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Freeports
27 Sep, 2019

Why does Brexit Britain need them?

When London4Europe Committee member Michael Romberg joined HM Treasury in 1987 he worked on Freeports policy. The question is: what is going to be so bad about Brexit Britain that Leavers think we need them again?

  

Historical rôle of Freeports

In an era of trade barriers, freeports created opportunities for trans-shipment and storage outside normal customs rules. The Hamburg Freeport was founded in 1888. Behind the high walls of the port, goods could enter from abroad without having to pay high German tariffs and meet controls. They could either be re-exported or held until they were “properly” imported into Germany with duty paid.

 

Benefits of Freeports

The UK Trade Policy Observatory at the University of Sussex has published its analysis of freeports. With a general lowering of tariffs, freeports are much less useful than they had been historically. UKTPO finds that freeports "are particularly useful in developing countries, with high tariff rates and inefficient bureaucracies.".

 

Conservatives’ romantic view

Hamburg was a successful port. While its C19th growth was no doubt in part due to the Freeport, its continued prosperity post WWII was down to modernisation and the strength of the German economy.

Traditional British docks by contrast were hampered by a mix of unfortunate locations, poor labour relations and the restrictions of the Dock Labour Scheme, and low investment.

The Thatcher Government sought to row back the frontiers of the state and free up entrepreneurs. Enterprise zones (large tax reliefs, few planning restrictions) and freeports were part of that broad push. Both were special areas where the normal rules did not apply.

The Thatcher government faced a country that was ambivalent about the Government’s economic agenda. It could not liberalise rules everywhere. It had to proceed cautiously.

  

Freeports in the EU

As a general statement, the customs benefits of a Freeport are also available under other customs regimes, such as a customs warehouse. The big difference is that controls in a customs warehouse are based on record-keeping while controls in a Freeport are based on physical movement across the perimeter fence.

It would be possible to provide other state aids in a Freeport (or elsewhere) that were not related to customs.

 

Why UK Freeports failed in the 1980s

The success or otherwise of Enterprise Zones – which still exist in modified form - is quite hard to assess. Canary Wharf is a huge success, though that was in part due also to public investment in the Jubilee Line and DLR; also the developer went bankrupt.

As with most regional policy instruments, they were better at regenerating places than providing good outcomes for the people who lived there. As is often the case with micro-place instruments where benefits are available automatically additionality was low because many jobs were shifted into the zones rather than created from scratch; often the shift was only a short distance. So the cost per job created was very high.

The UK’s freezones were less successful than enterprise zones on any terms. Partly their attractions were smaller – though for example a firm of jewellers at Birmingham Airport valued the additional security of the perimeter fence. Partly their choice of location was determined not on the basis of opportunity but on regional policy need, so their chances of success were lower.

Eventually the UK’s freezones experiment was closed

  

Freeports and Brexit

They have come back with Brexit as the Government tries to tap into the buccaneering spirit &c &c.

But the question is: why? If the point of Brexit is free up Britain’s animal spirits, why do so only in a few zones? If there are EU rules holding us back, why not get rid of them for everyone?

Is it just to provide Brexiters with cheap – and inaccurate – lines claiming that the EU forbids freeports (list of EU freeports here)?

 

Conclusion

Leavers have no agreed reason for Brexit. The different tribes of Leavers struggle to explain coherently and in a way based on facts and evaluation what the problem is that Brexit is meant to solve and why it is likely to do so.

So they resort to slogans. Those slogans do not need to be accurate. They just need to sound good. “Leaving the EU means that we can have freeports” is just another Brexit slogan: false and empty.

 

  

The London4Europe blogs page is edited by Nick Hopkinson, Vice-Chair. Articles on this page reflect the views of the author and not necessarily of London4Europe.