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The UK government has opened a bidding process for the creation of up to 10 new freeports, promising they are a simple way to “turbo-charge” the economy, especially in deprived areas.
However, far from being a magic wand, the reality is somewhat more challenging.
The country has had freeports before, but those – established in the 1980s and 1990s in ports like Liverpool and Tilbury – eventually withered and died.
All they could offer was freedom from customs duties, and this was not enough on its own, as more or less the same benefits can be gained by importers and exporters through normal customs procedures.
This time around, UK freeports will have greater attractions, and the official news announcement listed the three key elements envisaged – the order of them is significant.
Firstly comes “streamlined planning processes”; and secondly a “package of tax reliefs”; while last to be mentioned is “simplified customs procedures and duty suspensions on goods” – ie, what freeports in their pure definition are actually all about.
This confirms that, in this context, “freeport” is simply a catchy name for “enterprise zone” and, let’s face it, anything with the word “free” in it sounds good.
A number of UK port operators, including those at Teesport, Felixstowe/Harwich and London Gateway/Tilbury, are enthusiastic bidders, and who can blame them? If you have the opportunity for your port area to become a preferred enterprise zone with favourable planning rules and tax benefits, why wouldn’t you?
The danger, though, is that most of the “new” freeport business will actually be existing jobs and economic activity relocating from now disadvantaged locations in the rest of the UK – perhaps even just down the road from the new freeport. Tellingly, two-thirds of respondents to the government’s consultation process felt there was a significant risk of such displacement taking place. The government has said that when assessing bids from UK ports, “bidders will be invited to provide evidence and potential displacement mitigations as part of their bids”.
Mixed in with this is the question of state aid. Allowable tax breaks and incentives in UK freeports will be influenced by whatever the outcome is of the interminable negotiation between the UK and EU over Brexit. Even then, the WTO has firm rules on subsidies too.
The competitive challenges go far beyond the UK’s borders. The market for genuinely new (rather than displaced) business for freeports is international. Can UK freeports find market niches where they are more competitive than other freezones and enterprise zones worldwide?
Freedom from customs dues and tariffs is simply a given. Rather, what really matters is the extent of the aforementioned tax breaks and incentives, plus a whole range of other, more fundamental factors, including the cost of land, labour and utilities, plus port location, connectivity and critical mass.
In this respect, the freeport (special economic zone) game has many well-established players with greater attractions than those that the new UK freeports are going to be able to offer, even after “turbo-charging”.