Form A
- An origin declaration
- For goods released for free circulation in the UK up to 12 months after December 31, 2020, a Registered Exporter System (REX) statement of origin will be accepted—as long as the REX and commercial invoice are dated no later than December 31, 2020.
Three Takeaways for Importers and Exporters
Heading into the new year, importers and exporters should be aware of the following:
- Her Majesty’s Revenue and Customs (HMRC) have published a list of duty rates for goods eligible for UK General Framework tariffs.
- REX statements dated before December 31, 2020 will still be valid for lower import duty rates, based on the 2020 tariff, until December 31, 2021 but only if the commercial invoice is dated before the 31st of December 2021.
- The UK GSP system views REX statements and Form-A’s as two different kinds of proof of origin under the same scheme. UK importers should ensure their suppliers understand the need to differentiate between EU and UK buyers. Suppliers will need to issue UK GSP Form-A's to qualify for lower rates after or during the grace period.
The UK has said that it is planning to improve the scheme to better support developing countries, with more details to be announced in 2021. Keep checking the HMRC website and Flexport Brexit support page for updates and notifications.
To prepare for these changes, shippers should work closely with freight forwarding partners and customs brokers to assess the impact of these tariffs. To learn more about how Flexport can offer guidance surrounding the new UK GSP, contact one of our customs and trade advisory experts.