The UK government has admitted that manufacturers in English freeports will be unable to benefit from the low tax rates if they export to certain countries including Canada and Norway.
A freeport is a special kind of port, where goods that arrive from abroad are not subject to tariffs, including VA or excise duties normally paid by companies to the government.
In March, London said that freeports will be created at the East Midlands Airport, Liverpool, Felixstowe, Plymouth, Thames, Teesside, Humber, and Solent.
The government, however, disclosed late last week that the recent post-Brexit trade agreements with at least 23 countries, such as Switzerland and Singapore, include clauses that stipulate companies in freeport zones being subject to duties when exporting finished products to any of these countries.
The UK Department for International Trade confirmed in a statement that the so-called "duty exemption prohibitions" would be imposed on the 23 nations, saying "it is not uncommon for free trade agreements to have these provisions".
"Where these provisions apply, businesses can choose to either benefit from the duty drawback, or the preferential rates under the free trade agreement — provided they meet the rules of origin test under that agreement — depending on what suits them best", the statement pointed out.
Shadow Trade Secretary Emily Thornberry, for her part, argued the freeport-related clauses could easily have been removed during the trade deal discussions, asserting that "on the surface of it, this looks like a catastrophic blunder by a minister stuck in her silo".
Here’s my letter to Liz Truss exposing the catastrophic negotiating blunder that risks leaving manufacturers in the UK’s new generation of freeports shut out of £35bn in export markets, as reported by the FT, the Indie and others today. A short thread to explain (1/6). pic.twitter.com/KK2Y4ysuqt— Emily Thornberry (@EmilyThornberry) May 10, 2021
"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", Thornberry added, berating Trade Secretary Liz Truss for failing to properly tackle the issue.
"It would have taken an hour of discussion and the stroke of a pen to explain the UK's freeports policy to negotiators from these countries and remove the prohibition clauses from those agreements, and I cannot understand why Liz Truss failed to do that", the shadow trade secretary said.
She noted that she had earlier asked Truss to clarify the situation, adding that "if it [the situation] needs fixing", the trade secretary should return to the negotiating table "immediately with these 23 countries and get these clauses removed before Britain's freeports come into operation later this year".
This followed a visit by Prime Minister Boris Johnson and Chancellor Rishi Sunak to Teesside, one of the nation's freeports, where the two praised the government's initiative to set up special areas in a host of English ports.
Sunak described Teesside as a "genuinely transformational" city that will see "the combination with the freeport and the super deduction, [as well as] huge tax incentives for businesses to invest".
"Freeports have been used around the world to create jobs. […] We're turbo charging them with really attractive incentives for businesses to make things easier for them to import and export, to invest in new equipment and also to employ people. We believe that is going to lead to great local jobs", the chancellor underscored.
"These could be free of unnecessary checks and paperwork, and include customs and tax benefits. These zones reduce costs and bureaucracy, encouraging manufacturing businesses to set up or re-shore", the government added.