18.5.2021 | Ports

Freeports, hot stuff or hot air?

Jon Swallow of logistics specialists, Jordon, questions Freeport benefits and asks is it good, bad or ugly? 

Freeports, the post-Brexit panacea – coming soon to Felixstowe, Teesside, London Gateway, Liverpool City Region, Humber, Southampton, Plymouth, and East Midlands Airport.

Here at Jordon, we’ve been monitoring the freeports initiative for some time as we’ve dealt with Brexit over the last four years. Lately, we have 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 the 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 the one hand is correct – but as we know, trade is a two-way street, which we will come to later. You can view the Parliamentary transcript here.

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 is a VP of a manufacturing software company and a Southampton Chamber representative talking up the benefits of freeports.

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.

Only time will tell how the revitalised perception of freeports tallies up international trade’s global realities. The marketing literature is undoubtedly impressive, and clearly, a lot of money is being spent making freeports look attractive to prospective investors.  We have been in meetings about our freeport in Felixstowe with our local Chamber.

However, nothing 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.  However, at present, Freeports are 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, see what he has to say as we believe this is one of the more informed views.

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. 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 dealing with international trade, you merely 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 committee’s conclusion is so far.

The ugly

Then finally creeping in at the end, there is currently deemed a bit leftfield, but for the sake of inclusion (because you never know – remember project fear), these freeports will become Charter Cities. Essentially deregulation zones with low workers’ rights, tax havens for the rich and lots of dodgy stuff like money laundering, smuggling, etc.  Who on earth would want that?  See here 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. 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.

This article is also available at Jordon.