Steel bosses warn ‘back door’ loophole in UK trade rules could lead to job cuts and closures

New measures will protect Tata and British Steel but allow foreign pre-made parts into the UK, say industry bosses

Steel bosses have warned ministers that a “back door” in new trade rules could hit British manufacturers and lead to job cuts and factory closures by allowing a vast array of foreign products to still enter the UK tax-free.

The loophole means pre-made steel parts ranging from bridge sections, columns and door frames, all the way to smaller rods and tubes used in buildings, will escape recently announced import tariffs, the Guardian understands.

Earlier in March, ministers said they would double tariffs on imported steel and cut the amount that can be bought from abroad in an attempt to protect Britain’s struggling steelmakers from a flood of cheap imports from China.

But industry bosses say the measures overwhelmingly target imports of the metal straight from the furnace – protecting the likes of Tata and British Steel – but leave products that have already been drilled and cut into shape untouched.

The rules allow foreign pre-made steel in via a “back door”, said Simon Boyd, the managing director of Reidsteel, a maker of structural building parts that employs about 130 people.

From July, quotas on importing many overseas steel products will be cut by 60%, and duties outside those quotas will be raised to 50%. The measures bring the UK in line with recent moves by the US, the EU and Canada in response to a surfeit of cheap imports from China, which is by far the world’s largest producer.

The levies are expected to save the likes of Tata and British Steel from collapse. The sector, recently designated as vital to national security, employs about 10,000 people and has suffered decades of job losses.

On Monday, it emerged that officials are on track to fully nationalise British Steel within weeks, in a move that trade body UK Steel said would give “vital certainty for the workforce, the company’s customers and the wider supply chain at a critical moment”.

However, the wider network of so-called downstream manufacturers that turn that steel into finished, or fabricated, products is estimated to support 300,000 jobs. The industry is already under significant pressure from rising energy costs due to the Iran war.

“Not only does [the loophole] undo what the government’s trying to do to protect steelmaking … but it kills the downstream customers of steelmakers in the UK off,” Boyd said. “What are you making steel for if you haven’t got a customer base?”

Chris Bryant, the trade minister, was warned about the loophole in meetings with industry bosses hours after launching the steel strategy on 19 March, the Guardian understands.

A senior industry source who took part in the talks said: “[Bryant] just asked us to provide evidence of where we thought this either is or would be happening … We know people already are saying: ‘If I get it made in Asia and drill some holes in it and fabricate it then actually, it’ll be a fabricated product.’”

Even before the tariffs were announced, contractors were taking advantage of cheap pre-made steel parts from abroad. A government-backed gas power station in Redcar, Net Zero Teesside Power, prompted anger when it emerged its developers were buying 7,000 tonnes of Chinese steel for £5m in January.

But the new rules are expected to incentivise buyers to follow suit, because they will push up the price of UK-produced steel. Last week a leading HS2 contractor said the measures would “exacerbate” cost pressures for the construction industry.

Steve Morley, head of the Confederation of British Metalforming, accused ministers of “selling out downstream manufacturers”, adding there was a “very real threat” that jobs would be lost and factories would be shut as a result.

The tariffs “will see the price of raw material rise and availability reduce, which will make manufacturing totally uncompetitive, leaving the door open for imports of finished metal goods which will have no restrictions in terms of quotas or tariffs”, he said.

Separately, ministers’ move to mark steel as vital to national security means British suppliers will be prioritised for public contracts. Departments will have to either use steel from the UK or justify sourcing it from overseas.

A government spokesperson said: “Our steel strategy is protecting UK producers, with our robust new measure applying to all steel products that can be made in the UK. It will help us to produce up to 50% of our domestic demand and leave us less reliant on steel made overseas.

“We engaged extensively with industry when developing this measure, we continue to engage ahead of it coming into force, and we will review it after 12 months to ensure it remains fit for purpose.”