An international logistics expert has said UK businesses should view the government’s rhetoric about its proposal to introduce freeports after Brexit with some scepticism for now.
Adam Johnson, director of Leeds-based Tudor International Freight, said the government had just created a Freeports Advisory Panel, including ministers from the Treasury and Department for International Trade, plus experts in areas such as technology, business, economics and tax. It had done this with a view to launching up to 10 freeports across the country, following Britain’s departure from the EU, scheduled to happen by 31 October.
Mr Johnson said:
“Freeports, which can include airports as well as shipping destinations, are designated areas within a country with special economic status.
“Traders don’t have to pay tariffs and must supply only reduced documentation for goods entering these zones from abroad. Businesses retain these advantages if they sell, store or process such imports – by using them as components and then re-exporting them, for example – without them entering the wider country. The latter would mean obligations such as duty payments perhaps being deferred, but not avoided.”
Mr Johnson said international trade secretary Liz Truss had claimed the envisaged freeports would transform towns and cities across the UK, onshoring enterprise and manufacturing as gateways to our future prosperity and creating thousands of jobs.
“The first point to make about these assertions is, at the risk of stating the obvious, introducing 10 freeports is unlikely to go anywhere near mitigating the economic downsides of a no-deal Brexit or even the UK leaving the EU customs union alone. These results could include bankruptcies and job losses.
“Another reason for slight scepticism among businesses is the government announced in March there would be no tariffs on 87 per cent of our imports for up to a year, if – as seems increasingly likely – we leave the EU without a deal. Freeports would therefore apparently bring few additional benefits to international traders within them, at least initially, other than reduced form-filling and perhaps a slightly lighter regulatory regime than would apply elsewhere in the country.”
Mr Johnson said there were about 3,500 freeports in around 135 countries worldwide but evidence of the benefits they delivered also seemed patchy.
“The UK Trade Policy Observatory, run by Sussex University and the Chatham House thinktank, probably Britain’s principal trade experts, for example, has said freeports’ effectiveness depends significantly on local factors. These include their designs, capital, ability to offer skilled labour and transport infrastructures.
“In addition, there are always the possibilities that freeports will fail to increase overall economic activity, deplete commercial life in other locations and cause government tax revenues to drop. That’s because they act as magnets for the transfer of existing business operations from elsewhere.”
Mr Johnson said one theoretical way of increasing the effectiveness of freeports would be to combine them with other measures, such as subsidies and further tax incentives. But, as the Institute for Government, another respected thinktank, had pointed out, these would risk infringing the rules of organisations such as the EU – currently easily our largest commercial partner, with which we will still be very anxious to trade significantly after Brexit – and the World Trade Organisation.
“One final reason for British businesses to suspect the government may be over-hyping the benefits of freeports was the suggestion by new Prime Minister Boris Johnson, during the Conservative leadership election campaign, that we had to leave the EU to be able to create these zones.
“In fact, there are currently about 80 similar areas within the bloc and we lack them here partly because the domestic legislation making them possible lapsed in 2012 and the Conservative-led coalition government of the time didn’t renew it.”
Mr Johnson acknowledged freeports could offer advantages to the wider economy, including by encouraging the clustering of individual or related industries, and said, if they were reintroduced to the UK, he would certainly wish them well. But, for all these reasons, he would advise British businesses to take the government’s claims about their benefits with a pinch of salt, at least until convinced otherwise.
For further information about Tudor International Freight, please visit https://tudorfreight.co.uk.