In the global debate about tariffs, one thing is clear: trade can be critical to making economies grow and societies more resilient.

As part of its commitment to international development, the United Kingdom introduced the Developing Countries Trading Scheme (DCTS) in 2023 to make it easier and cheaper for developing countries to export to the UK. The objective is to stimulate trade from beneficiary countries, promote growth, support economic transformation and help reduce poverty.

Now, after two years, the UK government has commissioned independent research to determine if the new trading scheme is indeed encouraging more trade and how it can benefit people in developing countries.

Positive early findings

The research by the UK’s new Trade and Development, Evidence and Innovation Programme (E&I) has found early, positive signs that the DCTS is succeeding in encouraging developing countries to make greater use of trade preferences. Through the DCTS, which is offered unilaterally by the UK, 65 developing countries can benefit from lower tariffs than countries that are outside the scheme and cannot use other UK trade agreements. So the DCTS can make the goods imported from member countries more competitive.

But lower tariffs (or trade preferences) are subject to conditions, which can have the unintended consequence of a low take-up rate. A low preference utilisation rate (PUR), or the share of eligible trade that actually uses the preferences, means that developing countries are losing out on the competitive advantage offered by the scheme.

The DCTS innovations set out to correct that.

The PUR can be low due to multiple factors, often in combination: lack of awareness of the scheme among exporters or importers, burdensome paperwork, low preference margins and complex or costly “rules of origin” (RoOs). RoOs are designed to ensure that only goods genuinely originating in beneficiary countries receive preferential treatment and goods from outside the scheme are not routed through DCTS countries simply to take advantage of lower tariffs. For example, to prevent garment products made in China (non-DCTS) from entering the UK duty-free via least developed countries (LDC) such as Cambodia and Bangladesh, the RoOs require that a significant manufacturing process must take place in the LDC.

When the DCTS was introduced in August 2023, it made some core improvements over the previous Generalised Scheme of Preferences (GSP), including more generous (mostly duty free) preferences for several lower-middle-income countries, such as Nigeria and Syria. It included other important changes to the RoOs that apply only to LDCs, in order to preserve their competitive advantage relative to other developing countries – such as a higher allowance of non-domestic content, and allowing foreign inputs from a much wider range of countries to be cumulated to the domestic ones without the final product losing originating status.

The added incentives and flexibility seem to be working.

Under DCTS the use of preferential tariff rates has risen

Preliminary analysis of PUR data suggests that DCTS countries are, overall, making greater use of preferential tariffs. This translates into higher tariff savings..

At the aggregate level, the change is modest: the overall PUR across all DCTS members increased slightly from 79.1% in 2022 to 79.4% in 2024. However, product-level and country-level data reveal much greater variation and interesting heterogeneity. For example, textiles and garments – the product group most heavily imported under the DCTS – shows an average PUR rising from 82% to  around 85% for LDC countries.  This is one industry where jobs are often concentrated in areas with significant proportions of the population in poverty (e.g. >20% of national textile employment in and around Dhaka in Bangladesh), and employing a high proportion of female workers.

Early findings show that between 2022 and 2024, the number of products with PUR above 50% increased in almost all categories (Table 1).  Since the DCTS was launched, the number of products with a PUR between 50% and 70% increased from 261 to 287. Particularly striking is that the number of products with near-complete utilisation (PUR above 95%) increased by 20%, from 625 to 750.

Large increases for some countries, declines for others

For individual countries there are marked differences in use of trade preferences. Table 2 highlights the largest changes in PUR between 2022 and 2024.

On the positive side, for several African LDCs – such as Angola, Somalia, Sierra Leone and Liberia – the changes introduced by the DCTS appear to be a success, with PURs increasing by tens of percentage points. Sierra Leone’s PUR rose by 32 percentage points (pp), while Nigeria’s increased by 11 points. These improvements may reflect simplified RoOs, expanded cumulation rules or larger preference margins, particularly for countries that were granted new duty-free access in many products.

At the other end of the spectrum, however, some countries show puzzling declines: Malawi (-26 pp), Burkina Faso (-48 pp) and Sudan (-60 pp). In some cases, broader disruptions to administrative and trading systems (including conflict) may be to blame. But for some countries, it will take further investigation to understand the decreased use of trade preferences.

Caution on economic significance

It is important to interpret these findings with care. Most DCTS countries are small exporters or trade little trade with the UK. Just eight countries account for 98% of UK imports under the scheme: Bangladesh (29%), India (26.5%), Pakistan (11.8%), Indonesia (9.7%), Cambodia (8.4%), Sri Lanka (5.3%), Myanmar (3.9%) and Philippines (3.2%). These large exporters already make extensive and stable use of the scheme, which explains why the aggregate PUR changes remain limited. Their stability dominates the overall average (see Table 3).

Nonetheless, for many smaller DCTS countries, the UK can still represent a meaningful export market, and these preliminary trends in PUR are encouraging.

Further research will delve into why PURs are changing. More detailed quantitative and qualitative analyses in the coming months will seek to understand what is working, where barriers remain, and why utilisation is low in some countries. The goal of the research is to determine if the DCTS needs to be adjusted to improve prosperity in developing countries.

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This work is part of the Trade and Development Evidence and Innovation Programme (E&I). E&I is funded by UK International Development to conduct independent, practical research on trade and development policy.

Mattio di Ubaldo is a research lead for E&I as well as Principal Research Fellow, University of Sussex, and Deputy Director of the UK Trade Policy Observatory (UKTPO)

Disclaimer:  Trade and Development Evidence and Innovation Programme is delivered by a consortium led by Cadmus and comprising ODI Global, the Institute of Development Studies, and UK Trade Policy Observatory. The views expressed are those of the author and do not necessarily reflect the official policies or positions of the UK government.

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