What are free ports?
Free ports are areas within a country that are legally recognised as outside its borders. Because of this, they adhere to different customs policies. Globally it is said that on average, free trade zones create 22,600 jobs and combined they contribute $500 billion to global trade.
What does that mean?
Goods imported into a free port may be exempt from tariffs, though not if they then cross the border into the host country. This appeals to manufacturers who build factories to take advantage of the tax break, especially where import duties on parts are higher than those on finished products. Consequently, history in free port countries demonstrates that free trade zones disproportionately benefit manufacturing and processing activity (pharmaceuticals, vehicle production, and chemicals) and generate more employment in those areas than services.
Governments can opt to make free ports more inviting to businesses by offering more lenient corporate tax rates or relaxing employment or environmental regulations. However, this runs the risk of facilitating substandard employment and environmental practices or criminal activity such as money laundering. Moreover, preferential tax breaks may encourage companies already based in the UK to relocate, draining other areas of the country of employment. As such, the possibility of targeting incentives to currently foreign based business may warrant further exploration.
What is the UK’s history with free trade zones ?
In 2012, there were five free ports in the United Kingdom, though their licenses were not renewed. The five were; Liverpool, Southampton, the Port of Tilbury, the Port of Sheerness and Prestwick Airport.
The EU doesn’t encourage free ports, though there are some 82 free ports operating within it that exist in a more limited form than elsewhere in the world, with EU rules on state aid curtailing the range or tax incentives available within them. The EU has also become markedly more hostile and started clamping down on existing free ports, alleging their special status allows money laundering and organised crime. Clearly this represents an opportunity to give the United Kingdom a competitive edge over EU member states should free trade zones be embraced.
What is the future for free ports in the UK?
The Conservative and Unionist Party have thrown their weight behind free ports several times, and have committed to explore the viability and delivery of 10 free ports with January 31st 2021 as an ideal deadline.
Estimates range, but free ports centred on the north of England could be expected to yield as much as an annual £9 billion GDP boost after 20 years of operation and create as many as 150,000 jobs. Depending on their location, free trade zones could play a significant role in invigorating traditionally deprived areas, with areas such as Immingham and Grimsby, Hull Port, the Hull and Humber rivers, Tees and Hartlepool, Liverpool, the Tyne, and Manchester airport frequently being mooted as suitable locations.
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