• UK levies import duties of 0.11% of GDP – lowest of 18 economies studied
• Underlines importance of the single market as EU referendum looms
British consumers benefit from one of the world’s smallest import duty burdens, thanks to a low tax take from import duties in proportion to the size of the UK economy, according to a new study by UHY Hacker Young, the national accountancy group.
It found that the UK charges import taxes equating to just 0.11% of its GDP – the lowest of any country in the study. This compares to a global average of 0.47%, thanks largely to high levels of trade with other EU member states.
On average, the major EU economies surveyed raised proportionally the least in customs duties, at just 0.13% of their GDP.
Countries which are part of the North American Free Trade Agreement (NAFTA): the US, Canada and Mexico, levy, on average, a sum equivalent to 0.2% of their GDP in customs revenues.
UHY Hacker Young warns that the benefits of the single market should not be taken for granted as the EU faces major potential challenges, given the heightened risk of Britain leaving the EU following its planned referendum on EU membership.
Says Matthew Hodgson , Partner at UHY Hacker Young:
“Consumers in the UK are getting a good deal as a result of the low import duty burden on goods from abroad, and businesses of course also benefit from the open competition that comes from being able to export freely across the whole of the EU.
“While the UK currently has one of the lowest customs duties burdens in the world, there’s a risk that this could shoot up if it leaves the EU following its forthcoming referendum, and relationships deteriorate. A so-called Brexit could jeopardise Britain’s continued participation both in the EU free trade zone and in trade agreements agreed by the EU with third party countries.
“So much would depend on what the UK could achieve in establishing a whole new raft of bi-lateral trade agreements, should it vote to leave the EU.”
He adds, “There need to be assurances that plans are in place to ensure that the possible departure of the UK from the EU does not risk the introduction of new trade barriers in Europe even temporarily.”
UHY Hacker Young adds that the benefits to EU consumers of a low customs duties burden, and its positive effect on the competitiveness of EU businesses, could be enhanced further if the EU makes progress in negotiating more effective trade agreements with non-EU trading partners.
Adds Matthew Hodgson: “Multilateral organisations like the Association of South East Asian Nations and Mercosur in Latin America are becoming increasingly important. It is vital that the EU makes progress in its negotiations on trade agreements if the UK’s exports to these growing markets are not to be left at a significant disadvantage.”
UHY Hacker Young notes that while the amount levied in duties is a useful measure of the impact of a country’s trade barriers, other factors can also have a bearing. For example, some countries may also impose additional taxes which disproportionately affect imports.
In China, in addition to higher import duty rates on foreign luxury goods, there is a consumption tax on goods such as alcohol, tobacco, cars and cosmetics; categories in which the most popular brands are often foreign.
In Brazil, as well as numerous import duties, some of the taxes affecting imports are calculated based on the value of the goods themselves, plus the other taxes levied. This makes for a very complex system and high costs of import, if not planned well.
Conversely, many other economies are creating more Free Trade Agreements (FTAs) or customs unions with a more diverse range of countries in order to increase competitiveness. Many are benefitting from spreading their net far wider than purely their immediate geographical neighbours.
For example, Mexico has a network of ten FTAs with 45 countries, as well as 30 investment agreements and nine other limited scope agreements. The US has 14 FTAs with countries including Korea, Singapore and Morocco. Australia has just signed an FTA with China, one of its key trading partners, which should help it to reduce the import duty costs borne by consumers in line with other developed economies.
**2012 tax year – the most recent data available
***tax year to 30 June 2013 – the most recent data available