Free ports would deliver ‘limited’ economic boost

By Grimsby Telegraph | Posted: 28 Feb 2019

Creating free ports in the Humber could reportedly create 64,000 jobs in North Lincolnshire. But new research suggests those figures are overblown, parliamentary correspondent Patrick Daly reports.

The Humber has become a leading voice in the pursuit of free port status after Brexit – a move which experts think could bring manufacturing and prosperity to the region once again.

It was suggested in a report last summer that creating “super charged free ports”  – allowing them to set their own import and export tax rates, while also securing tax breaks for manufacturers within the ports’ boundaries – could create 76,000 jobs on the Humber and make each household £1,500 better-off every year.

That research came from economic modelling done by former Treasury economist Chris Walker, published by consultants Mace, in a move that sparked interest from ministers and MPs. Treasury pair Liz Truss, the Chief Secretary, and Robert Jenrick, the Exchequer Secretary, have both voiced their support for exploring the possibility of establishing free ports after Brexit and Trade Secretary Liam Fox is understood privately to be keen to see a trial in the UK.

Under current EU rules, creating such free port destinations would be difficult.

But fresh analysis has claimed that setting up free ports in the Humber and elsewhere in the UK could flood the country with cheap imports and displace jobs from elsewhere.

Academics from the UK Trade Policy Observatory (UKTPO) – a joint partnership between the University of Sussex and Chatham House, an international affairs think tank – told a room full of economists and business leaders that evidence of free trade zones elsewhere in the world indicated that they were unlikely to improve regional economies.

Dr Ilona Serwicka and Dr Peter Holmes said the Mace report used the USA as its model for how free ports could be a success, a country which faces high tariffs on some manufactured parts.

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In the US, free ports are a way of bringing in component parts for a final product at a cheaper price, and then facing just a single tariff for the completed end product – a problem not as prevalent when trading into the EU, where tariff mark-up is higher on final products rather than parts. In America, the academics said, free ports had encouraged a rise in cheap imports to cut manufacturing costs.

They concluded that “overall, there is limited scope for substantial savings in the UK context”.

There was also a risk, said Dr Holmes, that the EU would slap anti-dumping taxes on goods being produced in UK free ports if it calculated that manufacturers based in these zones were getting unfair support from Government-approved tax breaks.

“Free zones should not be seen through the prism of post-Brexit opportunities as a tool that – unfettered by the EU state aid rules – can deliver a major boost to economic growth potential after Brexit,” they concluded.

Paul Swinney

Paul Swinney, pictured above, director of policy and research at the Centre for Cities think tank, said any free trade zones along the northern stretch of the east coast were more likely to attract low-skilled jobs than high-end manufacturers.

He said those producing goods which required a highly-trained workforce would continue to be based around big population centres, rather than in coastal areas.

Mr Swinney said: “The outcome is that these businesses are locating in the centre of London or the centre of Manchester or the centre of Birmingham, despite those being more expensive areas. So why all of a sudden would cheap land be something they want to pull themselves towards?

“These places [port areas] aren’t offering the benefits they are looking for – they are prepared to pay a premium for that [access to skilled work]. What type of businesses would free ports appeal to, therefore? Well, it is your low-skilled type businesses because they are trying to cut the bottom line. Amazon distribution centres are based out where they are because they are trying to cut the bottom line.

MORE: Fifth port proposal for the Humber

“The issue here is that free ports or enterprise zones reinforce economic structures that we see in places rather than trying to shape them.

“Free ports sound great on a press release but there is a challenge about the impact it has. You would expect it to attract low-skilled type manufacturing that is just trying to take advantage of the tariff reduction rather than the more advanced manufacturing stuff that is mostly located in the south-east.”

He said free ports looked good on paper but argued that the “economics don’t stack up”.

“This grabs headlines for sure,” the Sunderland-raised director said. “It has definitely got a bit of attention and I can see why the idea sounds great. ‘Oh it will do a special thing for our area that’s going to bring more of these jobs’ – what politician wouldn’t want to be saying that? I understand the politics behind that but I think the economics behind it don’t stack up.

“What I get worried about is policies like this, which are quite glitzy, end up taking up a huge amount of public servants’ time while some of the more fundamental challenges are not tackled.”

Martin Vickers, pictured above, MP for Cleethorpes and Immingham and chairman of the cross-party group on free ports, said he remained committed to securing a free ports trial at the Humber ports to test the water before extending the status to other ports across the country.

Associated British Ports (ABP), owner of the four ports on the Humber, supports the initiative and have even set aside land near Hull which could be used by a manufacturer to take advantage of free port status. 

It has, however, hinted that the move was only worth exploring if Britain was outside the customs union, as reported.

Mr Vickers said: “We are looking at proposals for a pilot scheme, which was in some ways what the Mace report argued for with its ‘super-charged’ free ports.

“I personally think the Government will only be willing to do a small trial. The areas that have the most worked up proposals are clearly Teesside, which has mayor Ben Houchen’s support, and the Humber ports where ABP see it as a viable option.

“I think our focus should be on establishing the case for the Government to grant a pilot and give it the OK for three to five years, with a view to rolling it out at other ports in the country. It should be looked at as a regeneration project for coastal communities and part of the Northern Powerhouse initiative.”

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