UK government launches freeports consultation

UK government launches freeports consultation
The Port of Tyne has expressed interest in the bidding process

The UK government has begun a consultation to inform its freeports policy, aiming to create up to 10 freeports, which will have different customs rules than the rest of the country, in an aim to boost economic activity post-Brexit.

The policy is meant to be geared towards establishing freeports as national hubs for global trade and investment across the UK, promoting regeneration and job creation and creating centres for innovation.

The consultation closes on April 20 and the aim is to announce the location of the new zones at the end of this year so they can be open for business in 2021.

According the government, its proposed model draws on evidence from successful freeports around the world to include tariff flexibility, customs facilitations and tax measures.

Planning reforms, additional targeted funding for infrastructure improvements and measures to incentivise innovation are also being considered.

Rishi Sunak, chief secretary to the treasury, claimed that the strategy was “part of our mission as an open, outward-looking country, championing global free trade with vibrant Freeports that work for all of the UK”.

However, the idea has also faced criticism because freeports do exist in the EU, and the UK had five freeports up to 2012, when their licences were not renewed as customs alternatives such as customs warehousing were deemed superior.

In a House of Commons Select Committee hearing last year, Neil Davidson, then senior analyst at Drewry, said: “After Brexit on the imports side I think the need for freeports would probably reduce, because we are potentially moving to an era of low tariffs or no tariffs.

“The lower the tariffs, the less attractive free ports are. We are also looking at the possibility of freer flowing of cargo to keep ports from clogging up, so the more customs is relaxed the less the need for free ports.”

Regarding the idea of re-exports where goods enter a freeport and are serviced before being exported, he said: “The UK faces the possibility of greater freedom to set the rules, which could potentially be attractive, but on the downside there will be much greater competition for those freeports because the UK would be outside the EU.

“Therefore, a third country would perhaps be seeking to serve the EU, so you will be up against freeports in Turkey, in Morocco and potentially Jebel Ali. It becomes a global business and so the critical element here is the competitiveness, or the potential competitiveness of UK freeports.”

The British Ports Association (BPA) is calling for the removal of the cap on the potential number of freeports as well as a broader package of measures that would benefit a wide range of different UK ports.

More than 10 of the UK’s 125 cargo-handling ports will want to benefit and the government should not place an arbitrary cap on this ambition, in its view.

Richard Ballantyne, chief executive of the BPA, said: “Freeports are a transformational opportunity for some UK ports that could unleash growth and development in some of the UK’s most deprived coastal areas. We will be making the case for a package of maximum ambition in both scope and scale.”

According to the government, the policy offers an opportunity for “cutting-edge” customs, transport and green technologies to be trialled in controlled environments, before being adopted more widely in relevant sectors of the economy.

Full customs declarations are not required to move goods into a freeport and these goods will not attract tariffs until they leave the freeport and enter the domestic market, while no duty is payable if they are re-exported.

When raw materials are imported and processed into a final good, duties are only paid on the final good.

Freeports could be located inland as well as adjacent to ports, potentially reducing relocation or investment costs for existing manufacturing sites near ports.

The government is also considering tax measures that aim to increase investment in infrastructure, construction and machinery in freeports to raise productivity, incentivise research to stimulate innovation in freeports, cut costs associated with processing goods through a port and reduce the costs of hiring workers working in freeports.

Tim Morris, CEO of the UK Major Ports Group, said: “Experience from around the world demonstrates that freeports can be transformational in the right circumstances. For the UK they offer the opportunity to boost global gateways for trade and grow investment and jobs in coastal communities around the UK.

“It’s vital that the government sees freeports as more than just about tariffs – aspects like planning, connectivity and skills are essential. The process to achieving freeport status must be a credible one, open to compelling bids and fair and evidence based in the selection of locations.”

Once the 10 week consultation is completed, the government will invite sea, air and rail ports to bid for freeport status on a competitive basis.