Introduction
When looking to trade internationally, one of the initial important factors to look into are the current and looming Preferential Trade Agreements between the UK and other countries around the world. The following factors are worth considering.
Competitive advantage
The preferential tariff rates that many trade agreements include can provide a competitive advantage by reducing exporting costs, making products more competitive to open up markets and increase market share, or to simply make a higher margin.
Perhaps it goes without saying, but it’s important to identify which countries are covered by each trade agreement, particularly as some countries can be covered by bilateral agreements on top of wider bloc arrangements. One of the two may offer lower tariff rates than the other. Some countries will also offer developing countries unilateral preferential treatment, such as the Generalised System of Preferences (GSP), meaning many goods from eligible countries can be imported at a reduced or zero rate of duty. So, it’s important to understand the markets and the different agreements in place and how that might affect your business.
Time
Understanding trade agreements can also help establish the best time to move into exporting. These arrangements often have phased-in timescales. They may reduce tariffs from the day an agreement is in effect, or gradually in the years after. If you find out there might be more advantageous terms taking effect soon, it might make sense to wait to export until the arrangements are active.
Efficient Customs Procedures
Customs procedures can be very time-consuming, but trade agreements aim to help to reduce the time required through simplification, with less paperwork on arrival at the final destination. The less cross-border friction, the less time it takes and also the less costs.
Going through the process of gaining Authorised Economic Operator (AEO) status would also help towards reducing cross-border friction, given the standards such parties are expected to work to, which is rewarded with a higher level of trust from many customs authorities.
Rules-of-Origin
Fundamental to trade agreements is the concept of “rules of origin”. These are the rules used to determine a product’s economic nationality. To benefit from the lower tariffs offered within many Preferential Trade Agreements, exporters will need to demonstrate in which country a product was sourced or made. Most of the inputs must come from the country from which you’re exporting, however, according to the terms of the agreements, it may be possible to have inputs from countries that are also part of that trade agreement. Please also be aware that specific conditions on rules of origin, also include tolerance and cumulation. Under the CPTPP, for instance, a product being exported from the UK to another CPTPP member country that contains computer chips from Singapore may still be eligible for a preferential tariff. It’s important for businesses to know where items are coming from in their supply chain, including tier two, three and four suppliers.
Don’t just think about what you’re exporting but consider the full supply chain of inputs. This can have a huge impact on preferential tariffs. In some cases, sourcing from a particular country can mean a product that would otherwise have been ineligible will meet the requirements. Or, a part that might be more expensive, but it means your export product qualified for preference, it may mean your import tariff is significantly less.
Summary
The correct interpretation of trade agreements, including understanding the origin requirements, is hugely beneficial in order to save costs and potentially gain a greater competitive situation. It is however a complex and ever-changing situations, so please, get in touch with us to discuss your situation at the earliest opportunity, to help you select your markets wisely.