UK freeports blunder as companies face export tariffs

UK companies in Boris Johnson’s new freeports have been dealt a fresh blow as they face tariffs to 23 countries subject to duties under post-Brexit deals.

The government confirmed that firms will not be able to reap the benefits of the tax-efficient zones if they export to countries including Switzerland, Canada, Singapore, Iceland, Norway, and Singapore.

Officials on Sunday said that recent post-Brexit trade agreements included clauses that prevent manufacturers in freeport-type zones from benefiting from the deals.

Freeports are special trade zones that do not function under the same tax rules as the rest of a nation. British freeports will enjoy simplified customs procedures and tax breaks on goods passing through.

It means a company can import products into a freeport without having to pay the UK tax rate on that item. They can then process the item in the UK before exporting it to a third country or selling it into the UK market, where it will face standard taxes.

The idea is to encourage international businesses to set up factories in free trade zones and to boost trade through Britain’s transport hubs. The process is also known as duty drawback.

However, they have now been stripped of these advantages when exporting finished products to certain countries.

Watch: What are freeports?

Other countries affected included Israel, Egypt, North Macedonia, Chile, Morocco, Ukraine, Lebanon, Jordan, Tunisia, Serbia, Georgia, Faroe Islands, Moldova, Liechtenstein, Albania, Kosovo and Palestine.

This does not apply to the UK’s trade deal with the European Union, its largest exports market.

Announced in the Budget in March, chancellor Rishi Sunak declared that eight new English freeports would be a “transformational” benefit from Brexit.

These were revealed as Teeside, London Gateway, Liverpool City Region, Humber, Felixstowe, Southampton, Plymouth and East Midlands Airport. Airports, rail hubs, and sea ports were all eligible to apply for the status.

Sunak has long been an advocate of freeports, which were part of the government’s “levelling up” programme” to spread economic growth across the country, and boost the North.

Read more: UK chancellor Rishi Sunak fires starting gun on post-Brexit freeports

Emily Thornberry, shadow trade secretary, said the clauses could have simply been removed during trade negotiations.

“On the surface of it, this looks like a catastrophic blunder by a minister stuck in her silo,” she said. “As a result, I fear that manufacturers in towns, cities and regions across our country who have succeeded in bidding for freeport status risk missing out on access to key markets.”

She has written to trade secretary Liz Truss asking her to clarify the situation, urging her to go back to the negotiating table to get the clauses removed.

The Department for International Trade (DIT) said: “There is no error and it is not uncommon for free trade agreements to have these provisions.”

It added: “Businesses will not be shut out of markets we have negotiated free trade deals with. They will benefit from both our free trade programme, and also from freeports, which provide tax breaks, simpler planning restrictions and cheaper imports.

“Where the provisions apply, firms will be able to opt for either “duty drawback” – the refund of import duty when goods are re-exported – or from the preferential rates under the free trade agreement, providing they comply with the deal’s rules of origin tests.

According to research by the Labour party, Britain’s exports of goods to the 23 countries were worth £35.56bn ($50.2bn) in 2019. This was almost 10% of the UK’s total global goods exports that year, the research showed.

Watch: Budget 2021: The post-Brexit freeports at the centre of Sunak's speech