Proponents say the policy will "level up" left-behind coastal regions but critics warn it risks facilitating illegal activity.
Source - Daily Telegraph - 23/07/20
https://www.telegraph.co.uk/business/2020/07/23/free-ports-post-brexit-triumph-emperors-new-clothes/
Typically of a government led by an admirer of the ancient world, its consultation paper on free ports opened with a classical image: "Greek and Roman ships, piled high with traders' wines and olive oils, found safe harbour in the freeport of Delos, a small Greek island in the waters of the Aegean.
"Offering respite from import taxes in the hope of attracting the patronage of merchants, the Delosian model of a freeport has rarely been out of use since."
The idea of free ports has been dormant in Britain, however. since the seven created from 1984 to 2012 were quietly dropped by David Cameron.
Now it is being revived as a central plank of the Johnson government's twin strategies to "level up" left-behind regions and boost "Global Britain" post-Brexit.
A consultation on the policy, which was extended due to Covid-19, closed last week. The towns, cities and regions to become free ports will be announced in the Chancellor's autumn Budget and are expected to be fully operational within 18 months of the UK leaving the customs union and single market at the end of this year.
It helps that, as a backbencher, Rishi Sunak put his name to a 2016 paper by the conservative Centre for Policy Studies think tank, which advocated for free trade zones as opportunities to "increase manufacturing output, create employment regionally where it is most needed and promote trade".
According to the British Ports Association, more than 30 ports are interested in being selected to be one of up to 10 sites into which goods can enter with zero tariff, be manufactured to add value, then leave for export or enter the domestic market.
Other incentives may include research and development tax credits, capital allowances, discounts on stamp duty and business rates, and local relaxations of planning laws.
Some contenders are large, such as Dover and Belfast, while others are small, such as Mostyn. Some are seaports while others are airports, such as Manchester and Gatwick.
Matt Beeton, chief executive of the Port of Tyne, one bidder for free port status, said: "The port is central to the North East's advanced manufacturing and clean growth clusters. A digitally connected free trade zone would boost the region's world leading footprint in these competitive sectors."
The key economic benefit is job creation. Catherine Barnard, a professor of EU and labour law at the University of Cambridge, told the Commons international trade committee the scheme could generate between 85,000 and 150,000 new jobs.
"In the past, some of those job creation schemes ended up costing the taxpayer significant sums of money," she added. "But then you have to ask yourself...isn’t that what government policy is about – to try and encourage development in those regions which have suffered in the past?"
However, some question whether employment standards would be sacrificed for competitiveness.
There are no trade union representatives on the Government's free ports advisory panel but in its submission to the official consultation, the TUC warns that in the American freeport of Smyrna, Tennessee, workers have complained of surveillance to intimidate them out of joining unions. The port was prized as a success story in Sunak's 2016 report.
Tim Morris, chief executive of the UK Major Ports Group, says: "Our ports currently operate under high standards of various types of employment, environmental and safety and security regulation. We support high standards being maintained going forward."
The Treasury admitted in its own consultation document that "there is evidence in some cases that zone-based policy can have a displacement effect, leading to reduced job opportunities in areas which are not free ports".
This is not a worry for Martin Vickers, the Conservative MP and chairman of the parliamentary free ports group, for whom: "The levelling up agenda of the Government is about displacement. That inevitably will, to some extent, involve displacement from the South East."
Without a Brexit trade deal at the end of the year, others argue tariff cuts at free ports will make little difference.
The Telegraph has learnt that the Government's working assumption is that Britain will trade with Europe on World Trade Organisation terms when the transition period ends on Dec 31, which would mean tariffs on goods.
Indeed, a paper published by a group of British air and seaports including Tyne and Milford Haven admitted that "a customs-based EU-UK trade relationship – as laid out in the Political Declaration of the proposed Withdrawal Agreement – diminishes the utility of the policy".
However, Tom Clougherty, head of tax at the Centre for Policy Studies, says: "If you're going into a situation where there are more trade frictions then a freeport, which can limit as far as possible trade frictions in specific areas and under certain circumstances, could be very helpful to grease the wheels of trade."
Vickers agrees: "Whether we're in an arrangement with the EU or on WTO terms, free ports have the advantage of attracting additional investment into our coastal communities, many of which have been particularly badly hit by the economic downturn."
His constituency of Cleethorpes "has never fully recovered from the loss of the deep-sea fishing industry in Grimsby", he adds.
Cynics, however, point to the risk of crime. The freeport of Geneva has admitted it stores a million works of art including 1,000 Picassos, whose ownership is unclear. When the freeport of Luxembourg imposed more stringent transparency rules on its high-value warehouse, 20-30pc of its high-net worth clients fled.
Robert Palmer, executive director of left-wing campaign group Tax Justice UK, suspects that free ports "will end up being industrial parks on steroids conveniently plonked next to Conservative target seats in Red Wall areas".
Vickers denies this. "We're not looking to set up warehouses for art treasures from dubious parts of the world to be deposited," he says. "We'll leave that to the EU. I'd have no objection to the legislation including strict laws to prevent that sort of illegal activity. You don’t generate jobs by storing stolen artwork – what we want is investment and jobs."
One MP on the trade committee wondered whether there was something of the emperor's new clothes about the reincarnation of free ports.
Barnard agreed. Unless the old model is updated, "it's going to be a huge investment for not a huge amount of return," she said. "That's one of the reasons why free ports ran out of road the last time they were tried. If you're going to go for something like this, it needs to be more than a tariff issue."
Clougherty is more optimistic. "Part of the reason free ports were dropped was EU state aid rules really limited the gains businesses could get out of the opportunity zones," he says. "The concerns expressed are real but they're not fatal to the policy."
Which ports should become free ports and will they enable "Global Britain" to level up post-Brexit? Share your view in the comments section below.
Source - Daily Telegraph - 23/07/20
https://www.telegraph.co.uk/business/2020/07/23/free-ports-post-brexit-triumph-emperors-new-clothes/
Typically of a government led by an admirer of the ancient world, its consultation paper on free ports opened with a classical image: "Greek and Roman ships, piled high with traders' wines and olive oils, found safe harbour in the freeport of Delos, a small Greek island in the waters of the Aegean.
"Offering respite from import taxes in the hope of attracting the patronage of merchants, the Delosian model of a freeport has rarely been out of use since."
The idea of free ports has been dormant in Britain, however. since the seven created from 1984 to 2012 were quietly dropped by David Cameron.
Now it is being revived as a central plank of the Johnson government's twin strategies to "level up" left-behind regions and boost "Global Britain" post-Brexit.
A consultation on the policy, which was extended due to Covid-19, closed last week. The towns, cities and regions to become free ports will be announced in the Chancellor's autumn Budget and are expected to be fully operational within 18 months of the UK leaving the customs union and single market at the end of this year.
It helps that, as a backbencher, Rishi Sunak put his name to a 2016 paper by the conservative Centre for Policy Studies think tank, which advocated for free trade zones as opportunities to "increase manufacturing output, create employment regionally where it is most needed and promote trade".
According to the British Ports Association, more than 30 ports are interested in being selected to be one of up to 10 sites into which goods can enter with zero tariff, be manufactured to add value, then leave for export or enter the domestic market.
Other incentives may include research and development tax credits, capital allowances, discounts on stamp duty and business rates, and local relaxations of planning laws.
Some contenders are large, such as Dover and Belfast, while others are small, such as Mostyn. Some are seaports while others are airports, such as Manchester and Gatwick.
Matt Beeton, chief executive of the Port of Tyne, one bidder for free port status, said: "The port is central to the North East's advanced manufacturing and clean growth clusters. A digitally connected free trade zone would boost the region's world leading footprint in these competitive sectors."
The key economic benefit is job creation. Catherine Barnard, a professor of EU and labour law at the University of Cambridge, told the Commons international trade committee the scheme could generate between 85,000 and 150,000 new jobs.
"In the past, some of those job creation schemes ended up costing the taxpayer significant sums of money," she added. "But then you have to ask yourself...isn’t that what government policy is about – to try and encourage development in those regions which have suffered in the past?"
However, some question whether employment standards would be sacrificed for competitiveness.
There are no trade union representatives on the Government's free ports advisory panel but in its submission to the official consultation, the TUC warns that in the American freeport of Smyrna, Tennessee, workers have complained of surveillance to intimidate them out of joining unions. The port was prized as a success story in Sunak's 2016 report.
Tim Morris, chief executive of the UK Major Ports Group, says: "Our ports currently operate under high standards of various types of employment, environmental and safety and security regulation. We support high standards being maintained going forward."
The Treasury admitted in its own consultation document that "there is evidence in some cases that zone-based policy can have a displacement effect, leading to reduced job opportunities in areas which are not free ports".
This is not a worry for Martin Vickers, the Conservative MP and chairman of the parliamentary free ports group, for whom: "The levelling up agenda of the Government is about displacement. That inevitably will, to some extent, involve displacement from the South East."
Without a Brexit trade deal at the end of the year, others argue tariff cuts at free ports will make little difference.
The Telegraph has learnt that the Government's working assumption is that Britain will trade with Europe on World Trade Organisation terms when the transition period ends on Dec 31, which would mean tariffs on goods.
Indeed, a paper published by a group of British air and seaports including Tyne and Milford Haven admitted that "a customs-based EU-UK trade relationship – as laid out in the Political Declaration of the proposed Withdrawal Agreement – diminishes the utility of the policy".
However, Tom Clougherty, head of tax at the Centre for Policy Studies, says: "If you're going into a situation where there are more trade frictions then a freeport, which can limit as far as possible trade frictions in specific areas and under certain circumstances, could be very helpful to grease the wheels of trade."
Vickers agrees: "Whether we're in an arrangement with the EU or on WTO terms, free ports have the advantage of attracting additional investment into our coastal communities, many of which have been particularly badly hit by the economic downturn."
His constituency of Cleethorpes "has never fully recovered from the loss of the deep-sea fishing industry in Grimsby", he adds.
Cynics, however, point to the risk of crime. The freeport of Geneva has admitted it stores a million works of art including 1,000 Picassos, whose ownership is unclear. When the freeport of Luxembourg imposed more stringent transparency rules on its high-value warehouse, 20-30pc of its high-net worth clients fled.
Robert Palmer, executive director of left-wing campaign group Tax Justice UK, suspects that free ports "will end up being industrial parks on steroids conveniently plonked next to Conservative target seats in Red Wall areas".
Vickers denies this. "We're not looking to set up warehouses for art treasures from dubious parts of the world to be deposited," he says. "We'll leave that to the EU. I'd have no objection to the legislation including strict laws to prevent that sort of illegal activity. You don’t generate jobs by storing stolen artwork – what we want is investment and jobs."
One MP on the trade committee wondered whether there was something of the emperor's new clothes about the reincarnation of free ports.
Barnard agreed. Unless the old model is updated, "it's going to be a huge investment for not a huge amount of return," she said. "That's one of the reasons why free ports ran out of road the last time they were tried. If you're going to go for something like this, it needs to be more than a tariff issue."
Clougherty is more optimistic. "Part of the reason free ports were dropped was EU state aid rules really limited the gains businesses could get out of the opportunity zones," he says. "The concerns expressed are real but they're not fatal to the policy."
Which ports should become free ports and will they enable "Global Britain" to level up post-Brexit? Share your view in the comments section below.
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