Why manufacturers based in Yorkshire's freeports could face tariffs when exporting

Manufacturers based in Boris Johnson’s new freeports will not be able to enjoy the full benefits if they are exporting to a series of countries with which the UK has signed post-Brexit trade deals.

The Prime Minister and Chancellor Rishi Sunak have championed freeports – special economic zones offering tax breaks and lower tariffs – as a part of the Government’s “levelling up” agenda to spread economic growth and jobs across the country.

But PA reports that Labour said a “catastrophic blunder” means manufacturers operating within freeports, two of which will be based in the Humber and Teesside areas, could face tariffs on their exports to key markets including Switzerland, Canada, Norway and Singapore, despite the UK’s free trade agreements with those countries.

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Officials insisted there has not been an error and businesses will not be shut out of markets in countries the UK has negotiated deals with.

The Humber area has been designated a freeport.

The Opposition suggested that exports to 23 countries with which the UK has signed agreements to roll over deals those nations had with the European Union would be affected.

Labour said trade ministers failed to remove wide-ranging “duty exemption prohibitions” contained in 23 of those agreements.

The prohibitions state that any business which has not paid duty on its imports cannot benefit from reduced tariffs on its exports.

A Government spokesman said: “There is no error and it is not uncommon for free trade agreements to have these provisions.

“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.

Exports of goods to the 23 countries concerned were worth £35.56 billion in 2019, almost 10% of the UK’s total goods exports, Labour said.

Shadow international trade secretary Emily Thornberry has written to International Trade Secretary Liz Truss to ask her to clarify the situation.

Ms Thornberry said: “Last November, when the Treasury invited applications for its new freeports scheme, the small print warned potential bidders of the prohibition clauses contained in several continuity trade agreements the Department of Trade had signed in the previous two years.

“But, despite that warning, Liz Truss went on to sign trade agreements with 10 more countries containing the same clauses, including key markets like Canada, Singapore and Mexico.

“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.

“On the surface of it, this looks like a catastrophic blunder by a minister stuck in her silo, and, 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.”

Tom Lees, director of the Northern Policy Foundation think-tank and an advocate for freeports, said: "The process for imports and exports can become very complicated very quickly and very few people in the UK actually understand the ins and outs involved so it is hard to comment on any impacts without seeing the specific details.

"People should note that many of the benefits for Freeports are not in fact from being in the duty-free zone but the tax incentives, simpler planning, infrastructure investment, and targeted marketing. So even if what Labour say is true it shouldn't make a great deal of difference."

At the Budget in March, the Chancellor announced freeports at East Midlands Airport, in Felixstowe and Harwich, Humber, Liverpool City Region, Plymouth, the Solent, the Thames and Teesside.

He promised “eight new freeports in eight English regions, unlocking billions of pounds of private sector investment, generating trade and jobs up and down the country”