Now that a new prime minister has taken office in London it would appear that the UK’s departure from the EU is only still a matter of time. Free ports and free-trade zones have been identified as measures to combat the economic and logistics fallout and promote international trade. Plans have been forged since 2016 – but there are also critics of the model amongst the UK’s ports.
Amid continuing uncertainty over the terms of the United Kingdom’s proposed exit of the European Union by 31 October this year, the country’s new prime minister Boris Johnson has thrown his support behind the idea of creating a series of ‘free port’ zones across the country. Within days of taking office Johnson proclaimed that the government should “begin work now to create free ports that will drive growth from thousands of high-skilled jobs in left-behind areas.” International trade secretary Liz Truss has already set up a process, set to take effect after Brexit, whereby seaports and airports can apply for the status of a free port.
Free ports and any surrounding free-trade zones (FTZs) allow goods to be imported, manufactured and then re-exported without being subject to normal tax and customs rules. However, their scope is restricted under EU rules, say backers of the concept, with the creation of new FTZs discouraged in the Union, on the grounds they create unfair competition.
In the blocks after the referendum
One important advocate of free ports is Johnson’s new chief secretary to the treasury, Rishi Sunak, who authored a 50-page report on the subject for the Centre for Policy Studies think tank (CPS) immediately after the Brexit referendum in 2016. That report, entitled ‘The Free-Ports Opportunity’, argued that Brexit could boost UK trade, manufacturing and the underprivileged North of the country by embracing a free-ports programme that would build on the UK’s existing strengths – namely “world-class ports infrastructure” and a largely privatised port sector that is “already the second largest in Europe.”
“Free ports could create up to 86,000 jobs for the British economy, if they were as successful as the USA’s foreign-trade zones programme,” the report stated. Many of the jobs were expected to be created “in areas outside London, where the economic need is higher.” FTZs could also stimulate the economy by boosting manufacturing, it added, which currently accounts for only 10% of the UK’s GDP. This ranks the country amongst the lowest of all OECD nations (namely in 30th place out of 35).
In fact, the UK did have various free-port areas between 1984 and 2012 – including zones in Liverpool, Southampton, the port of Tilbury, the port of Sheerness and Prestwich – but these lapsed in 2012, when the legislation establishing them was not renewed, supposedly out of fear of possible objections from in the EU. The CPS report pointed out that one FTZ does still exist on the British Isles, namely on the Isle of Man – a self-governing British Crown dependency. There are more than 250 free-trade zones in the USA and “approximately 3,500 zones in 135 countries across the world.”
There are about 85 free-trade zones in the European Union, the report added, mainly in countries that joined after 2004, but these are merely “a pale imitation” of FTZs elsewhere, as EU single-market regulations, contained in the Union’s customs code and its state-aid laws, make them “little more than storage facilities with simpler customs formalities.”
In fact, a UN study concluded in 2015 that “FTZs, as originally conceived, do not exist anymore in the EU” – on account of the European Commission’s “very narrow” definition of the term concerned.
The United Kingdom Major Ports Group (UKMPG) has been appointed to a new free-ports advisory panel convened by Truss. Tim Morris, chief executive officer of the trade body formed in 1993 that represents the country’s largest port operators, welcomed the move. “Free ports are a potentially transformational opportunity for locations with the right conditions and strong local support,” he said. “They have proved to be successful in stimulating investment and jobs in a number of places around the world.”
The BPA however, the British Ports Association that represents smaller ports, was more ambivalent. “In their current form the proposals on free ports are unlikely to lead to the ‘game-changing’ measures some may imagine,” BPA chief executive officer Richard Ballantyne warned. The BPA has therefore proposed the complementary idea of port enterprise and development zones, clustered around maritime gateways and airports, which would benefit from relaxed deveopment rules and economic stimulus, to ensure “real growth.”