By Govini Perera
Last year, the government of the United Kingdom (UK) announced that it would be launching the Developing Countries Trading Scheme (DCTS) in early 2023 to replace its General Scheme of Preferences (GSP). The GSP was a system introduced in 2021 whereby the UK agreed to reduce or remove import tariffs from eligible developing countries. While there was nothing specifically wrong with this system, to stay in line with its new International Development Strategy, the DCTS took a step further in building mutually beneficial relationships with countries to help advance their economies and strengthen global supply chains. In March 2023, the DCTS was launched in Sri Lanka in partnership with the country’s Department of Commerce (DOC) and the UK Department of International Trade. This blog will detail what the DCTS is and how it can help Sri Lanka.
But First – What is the GSP?
Considering that the 65 nations of the DCTS are the same countries the UK traded under the GSP system, it is helpful to briefly understand the framework the UK used in partnering with countries and setting trade preferences. The GSP can be categorised into three frameworks:
- Least Developed Country (LDC) Framework – All countries that imported goods to the UK and were categorised as an LDC by the United Nations were free of duty charges and quotas on everything except for arms and ammunition.
- General Framework – All countries the World Bank classified as low-income and lower-middle-income were given reduced rates of import duty for specific goods. To know what goods the low tariffs applied for, click here.
- Enhanced Framework – Included economically vulnerable countries classified by the World Bank as low-income or lower-middle-income and had little presence or integration within the international trading system. An important criterion was for the countries to implement approximately 27 conventions related to human and labour rights, the environment and good governance. Countries in this category were completely free of import duty charges on certain goods specified in the GSP.
How Did DCTS Come into the Picture?
In preparation for developing a scheme in line with its latest international development goals, the UK government consulted businesses, the civil society, partner nations and the public. This was done by using a questionnaire. The DCTS consultation questionnaire had 4 sections that covered the rules of origin, tariffs, good graduation, and conditions. It also allowed people to weigh in on whether the GSP tariff rates should be retained or changed in some way. This questionnaire had the Statement of Direction and an information pack to allow people to be fully informed on the government’s proposals and a lot of the wider details of the proposed scheme.
The proposed DCTS received an overall positive response allowing the government to implement it. Similar to the GSP, the finalised DCTS is a preference scheme that provides the same tariff framework referred to above. However, they have been renamed to DCTS Comprehensive Preferences, DCTS Enhanced Preferences and DCTS Standard Preference, respectively. In comparing the two, the DCTS is far more generous than the original GSP for several reasons. For one thing, it broadened the number of low-tariff or tariff-free products by adding 156 items. These include pet food ingredients, animal feed, olive oil, tomatoes and more.
Moreover, the DCTS simplifies seasonal and nuisance tariffs and offers a flexible approach for countries to be regarded under the DCTS Enhanced Preferences framework. Instead of having to meet all the requirements initially stipulated to be part of this category under the GSP, countries would gain eligibility purely due to their economic vulnerability. Hence, countries such as Algeria, Congo, Cook Islands, Micronesia, Nigeria, Niue, Syria, and Tajikistan become immediately eligible. This, however, does not mean that countries that do not comply with human and labour rights, the environment and good governance will be regarded under the framework. In fact, it is the exact opposite. The DCTS allows the suspension of a country on the same grounds, although it extends its grounds for suspension based on corruption and climate change violations.
The underlying goal of DCTS is to help developing countries by harnessing the power of trade. Hence, further to setting lower tariffs, the DCTS introduces simpler rules of origin, allowing developing countries to diversify their exports and grow their economies. While all this helps the UK strengthen its own trade relations with multiple countries, the DCTS directly benefits British households, who will now have a larger choice of consumer goods offered at competitive rates. As the scheme has been designed to simplify trade rules and help actors easily understand the process, partner countries and businesses are able to gain the most out of it without hindrance. Thus, the DCTS is also a way for the UK to showcase itself as a driver of international trade that offers developing countries the opportunity to enter the global trade arena and access the wider range of benefits nations enjoy by being part of the free market.
How Does DCTS Help Sri Lanka?
Sri Lanka and the UK have always had a steady trade relationship. By the end of 2022, the total trade in goods and services (exports plus imports) between the UK and Sri Lanka was £1.3 billion. According to the DOC, the UK was also the second-largest single export market of Sri Lanka in 2022, whilst the UK was the 21st largest supplier to Sri Lanka in terms of printed books and paperboards, turbo-jets and turbo-propellers, pharmaceuticals etc.
An interesting point to consider is Sri Lanka’s position in other preferential trade schemes. For instance, the Generalised Scheme of Preferences Plus (GSP+) scheme offers access to the EU market at low tariffs, especially within the apparel sector. Recently, however, Sri Lanka’s position within the system started to be questioned when the country gained the international spotlight for various human rights violations. This has resulted in the EU constantly warning the government that the country would no longer be able to benefit from the system if action was not taken. Sri Lanka previously lost GSP+ in 2010 due to similar reasoning and only regained its beneficiary status in 2016. While Sri Lanka’s place within the GSP+ scheme, therefore, comes into question once again, the introduction of the DCTS and its benefits offered to Sri Lanka is of significance, given the economic situation. In terms of the country’s weak track record in protecting human rights and its relevance to the DCTS, there is ambiguity on whether the lack of measures taken to protect them would hinder its participation in the new scheme as per its eligibility requirements.
At least for the time being, however, Sri Lanka’s position within the DCTS is secured as a beneficiary of the DCTS Enhanced Preferences category. Accordingly, Sri Lanka is eligible for zero tariffs for over 92% of products, including milled grains, dairy and approximately 7000 other eligible product lines (at HS 6-digit level). It will also simplify some seasonal tariffs, allowing Sri Lanka to benefit from additional and simpler access to the UK’s import market.
In the launch program held in March, a briefing session was held to help existing and potential UK exporters registered with the DOC and other staff to understand how the new scheme will work. It is also worth noting that the DOC established a desk for DCTS inquiries and also introduced a QR Code where the public can easily access more information on the scheme.
Is DCTS Good News, Then?
The newly launched DCTS benefits Least Developed, Low Income, and Low Middle-Income countries in terms of easily accessing UK trade markets. The significant reduction of trade barriers, the simplified Rules of Origin and Product Specific Rules, and other related measures are set to help Sri Lanka and 64 other nations to improve their economy and increase their trade presence in the global sphere. As beneficial as it is for the beneficiary countries, UK citizens can access a wide variety of every day goods for lower costs as well. The DCTS moreover offers Sri Lanka a significant advantage, as its position in the popular GSP+ scheme was already being questioned and reviewed, leading to the possibility of not accessing preferential trading markets with developed nations. Thus, the DCTS offers a viable solution for countries such as Sri Lanka to improve its economy.