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Preferential Rates

One of the practical upsides of post-Brexit trade policy is that the UK has negotiated its own network of free trade agreements. If you're importing goods from a country with which the UK has an FTA, and those goods meet the relevant rules of origin, you may be able to pay a reduced — or even zero — rate of customs duty. For high-volume importers, this can make a substantial difference.

But preferential rates don't apply automatically. You need to understand how they work, prove the origin of your goods, and use the correct documentation. This guide explains the key concepts.

The UK's Trade Agreement Network

The UK has trade agreements with over 70 countries. The most significant for most UK businesses are:

• UK–EU Trade and Cooperation Agreement (TCA): Zero tariffs on goods that meet the relevant rules of origin. The EU remains the UK's largest trading partner, so this agreement is the most widely used.
• CPTPP: The Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which the UK joined in 2023. Members include Japan, Canada, Australia, New Zealand, Mexico, Singapore, Vietnam, Chile, Peru, Brunei, and Malaysia.
• UK–Japan CEPA: A comprehensive agreement providing preferential rates on most goods.
• UK–Australia FTA: Came into force in 2023. Eliminates tariffs on most goods immediately or over time.
• UK–New Zealand FTA: Similar structure to the Australia agreement.
• UK–Canada CTPA: A rolled-over version of the EU–Canada CETA, under ongoing renegotiation for an enhanced agreement.

The UK has also rolled over many of the EU's legacy agreements with countries such as South Korea, Israel, Turkey (for goods), and a large number of developing nations under the UK's DCTS (Developing Countries Trading Scheme).

What Preferential Rates Mean in Practice

A preferential rate is a reduced tariff rate available under a specific trade agreement, as opposed to the standard Most Favoured Nation (MFN) rate that applies to all other trading partners under the UK Global Tariff. In many cases the preferential rate is zero — meaning no customs duty at all.

However, the preferential rate only applies if the goods meet the rules of origin set out in that specific agreement. Buying goods from an Australian supplier does not automatically mean they qualify for the UK–Australia FTA rate. The goods must actually originate in Australia according to the agreement's definition.

Rules of Origin Explained

Rules of origin determine the economic nationality of goods — essentially, where they "come from" for trade purposes. This matters because without origin rules, goods from a non-FTA country could simply be transhipped through an FTA country to avoid tariffs.

There are two broad approaches to establishing origin:

Wholly obtained: Goods that are entirely produced or grown in a single country — for example, agricultural produce, minerals, or live animals. These are straightforward: a strawberry grown in Australia is of Australian origin.

Substantial transformation: Most manufactured goods are made using materials from multiple countries. To qualify as originating in a particular country, they must undergo a sufficient degree of processing there. Trade agreements define "sufficient" in different ways — common tests include a change in tariff classification, a minimum percentage of value added in the country, or a specific manufacturing process requirement.

For example, under the UK–EU TCA, clothing generally needs to be made from yarn that was spun in the UK or EU — simply assembling imported fabric in the UK is not enough to qualify as UK-origin for TCA purposes.

Claiming Preferential Rates

To benefit from a preferential rate as an importer, you need proof that the goods meet the relevant rules of origin. The exact mechanism varies by agreement, but the main options are:

• Statement on origin (supplier declaration): A declaration made by the exporter on the commercial invoice or a separate document, using the specific wording required by the agreement. Under the TCA, this is the standard approach.
• EUR1 Movement Certificate: A specific document used for UK–EU trade and some other UK agreements, certified by the exporter and in some cases endorsed by customs.
• REX (Registered Exporter) system: Used for EU trade and some DCTS claims. Exporters above certain value thresholds must register as a REX to self-certify origin.
• Certificate of Origin: Some agreements require a formal certificate issued by an authorised body rather than a self-certification.

Preferential vs Non-Preferential Origin

It's worth understanding that there are two different concepts of origin in trade: preferential and non-preferential. Preferential origin is used to claim reduced duty rates under an FTA. Non-preferential origin is used for other purposes — such as trade statistics, anti-dumping measures, and country-of-origin labelling requirements. The rules for determining each can differ, and a product may have different origins for different purposes.

Not all goods will qualify for preference even if they come from an FTA country. Complex supply chains, insufficient local processing, or lack of documentation can all mean that the standard MFN rate applies. If you're regularly importing from FTA countries, it's worth auditing your supply chain to understand what actually qualifies.