UK accused of freeports blunder as companies face export tariffs to 23 countries

Britain's eight new freeports include DP World-backed Thames Freeport

LONDON, ENGLAND - MARCH 14: Prince William, Duke of Cambridge (right) and William Hague (left), look out as they stand on a gantry atop one of the ship container cranes, with with DP World chairman Sultan Ahmed Bin Sulayem during a visit to DP World London Gateway on March 14, 2016 in Stanford-le-Hope, in Essex. The visit is to highlight an agreement that has been reached with the transport sector to crack down on global wildlife trafficking routes. (Photo by Nick Ansell - WPA Pool/Getty Images)
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Britain’s freeports are facing a “catastrophic blunder” because companies operating in the special trade zones will not receive access to all the associated tax benefits if they export to certain countries.

Britain's eight new freeports, which include the DP World-backed Thames Freeport, allow companies to import and export from the UK under simplified customs, tax and planning rules.

However, post-Brexit trade agreements with 23 countries, including Canada, Switzerland, Norway and Singapore, contain clauses that specifically prohibit manufacturers in freeport-type zones from benefiting from associated perks.

DP World declined to comment on the reports.

Emily Thornberry, the UK Shadow Trade Secretary, said the clauses could easily have been removed during the trade discussions.

“On the surface of it, this looks like a catastrophic blunder by a minister stuck in her silo,” Ms Thornberry wrote in a letter to Britain's Trade Secretary Liz Truss.

“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.”

Britain's eight new economic zones were unveiled by Chancellor of the Exchequer Rishi Sunak in his March budget, with East Midlands Airport, Felixstowe and Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames and Teesside all securing freeport status.

The Thames Freeport in East London's Thames Estuary, for example, is a digitally linked, special economic zone that includes DP World-owned London Gateway port, as well as Tilbury port and a Ford factory in Dagenham.

The freeports are championed by the government as a way to help the country build back better from the pandemic by boosting jobs and attracting trade and investment.

However, the latest blunder could see the UK lose out, with Britain’s exports of goods to the 23 countries concerned worth £35.56 billion ($50.18bn) in 2019, almost 10 per cent of the UK’s total global goods exports that year, the Labour Party said.

When the government announced the eight winning bids, it said they were all eligible for stamp duty and business rates relief, with National Insurance relief, a lower rate of VAT and employment tax offered to employers in some instances.

However, businesses in freeports that enjoy those advantages will be obliged to pay tariffs when exporting products to any of the 23 countries in question, unlike companies elsewhere in the country.

“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," Ms Thornberry said.

While the Department of International Trade denied there was an error, it confirmed the “duty exemption prohibitions” would apply to those 23 countries.

“It is not uncommon for free-trade agreements to have these provisions,” the DIT said.

“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.”

More on the UK's freeports

UAE-backed plan to create London freeport welcomed as a boost for jobs

How Britain's communities can qualify for freeport status in post-Brexit era

UK to create freeports to attract post-Brexit investment and boost jobs