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Freeports – Hot Stuff or Hot Air?

Freeports, the post-Brexit panacea – coming soon to Teeside, London Gateway, Liverpool City Region, Humber, Felixstowe (that’s us), Southampton, Plymouth and East Midlands Airport…phew..

Here at Jordon we’ve been monitoring the freeports initiative for some time as we’ve dealt with Brexit over the last 4 years.  Lately we’ve uncovered a clear divide in opinion of whether the benefits being touted will be game changing or simply that the whole notion will quietly fade away as businesses struggle to find ways to benefit.

The EU currently has about 80 freeports but this number appears to be winding down due to a reason similar to us in 2012, where UK Government closed all the UK’s freeports (yes we had them whilst we were in the EU), because apparently there was no evidence of economic benefit.  However the government believes by now not being a member of the EU we can re-introduce them and do things differently, which on one hand is correct – but as we know trade is a two way street, which we’ll come to later.  Parliamentary transcript here https://hansard.parliament.uk/commons/2020-01-23/debates/9D857590-4AEA-400B-AD93-66C933694579/FreePorts

The good

So we know freeports are in general exclusive zones where normal rules and taxes don’t apply, but what are freeports actually for?  If you ask what a freeports objective is the government paper makes clear:

  1. To establish Freeports as national hubs for global trade
  2. To promote regeneration and levelling up
  3. To create hotbeds of innovation

When you look at those three points it feels good, if a bit woolly, yet there seems to be an awful lot riding on the private and third sector to invest heavily into the idea.  The benefits have to be clear, and crucially workable to create new business opportunities and jobs, not simply move activity from one place into a more attractive one creating economic displacement.

Here a VP of a manufacturing software company as well as a Southampton Chamber representative talk up the benefits of freeports. https://www.theengineer.co.uk/freeports-work/

The bad

But the immediate risk, if they work as proposed, is an uneven playing field and exported goods may be hit with larger tariffs in some countries.  As we write this it’s been discovered that 23 countries already have specific clauses in their trade agreement that do just that.  Read this article at the FT about this latest blow https://www.ft.com/content/625d1913-9242-4d97-9d0b-9cd6925c4e0e

Only time will tell how the revitalised perception of freeports tally up with the global realities of international trade.  The marketing literature is certainly impressive and clearly a lot of money is being spent on making freeports look attractive to prospective investors.  We have been in meetings about our freeport in Felixstowe with our local Chamber but still nothing particular pops out as truly beneficial, compared to what alternative customs options exist now post-Brexit.  This is an important point I think which is missed by the press.  Of course if we had a client that wanted to use a Freeport we would help facilitate their requirements, because this is what we do.  At present though Freeports aree a mysterious and intriguing proposition that we are exploring from all angles.

Robert Keen from our trade association BIFA is pessimistic about the value of Freeports, have a read what he has to say as we believe this is one of the more informed views. https://www.lloydsloadinglist.com/freight-directory/adviceandinsight/Freight-association-remains-unconvinced-by-UK-freeports-concept/78945.htm#.YJj76LVKiUm

You could (and should) argue a good FTA would easily topple any ‘benefit’ from a freeport.  So maybe this is where the energy needs to be spent – to get better FTAs than the ones currently being agreed, which at the moment are generally continuity agreements.  After all, this is what Brexit promised us, but has yet to deliver.

UK Chancellor Rishi Sunak, probably the biggest driver of the freeport resurgence, wrote a report in 2016 highlighting amongst other things, what he believed were the employment benefits.  We dug out a copy here 161114094336-TheFreePortsOpportunity  It makes interesting reading and certainly seems compelling.  But now we’re finally here the examination and scrutiny in the real world, where the political landscape has changed significantly, has started.  And it needs a lot more than simply ‘believing’ in it, like what we experienced with Brexit (border friction was never negotiable).  When you are dealing with international trade you simply have to stick to the cold hard facts because both parties need to end up on the same page.  Global Trade Review here illustrates what the parliamentary committees conclusion is so far https://www.gtreview.com/news/europe/trade-benefits-of-uk-freeports-limited-says-parliamentary-committee/

The ugly

Then finally creeping in at the end there is what is currently deemed a bit leftfield, but for the sake of inclusion (because you never know – remember project fear), that these freeports will in fact become Charter Cities. Essentially deregulation zones with low workers rights, tax havens for the rich and lots of dodgy stuff going on like money laundering, smuggling, etc.  Who on earth would want that?  See here  https://bakerstreetherald.com/ for some intense reading about big data, private universities, global business and finance, billionaires, think tanks and governments involved in some grand scale shift in global power that will change the world forever.  Don’t have nightmares…

So as freeports go live later this year we’ll be keeping a close eye on developments and eager to see how the vision will be achieved.  For us here in Felixstowe we are already seeing huge warehouses go up and we would hope planning laws are kept in check to negate any negative environmental impact on the area.  This is sleepy Suffolk after all.  But with a freeport radius of 27km locals should be on guard that development will probably intensify if the freeport model of success is to be achieved.  We would also hope the government provides an impact assessment for economic growth and job creation.

In summary, if we really can achieve ‘international hubs for manufacturing and innovation’ we need to do this to counter any negative effects, ironically, of Brexit. But whether we ever needed freeports to do all this in the first place is of course the question.

Watch this space.

JS

11/05/2021
Author: Jon