RA9C4Y Sunset over Teesport 30th December 2018
Teesport has lobbied for freeport status for many years © Trevor Wilkinson/Alamy

Freeports will become a cornerstone of plans to level up opportunity across the UK, with ministers promising in a consultation launched on Monday to “unleash the potential” of deprived communities by creating up to ten secure customs zones to pull in investment and trial new technologies.

Many port operators are hoping the policy could help them win government support for infrastructure improvements and cut through planning restrictions.

Trade and customs experts were more sceptical. They said the UK has little need for the typical freeport model used in countries where tariffs are higher or the business environment harder to navigate. But they conceded that a broader package of incentives — including tax reliefs for businesses that invested in the zones — could help regenerate “left behind” regions.

What model of freeports is the being proposed?

Freeports are secure zones, usually located at seaports, where business can be carried out inside a country’s land border, but outside its customs regime. Typically, they allow companies to import parts and raw materials and process them with minimal paperwork and without paying duties. Those products are then either exported duty free or if they enter the domestic market are subject to normal customs controls.

Britain is proposing to build on this basic model by introducing other measures designed to draw in investment and boost local job creation. These could include tax breaks designed to increase investment in infrastructure, incentivise research and development and cut the cost of hiring.

What are the potential advantages?

Trade experts said the creation of new enclaves where customs rules do not apply would make little difference in the UK, because businesses could already use streamlined customs procedures that minimise red tape, and tariffs were generally low.

“The policy measures that make freeports a success around the world wouldn’t work in the UK . . . The question is what you can do in a freeport that you can’t do elsewhere,” said Anna Jerzewska, an independent customs and trade adviser, noting tha Britain would not want to bypass state aid rules or undercut workers’ rights.

“We’ve always been clear . . . that for freeports to be sustainable and successful in UK they need to be more than simply about tariffs,” said Tim Morris, chief executive of UK Major Ports Group, an industry trade body. He added that the freeports policy could prove “transformational” if it became a vehicle to lighten planning rules, improve transport links to ports and strengthen digital connectivity.

Freeports are common in Asia and the Middle East — where Dubai is the best known example. But there are also 80 freeports in the EU and they existed in Britain until 2012, when they were abolished without any obvious detriment to the economy.

In the US, freezones are well-established as they allow manufacturers to import raw materials that are usually subject to high tariffs and process them into finished products attracting a lower rate of duty. However, researchers at the University of Sussex said there was limited evidence even there of “their ability to create genuinely new jobs rather than just encourage companies to shift jobs from other parts of the country”.

And the potential downsides?

One concern about the new policy is its potential cost — given the uncertain economic gains. A secure customs zone would need to be fenced off, with staff recruited and trained to monitor it, although the government has asked for suggestions on “alternative ways . . . security could be maintained without a perimeter fence”.

Given the likely costs, the ambition to create up to 10 freeports sounded ambitious, said Mr Morris. “We would prefer it if the government was guided by the number of compelling propositions that come forward,” he said.

Another concern is that freeports could become a black spot for money laundering and tax evasion. A recent European Parliament report highlighted the freeport in Luxembourg, which had become a depot for investors to store high value art.

The main risk, though, is that the new UK freeports could simply displace economic activity rather than generating genuinely new jobs.

“It could pull in industry from elsewhere [in the world] — but more likely from elsewhere in the UK,” said Sam Lowe, senior research fellow at the Centre for European Reform, adding: “You can argue it’s good for rebalancing, but only if you assume it comes from London rather than areas that are struggling to get by.”

Dmitry Grozoubinski, a former Australian trade negotiator, said tax and other incentives could be a way “to redirect national activity into an area you want to specifically target as a hub”. But he added that “the danger with freeports is that you build one and instead of attracting new capital and investment . . . a factory that was in Hull gets picked up”.

Where in the UK might apply?

Teesport, in northeast England, has lobbied for freeport status for many years, having struggled to attract the large, long-distance container ships from the Far East.

Forth Ports Group, which owns a number of ports including Tilbury in London and Grangemouth in Scotland, has also publicly expressed interest.

Industry executives said a number of others bids were being worked on.

The government proposal suggests that freeports could include inland sites — not necessarily adjacent to the port itself — potentially opening the way for a freezone linked to a big industrial employer, such as one near the Airbus factory at Filton, near Bristol, or close to Nissan’s Sunderland car plant.

Get alerts on UK trade when a new story is published

Copyright The Financial Times Limited 2020. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article