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Free Ports Won’t Help Brexit Britain’s Economy

Friday, 01 March 2019 | 16:00

New research shows that the creation of free ports with relaxed customs rules and duties would have little impact on economic growth in a post-Brexit UK.

Free ports have been suggested as a way of boosting trade after the UK leaves the EU, but research by the University of Sussex-based UK Trade Policy Observatory (UKTPO) into the potential of free ports in post-Brexit Britain found that relief on customs duties and tariff inversion are likely to be limited in the UK and any economic benefits brought to free zones could simply be diverting economic activity from elsewhere.

Briefing paper ‘What is the extra mileage in the reintroduction of ‘free zones’ in the UK?’ concluded that “when tariffs are low the direct benefits of free zones are small. They do not allow suppliers to obtain duty-free access to final markets (except where inverted tariffs are avoided), and they merely defer any duty payments, a small gain to cash-flow.

“Although there are potential benefits and savings that businesses can accrue from simplified customs procedures, and relief on customs duties and tariff inversion, we believe that such benefits will be very limited in the UK context.”

Authors Ilona Serwicka and Peter Holmes stated that Brexit would not widen the scope of enterprise zones significantly as the UK would still be “subject to WTO Subsidies Agreement rules and to any commitments to EU state aid rules under ‘level playing field provisions’, (such as have been included in recent EU FTAs) and would certainly be included in any post-Brexit trade deal”.

The EU would be concerned about any relaxation of labour or environmental standards and object to tax breaks, potentially invoking Anti-dumping or Countervailing duties, they stated.

Policy impact evaluations often suggest that the net benefit of free zones is limited, stressed the think tank report, which pointed out that in the example of the US, while there are many jobs in the US Foreign-Trade Zones, there is little evidence of how many are net creations.

The report suggested that while free ports may simplify some trade in goods, policymakers should focus on devising measures that counteract possible diversion of economic activity from elsewhere, and offer a wider set of incentives than just free zones.

To devise a strategy for attracting businesses to the UK after Brexit, the UK government must ensure that frictions to UK-EU trade are minimised, it warned.

UK free zones were in operation from 1984 – when areas of Birmingham, Belfast, Cardiff, Liverpool, Prestwick and Southampton were designated to become the UK’s first free zones – until July 2012, when the UK stopped renewing the licenses for free zones. Prior to 2012, there were five free zones in the UK – located in Liverpool, Prestwick, Sheerness, Southampton and Tilbury – which were classed as ‘control type II free zones’.
Source: Port Strategy

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