UK Customs and Trade

This article is an extract from The International Trade Law Review - Edition 9. Click here for the full guide.

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I Introduction

The United Kingdom (UK) is a major trading power. By way of illustration, in 2022 it imported £902 billion and exported £815 billion of goods and services.² However, as a Member State of the European Union (EU) and its predecessors between 1 January 1973 and 31 January 2020, and being in a transition period under the terms of the UK–EU Withdrawal Agreement from then until 31 December 2020, it was not able to implement an independent trade policy. One of the objectives of the UK's withdrawal from the EU was to be able to do so.

This chapter reviews some key aspects of the new international and domestic frameworks for UK trade that came into operation at the end of the transition period. On the international front, the chapter reviews UK membership of the World Trade Organization (WTO), the UK's trading arrangements with the EU, the UK's replacement free trade agreements (FTAs) that seek to maintain the benefits of EU FTAs with various countries around the world, and new FTAs. On the domestic front, the chapter reviews regimes for import duties and for imposing anti-dumping and countervailing duties.

II Key aspects of the new treaty framework for UK trade

i World Trade Organization

The UK government says that it strongly supports a multilateral, rules-based order for international trade law. The UK is an original member of the WTO and has been responsible for its own representation there since it withdrew from the EU on 31 January 2020. It is bound by, and benefits from, the WTO multilateral treaties.³ In respect of plurilateral arrangements, it is party to both the Agreement on Trade in Civil Aircraft (including amendments) and the 2012 Government Procurement Agreement. Finally, it has committed itself to the sectoral arrangements covering information technology and pharmaceutical products.

The UK has based its schedules of commitments under the General Agreement on Tariffs and Trade (GATT) and the General Agreement on Trade in Services on the EU schedules by which it previously had been bound. At the time of writing, the new schedules have still not been certified (that is, they are not yet definitive): negotiations and consultations continue with certain WTO Members, primarily concerning the UK's tariff rate quotas (TRQs) under the GATT schedule.⁴ The outcome of these negotiations and consultations, however, will only have prospective effect.

ii The UK–EU Trade and Cooperation Agreement

The UK–EU Trade and Cooperation Agreement (TCA) is the new governing framework for trade between the UK and the EU and is of particular importance to the UK. In 2022, for example, the EU accounted for 47.7 per cent of UK trade in goods; by comparison, the next most important trading partner, the United States, accounted for 11.2 per cent. The TCA provides for continued tariff-free quota-free trade in goods between the parties, although this depends upon goods that would otherwise be subject to tariffs or quotas meeting the relevant rules of origin and having the associated paperwork. Studies show an increasing preference utilisation rate for British exports to the EU (from between 67 per cent and 73 per cent in the first quarter of 2021 to 82 per cent over the first eight months of 2022).⁵ Preference utilisation rates are higher for EU exports to the UK; this appears to result from greater diversity in UK exports than imports, meaning fewer economies of scale, and associated paperwork. In terms of other trade barriers, despite the UK and the EU having highly aligned regulatory frameworks and a history of close regulatory cooperation, the TCA does little to address duplicative conformity assessment requirements or adverse trade effects of sanitary and phytosanitary (SPS) measures for regulated manufactured and agricultural goods respectively (although it does set up an institutional architecture within which matters of this kind may be discussed).⁶ In any case, however, the full impact of transitioning to the TCA for those importing into the UK from the EU has yet to be felt, as the UK (unlike the EU) has repeatedly delayed the implementation of various conformity assessment and SPS requirements, both to give traders time to prepare and to protect consumers from increased costs at a time of high inflation (full implementation of SPS requirements is expected to cost importers around £1 billion annually). At the time of writing, the UK government expects full implementation of SPS requirements by the end of 2023. For most regulated manufactured products, there will be full implementation of conformity assessment requirements by the end of 2024, although the UK does not currently intend full implementation for all categories of product until 30 June 2030.

Significantly, the TCA operates subject to the Withdrawal Agreement, including its Northern Ireland Protocol (the Protocol), which means that trade involving Northern Ireland is treated differently. Northern Ireland is, in effect, within the EU Single Market and Customs Union for most purposes. UK concern with the operation of the Protocol led to an agreement with the EU on 27 February 2023 (the Windsor Framework), including amendments to the Protocol, and proposed new EU legislation. Among other things, these will: radically reduce paperwork associated with the existing trusted trader scheme; expand opportunities for processing goods from Great Britain in Northern Ireland without those goods being deemed at risk of entry to the EU; introduce a trusted parcel carrier scheme; disapply certain EU agrifood and medicine laws in Northern Ireland; and introduce certain flexibilities for the UK in Northern Ireland in relation to value added tax and excise duty rates.

iii Replacement FTAs

The UK has negotiated 35 FTAs to replace EU FTAs, covering 67 states and territories.⁷ It appears to have discontinued negotiations on replacement FTAs with nine states and territories.⁸ Most of these new FTAs incorporate or restate the provisions of the EU FTAs that they replace, with largely technical modifications, so that businesses may generally continue trading between the UK and the covered states and territories on the same basis as before.⁹ Two types of modifications are particularly worth highlighting.

Tariff rate quotas

Within an FTA context, tariff rate quotas cap the volume of certain goods (normally agricultural and fishery goods) eligible for preferential treatment. These volumes have been renegotiated and are inevitably smaller than the EU volumes, although the precise basis for the renegotiated figures has not been made clear.

Rules of origin

Rules of origin are the criteria under which goods qualify as originating in a party to an FTA and, therefore, for preferential tariff treatment by the other party.

The requirement in replacement FTAs that UK exports originate in the UK to qualify for preferential treatment is much narrower than the requirement under the original EU FTAs that UK exports originated in the EU (including the UK) to receive this treatment.

However, the UK has successfully negotiated extended cumulation with its counterparts. Extended cumulation means that most businesses exporting goods with EU content from the UK to partner countries will not have lost preferential treatment. Because the EU has not negotiated similar extended cumulation with these partner countries – it objects to diagonal cumulation with the UK even under the PEM Convention – in some situations identical goods could receive different treatment depending on whether final processing and export occurred in the UK (in which case they would receive preferential treatment) or the EU (in which case they would not).

The extended cumulation negotiated by the UK generally has the following three elements:

1. Cumulation of materials with the EU. Materials originating in the EU that are incorporated into a UK product will be considered as originating in the UK, provided that UK processing goes beyond insufficient processing (certain simple operations that cannot confer origin). Similarly, materials originating in the EU that are incorporated into a product in the counterparty will be considered as originating in that country, provided that the processing in that country goes beyond insufficient processing.
2. Cumulation of production with the EU. Working or processing of materials in the EU will be considered as having occurred in the UK provided that there is subsequent UK processing that goes beyond insufficient processing. Similarly, working or processing of materials in the EU will be considered as having occurred in the counterparty provided that there is subsequent processing in that country that goes beyond insufficient processing.
3. Continuation of any pre-existing third party cumulation, of which there are two particularly important examples. Where counterparties to the new FTAs are parties to the Regional Convention on pan-Euro-Mediterranean preferential rules of origin (the PEM Convention) cumulation for the most part will be permitted under the same terms as set out in the PEM Convention, even though the UK is not a party to the PEM Convention. The new FTAs for which the counterparties are party to the Cotonou Agreement (the African, Caribbean and Pacific Group of States) contain provisions that will continue to provide for cumulation with certain other (normally developing) states.

Extended cumulation in respect of the EU is limited to three years under the FTAs with Canada, Mexico, the Southern African Customs Union and Mozambique, South Korea and Switzerland. In each case, the parties will review the relevant provisions before they expire.

The UK government states that there are continuing discussions on replacement FTAs with four states.¹⁰ It appears to have discontinued discussions with a further five states.¹¹

iv New FTAs

The UK has an ambitious agenda for extending and upgrading its network of FTAs. New FTAs with Australia and New Zealand have come into force. FTAs with Comoros and Madagascar have been signed but are not yet in force. The UK has concluded negotiations for accession to the Comprehensive and Progressive Trans-Pacific Partnership;¹² this is now awaiting signature. Negotiations are ongoing for FTAs with India and the Gulf Cooperation Council¹³ and for upgrading existing FTAs with Canada, Israel, Mexico and Switzerland. However, negotiations with the United States on an FTA have gone into abeyance. Instead, the UK government has begun negotiating memoranda of understanding with individual states. The first, with Indiana, was announced on 27 May 2022. Others with North Carolina, Oklahoma and South Carolina have followed.

III Key aspects of the domestic legal framework for UK trade

i Import duties

The primary legislation governing import duties is the Taxation (Cross-border Trade) Act 2018 (the Taxation Act). Separate rules apply for imports into Northern Ireland as a result of the Protocol; these are not covered in this article.

Chargeable goods (i.e., all goods other than 'domestic goods') that are imported will normally need to be 'presented' to His Majesty's Revenue and Customs (HMRC) by way of notification within three hours of their arrival.¹⁴ If the chargeable goods have not already been declared for a Customs procedure, this must be done within 90 days of their presentation; a temporary storage declaration must be made in respect of the goods for the period up until they are declared for a Customs procedure.¹⁵ A Customs declaration will be either for the free-circulation procedure¹⁶ (which involves the payment of import duty and converts chargeable goods into domestic goods that may freely circulate within Great Britain) or for a special Customs procedure,¹⁷ of which there are five:

1. the storage procedure allows goods to be stored in premises approved by HMRC or in a free zone without incurring liability to import duty, subject to conditions;¹⁸
2. the transit procedure allows goods to be moved from one place to another within Great Britain without incurring liability to import duty, subject to conditions;¹⁹
3. the inward processing procedure allows goods to undergo qualified processing in Great Britain without incurring liability to import duty, subject to conditions. Qualified processing of goods includes repair, incorporation into other goods, use of certain production accessories and destruction. The procedure may also be used to subject goods to operations designed to ensure compliance with regulatory requirements that must be met before they may be released for free circulation, and for operations designed to preserve them, improve their appearance and marketability, or otherwise prepare them for distribution or resale;²⁰ and
4. the authorised use procedure and the temporary admission procedure provide for reduced (potentially nil) duty rates in respect of prescribed goods, subject to conditions, provided that the goods are used for a prescribed use (authorised use procedure) or for a limited period before being exported or removed to Northern Ireland (temporary admission procedure).²¹

A declaration may, in principle, be made by any person established in the UK who is able to present the goods in question or to secure their presentation (for example, the person who has arranged importation or his or her Customs agent).²² However, authorisation is required for making all these declarations except the free-circulation procedure, the storage procedure (in respect of approved HMRC premises) and the transit procedure.²³

Liability to import duty is formally incurred when HMRC accepts a declaration for the free-circulation procedure, the authorised use procedure or the temporary admission procedure.²⁴ The general rule is that the liability will be incurred by the person in whose name the declaration is made. Certain other persons, such as any other person on whose behalf the declaration has been made or an undisclosed or unauthorised direct Customs agent, can be liable as well; if multiple persons are liable, liability will be joint and several.²⁵

The amount of the import duty in 'a standard case' is set out in a document entitled 'Tariff of the United Kingdom', the current version of which is made effective through by the Customs Tariff (Establishment) (EU Exit) Regulations 2020.²⁶ The new UK Global Tariff is based on the EU Common External Tariff but differs in several important respects;²⁷ its overall effect is to simplify and liberalise UK Most Favoured Nation duties compared with those of the EU:

1. import duties have been eliminated for a wide range of goods, including: (1) goods previously subject to duties of less than 2 per cent (nuisance duties); (2) goods not produced (or produced in minimal quantities) in the UK; (3) certain 'key inputs to production'; and (4) certain 'green' goods. As a result, the number of products that are not charged import duty has increased from 27 per cent to 47 per cent;
2. each remaining ad valorem duty was rounded down to the nearest tariff band. The bands were set at increments of two percentage points from 2 per cent to 20 per cent, five percentage points from 20 per cent to 50 per cent and 10 percentage points from 50 per cent to 70 per cent;
3. specific duties (including specific components of compound duties) are denominated in pounds sterling rather than euros (the conversion rate used was the average exchange rate for the past five years);
4. agricultural duties have been simplified, as follows:
   • most threshold duties (ad valorem duties subject to a minimum or maximum rate of specific duty) have been replaced with a simple ad valorem duty;
   • the number of products subject to seasonal duties has been reduced; and the number of seasonal duties has been reduced for some products that have retained those duties;
   • the Entry Price System and Variable Import Duty (which varied duties for fresh fruit and vegetables and for cereals, respectively, based on price) have been removed; and
   • the Meursing table, which set additional duties for 'composite agrigoods' based on the combination of their percentage mass of each of milk fat, milk protein, starch/glucose and sucrose/isoglucose/invert sugar, has been removed; and
5. an autonomous tariff rata quota of zero per cent for 260,000 tonnes of raw cane sugar has been introduced.

Only minor amendments have been made to the Tariff of the United Kingdom since its introduction.

Import duty may be adjusted from the standard case under certain circumstances:

1. the import is covered by a free trade agreement or a trade preference scheme for eligible developing countries;
2. the UK has introduced tariff rate quotas;
3. duties have been temporarily suspended (there is a scheme for UK firms to apply for such suspensions);
4. anti-dumping or countervailing duties or safeguards or special agricultural safeguards have been imposed; or
5. the UK is acting in response to an international trade dispute.²⁸

His Majesty's Treasury may also provide for general reliefs.²⁹

The UK maintains trade preference schemes for developing countries. The EU-derived Generalised System of Preferences (GSP) has been replaced with the Developing Countries Trading Scheme (DCTS). The DCTS features lower tariffs, more liberal rules of origin and less stringent conditionality than the GSP.

ii Imposition of anti-dumping and countervailing duties

The Trade Act 2021 established the Trade Remedies Authority (TRA), a technocratic body responsible for conducting anti-dumping and countervailing duty investigations as set out under the Taxation Act and subordinate legislation.³⁰ The TRA makes recommendations to the Secretary of State for Business and Trade (the Secretary of State) as to final remedies. In general, the Secretary of State may only reject the recommendations for political (rather than economic) reasons (see below) and must accept or reject recommendations in full. This approach is intended to maximise transparency.

In July 2021, however, the UK government introduced emergency legislation allowing it to determine the outcome of a specific review into transitioned safeguards on steel in contravention of this approach.³¹ (A total of 44 EU trade remedies were adopted by the UK and have been undergoing review by the TRA.) This was followed by provisional and definitive legislation in 2021 and 2022 respectively allowing the UK government to 'call in' reviews into transitioned trade remedies more generally to make determinations in respect of those reviews without reference to TRA recommendations.³²

Furthermore, on 9 March 2023 the Secretary of State announced that the government would introduce legislation during the course of the year to give it a significantly greater role in trade remedies generally (see 'Reform proposals' below).

Initiation of investigations

Applications for the initiation of an investigation may be made by or on behalf of UK industry.³³ To be 'by or on behalf of UK industry', the application must meet two criteria: it must be supported by UK producers whose collective output is at least 25 per cent of the UK production of the like goods and it must not be opposed by UK producers with collective output of 25 per cent or greater.³⁴ This is marginally stricter than the rules set out in the WTO Anti-Dumping Agreement (ADA) and Subsidies and Countervailing Measures Agreement (SCMA), under both of which an investigation may proceed with domestic opposition greater than 25 per cent of domestic production provided that domestic opposition does not exceed the domestic support for the investigation.³⁵ In addition, UK industry must have at least 1 per cent UK market share in the relevant product. This restriction is an unusual feature of the UK regime, although there is provision for the TRA to waive it or apply a higher threshold if it considers it appropriate.³⁶

The TRA must, and can only, initiate a dumping or subsidisation investigation if it is satisfied that the application contains sufficient evidence of dumping or subsidisation causing injury to UK industry and it appears from the evidence that the following criteria³⁷ are met:

1. the volume of dumped or subsidised goods (actual or potential) is more than 'negligible':
   • the volume of dumped goods will be negligible when the exporting country or territory accounts for less than 3 per cent of imports of the like goods into the UK or 7 per cent of imports of the like goods when considered alongside dumped like goods from other exporting countries or territories. These are the same as the ADA thresholds;³⁸ and
   • the volume of subsidised goods will be considered negligible on the same basis as for dumped goods except that higher thresholds of 4 per cent and 9 per cent will apply in respect of developing countries and territories.³⁹ Specific thresholds for determining a negligible volume of subsidised goods are not a requirement under the SCMA and should provide greater legal certainty to those involved in the UK regime;
2. the injury is more than negligible; and
3. the dumping margin or subsidy amount is more than 'minimal':
   • the dumping margin will be minimal if it is less than 2 per cent of the export price. This is the same as the ADA threshold;⁴⁰ and
   • the subsidy amount will be minimal if it is less than 1 per cent of the value, or 2 per cent in respect of developing countries and territories. The SCMA provides for a minimal level of 1 per cent for both developed and developing countries and territories.⁴¹

However, a subsidisation investigation may not commence before the TRA has invited the relevant foreign countries or territories to participate in consultations.⁴²

Other actions the TRA must take when initiating an investigation include publishing notice of its decision to commence the investigation, notifying the Secretary of State and interested parties, and notifying the relevant governments (in the case of subsidisation investigations the TRA must, as noted above, invite the governments to consultations).⁴³ The full text of the application must be sent to the relevant government and, if practicable, the overseas exporters known to the TRA.⁴⁴

Conduct of investigations

The TRA must set a registration period during which interested parties and any other persons may make themselves known to the TRA. It must issue questionnaires, to the extent practicable, to all interested parties and those who have made themselves known to the TRA for the purpose of participating in an investigation, as well as to all UK producers, importers and overseas exporters (or associations thereof) identified in the UK industry application. In certain circumstances, it can issue questionnaires to a sample of interested parties. The TRA also has the discretion to issue questionnaires to those who make themselves known after the end of the registration period but before the publication of the statement of essential facts (see below). It may undertake verification visits within the UK and abroad and facilitation visits in the UK before the publication of the statement of essential facts, and hold hearings either on its own motion or at the request of any interested party.⁴⁵

One important feature of UK dumping investigations is the way that the concept of a 'particular market situation' has been developed for the purposes of determining normal value. The TRA will not be permitted to use the 'comparable price' (the price of like goods destined for consumption in the exporting country or territory) if the particular market situation does not permit a proper comparison with the export price. The regulations state that such a situation includes when 'prices are artificially low', 'there is significant barter trade' or 'prices reflect non-commercial factors'.⁴⁶ This suggests that the normal price for products exported from countries and territories characterised by extensive industrial intervention by the state, most prominently (but by no means exclusively) China, will often be ascertained on the basis of a more burdensome alternative methodology.

During its investigation, the TRA may make a provisional determination that dumped or subsidised goods have caused, or are causing, injury to UK industry in those goods, provided that it is satisfied that interested parties have had adequate opportunity to provide information.⁴⁷ The TRA must conclude its investigation with a final determination as to whether dumped or subsidised goods have caused, or are causing, injury to UK industry in those goods. Before doing so, however, it must publish a 'statement of essential facts' to allow interested parties to understand the basis for its intended decision and specify a period within which those who have supplied information may comment.⁴⁸

TRA recommendations and the role of the Secretary of State

Following a definitive or provisional determination, and provided that the economic interest test has been met (see below), the TRA must normally make a recommendation to the Secretary of State as to remedies. Recommended definitive remedies take the form of additional import duty calculated on the 'lesser duty' basis – the lesser of the margin of dumping or amount of subsidy and the amount the TRA is satisfied would be adequate to remove the injury from UK industry – although, under certain circumstances, the TRA can recommend acceptance of undertakings from exporters or the foreign government in question as an alternative. Recommended provisional remedies take the form of guarantees from importers of the goods in respect of possible additional import duty.⁴⁹

The economic interest test has been met if the TRA is satisfied that the application of the remedy will be in the economic interest of the UK. Factors that the TRA must consider include:

1. the injury caused by the dumped or subsidised goods;
2. the economic significance of the affected industries and consumers in the UK;
3. the likely impact on affected industries and consumers in the UK;
4. the likely impact on particular geographical areas and groups in the UK; and
5. the likely consequences for the competitive environment and the structure of markets for goods in the UK.

There is a statutory presumption that the economic interest test is met.⁵⁰

Once the TRA has made a recommendation to impose definitive or provisional remedies, the Secretary of State must decide whether to accept or reject it. He or she may only reject it if satisfied that it is not in the public interest so to do. In considering whether it is in the public interest, the Secretary of State must accept the TRA's determination that the remedy will be in the economic interest of the UK, unless he or she is satisfied that the determination is not one that the TRA could reasonably have made. The reasons for any rejection must be set out in a statement laid before the House of Commons.⁵¹

Challenging decisions

Most determinations and recommendations made by the TRA can be challenged by any interested party within one month of the day after the relevant notice was published or comes into effect or, for decisions that are not published in a notice, the day after the applicant was notified about the decision. The decision will be reconsidered on the merits by the TRA. The TRA may request further information from any person, refer disputes on points of law to the Upper Tribunal (Tax and Chancery Chamber) (the Upper Tribunal) and conduct a hearing.⁵²

Most reconsidered decisions may be appealed to the Upper Tribunal by any interested party, as may determinations made by the Secretary of State. The Upper Tribunal must apply the same principles that a court would apply in a judicial review.⁵³

Reform proposals

The Secretary of State announced on 9 March 2023 that the UK government would introduce legislation over the course of the year to alter several aspects of the trade remedies regime. In brief, the proposed reforms are: to require the TRA to notify the government before initiating investigations; to let the government request reassessment by the TRA of its recommendations; to let the government apply an alternative remedy to that recommended by the TRA; to allow the TRA to provide alternative options for trade remedies in its recommendations; to make TRA assessments as to economic interest advisory rather than mandatory; and to let the government revoke trade remedies without reference to the TRA.