Part of the current government’s economic strategy after leaving the EU is to create ten new ‘free ports’.
Liz Truss, International Trade Secretary, this would lead to “thousands of jobs. Freedoms transformed London’s Docklands in the 1980s, and free ports will do the same for towns and cities across the UK.”
But what are free ports and why are they considered “a risk as regards to counterfeiting” by the European Commission?
What are free ports?
Free ports are also called ‘free trade zones’. They refer to areas at airports or sea ports where the country’s usual tax regulations are not in force. If somewhere is designated a free port, it is physically still part of the country, but is not considered part of that country for tax purposes.
This is not a new idea and its aim is to promote economic activity by reducing the tax cost to businesses. Sometimes this mean a zero tax charge, sometimes a very small amount is levied. Basically, goods can be imported, made into something else and exported without the accepted customs checks, importation tax or administrative process. But if the newly made goods are then imported to the rest of the country, tax applies as usual.
If you are a company in one of these free trade zones then you can also potentially benefit from lower employment taxes and VAT.
Does Britain have any free ports now?
No, Britain last had five free ports up until 2012. The UK law allowing them to exist timed out and the government did not renew it. Despite claims made by government officials to the contrary, other EU members do have free ports, as do other countries in the world. EU regulations mean ours are “in a more limited form” than other countries, but the principle is the same.
What are the benefits to the UK?
The idea is to boost manufacturing in the area of the free port. It makes the place more attractive to companies because they can amass all the component parts of their product in this on tax free place. This massively cuts down on the potential import tax bill that would otherwise be payable on every imported part. The finished product becomes the only item that faces import tax.
As reported by the BBC, “Eamonn Butler, a member of both free market think-tank the Adam Smith Institute and the government’s new free ports advisory panel, said the zones would set the UK “on the right course” after Brexit. He said they would “provide safe harbour for trade in turbulent times and show that hi-tech hubs of enterprise, low taxes, deregulation and trade without restriction can rebalance the economy”.
What are the problems with free ports?
It is obvious that fewer checks, particularly at customs borders, heighten the risk of counterfeiting, money laundering and tax evasion.
As reported in The Guardian, Barry Gardiner, shadow international trade secretary, said: “It is a race to the bottom that will have money launderers and tax dodgers rubbing their hands with glee. Free ports and free enterprise zones risk companies shutting up shop in one part of the country in order to exploit tax breaks elsewhere, and, worst of all, lower employment rights. The British people did not vote for this new administration and they certainly did not vote to see their jobs and livelihoods threatened in favour of gifting further tax breaks to big companies and their bosses.”
