The UK Developing Countries Trading Scheme (DCTS) was designed to offer favourable trading terms to certain developing nations when importing into the UK.
The following guide to the DCTS looks at what this scheme offers, in particular when compared with the UK’s previous Generalised Scheme of Preferences, as well as who can use the scheme and its rules.
What is the Developing Countries Trading Scheme (DCTS)?
The Developing Countries Trading Scheme (DCTS) reduces or removes rates of duty, or tariffs, on imports from eligible developing countries into the UK.was introduced to demonstrate the UK’s commitment to building long-term and mutually beneficial relationships with emerging economies. The DCTS replaced the UK Generalised Scheme of Preferences (GSP) in June 2023.
The UK Government introduced the DCTS to improve access to the UK market for multiple lower income countries, in light of its commitment to improving preferences for these countries after Brexit and the UK’s position as an independent trading nation.
The scheme aims to support sustainable growth in eligible developing countries through reduced tariffs and simpler rules of origin requirements. By offering lower tariffs and less red tape for exporting to the UK, the scheme will help developing countries to diversify their exports and grow their economies, helping the world’s poorest nations to export goods to the UK and play a more active part in fast-growing global supply chains. Equally, this should also lower costs for UK businesses, and lower prices and increase choices for UK consumers across a range of everyday products. By facilitating free and fair trade with developing countries, it is also hoped that the DCTS will strengthen supply chains, and create stronger trade and investment partners for the future.
The scheme builds on a wider programme from the UK to drive a “free trade pro-growth agenda across the globe”. This includes a new Platinum Partnerships initiative, designed to increase trade between the UK and certain lower and middle-income Commonwealth countries.
Who can use the Developing Countries Trading Scheme (DCTS)?
The Developing Countries Trading Scheme (DCTS) applies to 65 countries across Africa, Asia, Oceania and the Americas. This includes 47 countries in the GSP Least Developed Countries (LDC) Framework, also known as the LDC Framework, as well as 18 additional countries or territories that have been classified by the World Bank as ‘low income countries’ (LIC) and lower middle-income countries (LMIC).
The DCTS does not extend to countries and territories deemed by the World Bank as ‘upper-middle income’ for three consecutive years, or to LICs and LMICs who have a free trade agreement (FTA) with the UK.
The DCTS provides duty-free and quota-free trade to LDCs on everything except arms and ammunition, and duty/quota-free trade on 85% of eligible goods to most LICs and LMICs, bringing more countries within scope of the most generous tariff reductions when compared with the UK’s GSP.
Powers to suspend a country from the scheme due to employment and human rights violations have been retained, with broader powers including anti-corruption, climate change and environment conventions violations.
As with the UK’s previous GSP, the DCTS has three country preference tiers, with countries allocated depending on which economic criteria they meet.
| Category | Comprehensive Preferences | Enhanced Preferences | Standard Preferences |
|---|---|---|---|
| Country classification | Least Developed Countries (LDCs) | Low Income Countries (LICs) and Lower-Middle Income Countries (LMICs) that are not LDCs | Remaining LICsand LMICs that do not satisfy economic vulnerability criteria |
| Criteria for determining country classification | The United Nations (UN) classifies LDCs | The World Bank classifies income levels | Economic vulnerability is assessed by export diversification |
| Number of countries covered | 47 | 16 | 2 |
What are the rules under the Developing Countries Trading Scheme (DCTS)?
Published 16 August 2022, the Developing Countries Trading Scheme (DCTS) policy paper sets out the government’s approach under the new scheme. This includes detail on the public consultation responses from individuals, businesses, non-governmental organisations and public sector bodies, and how these have informed the policy.
The report is organised into four sections: rules of origin, tariffs, goods graduation and conditions. Each section details how the consultation insights helped inform the policy. For anyone looking to further understand how the new trade scheme will work, this report represents the ideal starting point. Below we set out a summary of each of the four sections, from rules of origin to the scheme conditions.
Rules of origin
One of the primary aims behind the Developing Countries Trading Scheme (DCTS) is to simplify complex trade rules, in particular the rules of origin. These rules are used to determine where goods are from, providing the criteria for testing whether goods are able to be considered to have been produced within a particular country. They dictate what proportion of a product must be made in its country of origin and whether goods qualify for any reduction in tariffs, availability of preferential trade arrangements or application of trade sanctions.
The DCTS offers improvements for LDCs over the previous system through the simplification of the rules of origin. These include liberalising and relaxing product specific rules (PSRs). PSRs are the list of rules a product must meet to be treated as originating from the country that claims preferential tariff rates, with different sets of rules for different types of products. The tailored PSRs are designed to minimise overly restrictive requirements and to make the rules easier for businesses to understand and use.
Full details of PSRs can be found in the PSRs schedule for LDCS at GOV. UK, although the main provisions of the DCTS can be summarised as follows:
- Half of all chapters will allow 75% non-originating content in the PSRs at the highest HS2 level. This new threshold recognises the limitations faced by LDCs when participating in global supply chains, including the fact that low labour and other costs can make it hard for LDC products to meet higher non-originating thresholds.
- Almost all PSRs allow for alternative rules, helping businesses to meet UK requirements if one of the rules is difficult to either meet or measure.
- Simplification of most chapters into a single set of rules that apply to the whole chapter, rather than different rules within one chapter, meaning there are fewer exceptions, rules and variations depending on the type of product., to help businesses meet the rules of origin required to qualify for preferential tariffs.
Improvements for LDCs in the DCTS were also made through extending cumulation. This means that material used from another country can be deemed as ‘originating’ if used in the production of a product, provided the final product has been processed beyond minimal levels, whereby cumulation can make it more straighfoward for countries to work to the non-originating content limits in certain PSRs.
Under the UK’s GSP, only 6 out of 47 LDCs were permitted to automatically take advantage of regional cumulation, although applications for cumulation with specific countries could be made on an individual basis. Under the DCTS, extended cumulation is allowed for LDCs with DCTS countries and Economic Partner Agreement (EPA) countries on materials that are duty/quota-free when traded between the cumulating partner and the UK.
The extended cumulation rules have substantially increased the quantity of nations from which materials are allowed to be deemed as originating, where LDCs are able to participate in supply chains involving raw materials from around 95 countries while still being allowed to export final products to the UK duty-free. These changes are especially beneficial to African LDCs. For example, an Ethiopian exporter will be allowed to use materials from Kenya (an EPA country), treating those materials as originating in Ethiopia provided they are duty-free in the EPA between the UK and Kenya, and they meet the EPA PSRs. However, LDCs looking to take advantage of the extended cumulation provisions must have administrative arrangements in place to meet verification of proof of origin and customs cooperation requirements.
Tariffs
Tariffs, also referred to as import duties or customs duties, are taxes applied to UK imports. Importers are responsible for paying tariffs, but it is allowable to pass these costs on to consumers.
Importers usually pay UK Global Tariff rates when importing into the UK, unless relevant preferential tariff rates apply. Under the DCTS, for example, these include:
- Lowered or removed tariffs on an additional 156 products under DCTS Enhanced Preferences (as renamed under the DCTS). The result of this change is that 85% or more eligible lines will benefit from zero tariffs, covering trade worth in the region of £2 billion.
- Allowing all economically vulnerable countries to access the DCTS Enhanced Preferences: by removing the requirement for developing countries to ratify and effectively implement certain international conventions, resulting in 8 countries moving to the more generous tier. By allowing all economically vulnerable countries to access DCTS Enhanced Preferences, approximately £23 million of additional trade will immediately benefit from zero tariffs. By 2030, up to £2.6 billion of trade could benefit in this way, as a further 6 LDCs are expected to graduate to Enhanced Preference tariffs.
- Simplifying seasonal tariffs and nuisance tariffs: seasonal tariffs have different tariff rates applicable according to the time of year, where the DCTS maintains all but 4 of the seasonal tariffs. Further, all 33 nuisance tariffs are set to 0% for DCTS Standard Preferences.
Goods graduation
Goods graduation refers to the suspension of preferential rates of UK customs duty on certain imports. As these imports are deemed to be highly competitive, they no longer need preferences to compete in the UK market, where graduation means that imports of certain products originating in a given country lose preferences, while imports of other products from that country retain preferential treatment. This means preferences are removed from products that no longer need them, in this way providing greater opportunity for those countries in greater need of preferential access to UK markets.
The new scheme is graduating goods for DCTS Standard Preferences countries (as renamed under the DCTS), although only India and Indonesia are subject to goods graduation. However, by making graduation more objective, and by introducing a reduced 6% threshold to assess the proportion of total UK imports, this will ensure that a similar volume of imports graduate for both countries, while retaining the 3-year assessment period.
Scheme conditions
The GSP has conditions which, if not met, allow for either the suspension or variation of preferences from any beneficiary. The conditions on which suspension or variation decisions are based include serious or systematic violations of human rights and labour rights contained in certain international conventions. There are also conditions that cover World Trade Organisation (WTO) determinations, export of prison labour goods, illegal narcotics customs controls and requirements of regional fisheries management organisations.
The DCTS will preserve the power to suspend or vary a country’s preferences for serious or systematic violations of human rights and labour rights based on international conventions. The government is also expanding the list of international conventions that form the basis for suspension, with the new list to include conventions on anti-corruption, climate change and the environment. However, the new DCTS will not include suspensive conditions specifically related to WTO determinations, export of prison labour goods, illegal narcotics customs controls and requirements of regional fisheries management organisations.
Author
Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.
Gill is a Multiple Business Owner and the Managing Director of Prof Services - a Marketing & Content Agency for the Professional Services Sector.
