Government plans for free ports comes with pros and cons
Government plans were first announced back in August to launch up to ten free ports across the UK post-Brexit, which would allow firms to import and re-export goods outside of normal tax and customs rules. Now that the Conservatives have secured a majority, it could look to press on with introducing them.
The UK has not had them since 2012 when the legislation allowing them was allowed to lapse, but international trade secretary Liz Truss believes they could generate “thousands of jobs” in deprived areas of the UK. From 1984 to 2012, there were seven in the country at various stages.
Free ports operate outside of normal tax and tariff rules in the country where they are based, allowing the import, manufacture and re-export of goods entirely free of enforced checks, paperwork and tariffs. Companies operating in such areas are often subject to reduced VAT rates and lower employment tax.
Addressing the free ports plan, Truss said: “Freedoms transformed London's Docklands in the 1980s, and free ports will do the same for towns and cities across the UK.”
Eamonn Butler, who sits on the government’s free ports advisory panel and is also a member of the Adam Smith Institute think-tank on free markets, believes that re-introducing free ports would set a post-Brexit UK “on the right course”, by offering “safe harbour for trade” and showing “hi-tech hubs of enterprise, low taxes, deregulation and trade without restriction can rebalance the economy”.
If under the new free-trade agreement the UK is given the room to diverge from EU rules on subsidies, there are arguments that free trade zones could bring greater benefits.
However, such a move would not come without its downsides, and the main concern is that bringing back such zones could attract undesirables.
In the run-up to the general election, Labour shadow international trade secretary Barry Gardiner said “It is a race to the bottom that will have money launderers and tax dodgers rubbing their hands with glee.
"Free ports and free enterprise zones risk companies shutting up shop in one part of the country in order to exploit tax breaks elsewhere, and, worst of all, lower employment rights”.
In the EU, where there are an estimated 80 such zones, the stance on free ports is that they are permitted but not encouraged. Member states are not allowed to support firms located in the zones under EU state aid rules, and they argue that it creates unfair competition between business operating within them and those adhering to normal laws outside.
The European Commission is also of the opinion that they “pose a risk as regards to counterfeiting”, since criminals are then able to easily import and tamper with goods, before re-exporting them without any customs intervention from the local state.
If the Boris Johnson ministry is prepared to re-introduce free ports to encourage trade, then it must be prepared to grapple with the risks.