Freeports are no panacea for risks of no-deal Brexit
Innovative approaches are welcome but offer only limited benefits
THE EDITORIAL BOARD Add to my FT
The port of Trieste, in Italy, has kept its freeport status since it was originally awarded by the Holy Roman Emperor Charles VI in 1719
AUGUST 8 2019
Ports have always been places where the rules do not strictly apply.
Attracting merchants, sailors and travellers, they were spaces for exploration, innovation and, frequently, transgression.
A proposal by the UK government to create 10 so-called freeports after Britain leaves the EU aims to bring some of this spirit back to coastal parts of the country.
Such fresh thinking for how to address Britain’s economic divides is welcome, but the freeports are no silver bullet.
The threat of disruption from a no-deal Brexit cannot be defused so easily.
Critics rightly point out that freeports — areas where goods can be brought in customs free, stored or processed and then re-exported — are allowed within the EU.
The proposal from the British government, however, appears to mix these areas with “special economic zones” where companies are offered tax advantages and the kind of urban development corporations that, through a more streamlined planning process, created the financial centre Canary Wharf in a former industrial part of London during the 1980s.
In the US, where there are around 230 “foreign trade zones”, freeports are often used to cope with an anomaly in the customs regime: parts can face a higher tariff than finished goods.
Freeports allow for components to be brought in tariff free and used to assemble products which then only have to pay the lower duty when they are exported to the US.
Without the free port the associated manufacturing jobs may not be in the US at all.
This tends to be less of a problem for EU member states.
Instead, the trading bloc’s 82 freeports tend to be hubs for the logistics industry thanks to streamlined customs procedures.
Bremerhaven, a container port situated next to the Free Hanseatic city of Bremen, is still a free zone.
Meanwhile, the port of Trieste, in Italy, has kept its freeport status since it was originally awarded by the Holy Roman Emperor Charles VI in 1719.
The evidence on the effectiveness of such zones is mixed.
When tariffs are low anyway, opt-outs have less value.
They can also lead to jobs just shifting from outside the zone to within it rather than creating any overall increase in activity.
Their success depends on access to transport, skills and capital close to the port.
They may play a role alongside other initiatives, however, in bringing business to deprived areas.
Liz Truss, the UK trade secretary, referenced the regeneration of London’s docklands in the 1980s, which benefited from a new light railway line along with the development corporation.
Outside of EU state aid rules, the government could more easily offer tax incentives for investment as well. Brexit has provided a wake-up call for national politicians similar to the riots in Liverpool and London during the 1980s, which spurred the creation of development corporations, notably the Merseyside Development Corporation that regenerated Liverpool’s Albert Docks as well as the London Docklands Corporation.
The EU referendum vote demonstrated that many of those living in coastal areas around the country were similarly frustrated and alienated by the direction of the UK and living standards.
Freeports will not be a substitute for sensible macroeconomic policies.
Canary Wharf, now among the most successful examples of an urban regeneration programme in the UK, went bust after the early 1990s recession.
It only became a success when the economy recovered.
Urban regeneration will not offset the economic damage of a no-deal Brexit to areas dependent upon manufacturing exports to the EU.
Letter in response to this article: Northern Ireland itself is a potential freeport / From Harald Tobermann, Edinburgh, UK
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