Nigeria is set to benefit from a new trading scheme with the United Kingdom. This was revealed on Tuesday, 16 August 2022, when the UK’s Secretary for International Trade, Anne-Marie Trevelyan, disclosed that Nigeria will be a beneficiary of a new trading agreement with the UK that will cut price tariffs on many products that Nigerian businesses export to the country.
This trading benefit is courtesy of Nigeria’s membership of the UK’s “Developing Countries Trading Scheme”. It must be noted that former UK Prime Minister, Theresa May, had hinted at the benefits of an impending UK-Nigeria trade partnership when she visited President Muhammadu Buhari in August 2018.
Nigeria is the UK’s second biggest trade partner in Africa, so any trade agreement between both countries must necessarily be important. Globally, the UK’s biggest trading partners are member countries of the European Union. However, since the UK left the supranational political and economic union of the EU in January 2020, the country has been shopping for trade partners that will fill the huge void left by its trading relationship with the EU.
In 2020 alone, the UK exported goods worth £251 billion to the EU. However, the UK imported goods worth £301 billion from the EU within the same period. The value of UK-EU trading relations has been declining steadily over time. From 2006 to 2020, UK exports to the EU fell from 56% to 42% while UK imports from the EU fell from 58% in 2002 to 50% in 2020.
Given that the UK has stopped being economically and politically tied with the EU, a close ally it conducts more than half of all its trade with, the country must find new trade partners as a matter of utmost exigency. This was why Theresa May, then UK Prime Minister, visited South Africa, Kenya, and Nigeria in 2018 as part of her Africa stopover on her global tour of propagating UK trade ideals with the world. At the Nigeria meeting in 2018, the first-ever UK-Nigeria security and defense pact was signed, after which Theresa May promised that the UK will now “play an even greater role in financing the fastest growing economies in Africa and the world”.
True to its word, the UK has now announced the launch of the “Developing Countries Trading Scheme (DCTS)”. The DCTS will apply to 65 countries, including Nigeria, and the goal of the scheme is “to harness the power of trade to help developing countries grow and prosper”. The DCTS will offer developing countries lower tariffs and simpler rules of origin requirements for exporting goods to the UK.
For Nigeria, these are the benefits of the UK’s new trade scheme:
- Lower and Zero Tariffs:
A tariff is a tax imposed by a government on goods and services imported from other countries. The purpose of a tariff is to increase the price of imported goods and make them less competitive, at least in contrast to domestically produced goods.
Currently, Nigerian businesses pay up to £500,000 in tariffs to export goods to the UK. However, these tariffs may soon be a thing of the past with the launch of the DCTS. It is projected that starting from 2023, 99% of goods to be exported from Nigeria will be eligible for duty-free access to the UK. This means that the exporters of goods and services from Nigeria to the UK will only pay low or zero tariffs on goods meant for export to the UK.
The eradication of tariffs cuts both ways, too. It is estimated that British businesses will benefit up to £750 million per year as a result of reduced import costs, leading to a plethora of more choices and reduced cost of living for many UK residents.
The variety of goods that will benefit from this low and zero-tariff policy includes clothes, shoes, foods, olive oil, tomatoes, and many other goods and services that are not widely produced in the UK.
- Simpler Rules of Origin Requirements:
In international trade, Rules of Origin (ROOs) are the criteria laid down by a country to determine where imported goods are from. Also known as the guidelines to determine the “economic nationality” of a product, Rules of Origin are important because they help to determine how much import tariff and import quota a country places on an imported product based on where the product originates.
Under the DCTS, the UK has promised that the Rules of Origin will be simpler. According to the UK, this move will help the world’s poorest countries to export to the UK and “play a more active part in fast-growing supply chains”. The Least Developing Countries (LDCs) make up 13% of the world’s population and goods from these countries to the UK are all duty-free and quota-free, except for arms and ammunition. By simplifying its Rules of Origin requirements, many products from LDCs can be properly categorized and hence, enjoy duty-free, quota-free, and tariff-free access to the UK.
The UK notes that it will simplify its Rules of Origin requirements by doing two major things: simplifying and liberalizing Product Specific Rules (PSRs) and extending ‘cumulation’.
1. PSRs – PSRs are the list of specific rules that a product needs to meet to be considered as originating from a country that enjoys preferential tariff rates with the UK.
2. ‘Cumulation’ on the other hand, means that a product from a country can be considered as originating from that country even if materials from another country were used in the creation of that product, as long as the final product has been processed beyond minimal levels.
Under the Developing Countries Trade Scheme (DCTS), the UK will further simplify its PSR and Cumulation rules to allow products from 65 developing countries to be able to enter the UK and enjoy the UK’s zero-tariff policy.
Conclusively, the UK’s Developing Countries Trade Scheme (DCTS) is a good initiative in the right direction. Due to this trading scheme, many exporters from Nigeria will now be able to export up to 99% of their goods to the UK duty-free and quota-free, beginning in 2023.
However, it is advised that the government put in place value-addition mechanisms for Nigerian goods so that the economy will benefit maximally from exports. The country needs to move beyond its dependence on the exportation of raw materials, and this can only be achieved through a rich value-addition process that prioritises and incentivises the exportation of processed and semi-processed goods.
Photo by iamdavidrotimi via Iwaria