European Union: Impact Of UK's Temporary Tariff Regime On Life Sciences

The UK Government published today details of the temporary tariff regime that will apply from 11pm on 29 March 2019 if the UK leaves the European Union (EU) without a deal (see here). This is being published ahead of the vote in Parliament on no deal to ensure that the members of parliament are well informed.

The new regime is temporary, and the government intends to closely monitor the effects of these trade tariffs on the UK economy. It would apply for up to 12 months while a full consultation and review on a permanent approach to tariffs are undertaken.

Under the new regime, British businesses would not pay customs duties on the majority of goods (87% of total imports by value) when importing into the UK, whether importing from the EU or from countries outside the EU. This includes medicines and medical devices.

The aim of reducing the duty rates is to mitigate the likely and significant economic impact on the UK arising from increased costs of imports from the EU for businesses and consumers. Cutting trade tariffs across the board would likely lower costs for consumers. The downside is that this simultaneously exposes UK manufactured goods to increased import competition and deprives the UK of a bargaining tool in trade negotiations with other countries.

In line with the World Trade Organisation (WTO) Most Favoured Nation (MFN) principle, which requires that all WTO-member trading partners be charged the same import duties (except in limited circumstances), the UK's tariffs will apply equally to all the UK's trading partners with whom the UK has no trade arrangements, such as Free Trade Agreements, whether within or outside the EU.

The new tariffs

Tariffs would still apply to 13% of goods imported into the UK. These include:

  1. A mixture of tariffs and quotas on certain foods to support producers who have historically been protected through high EU tariffs (i.e., meats and some dairy).
  2. A number of tariffs on finished vehicles.
  3. A number of sectors where tariffs help provide support for UK producers against unfair global trading practices, such as dumping and state subsidies. Tariffs would be retained for these products, including certain ceramics, fertiliser, and fuel.
  4. Maintaining the UK's long-standing commitment to reduce poverty through trade by offering preferential access to the UK market for developing countries, which means keeping tariffs on goods such as bananas, raw cane sugar, and certain types of fish.

The UK's temporary import tariffs will not apply to EU goods crossing the border from the Republic of Ireland to Northern Ireland.

The classification of goods will broadly remain the same in order to provide continuity to businesses. Pharmaceutical products are mainly covered by Chapter 30 of the UK Trade Tariff (which deals with pharmaceutical products for medical, surgical, dental, or veterinary use). The new regime does not introduce temporary rates of customs duty on imports after an EU exit for these products. In practice, this means that the new regime would not change the 0% import tariff for imported products from outside the EU that applies today to most pharmaceutical products.

A preferential tariff, however, will continue to apply if the country of origin of the pharmaceutical product being imported has a Free Trade Agreement with the UK. This is the case with the EEA countries (Norway, Iceland, and Liechtenstein), the Andean countries, Canada, Mexico, and South Korea.

In the meantime...

Life sciences companies importing pharmaceutical goods before 29 March 2019 should keep using the UK Trade Tariff tool to check the applicable commodity codes, custom duty and VAT rates, and to continue completing the necessary declarations. This tool will then be updated with the new customs duty rates on exit day. It is also possible to view the temporary rates of customs duty on imports after EU exit on a specific webpage set up by the UK Department for International Trade (see here). This list shows whether a preferential tariff rate, MFN tariff rate, or tariff quota rate applies to each individual good.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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