UK government's plans for freeports meet mixed reception

Tom WickerFriday 26 February 2021

In the United Kingdom’s post-Brexit economic landscape, the creation of new freeports is a major feature, albeit one that’s not without controversy. First mooted by the government in 2019, the bidding process for ten such facilities around the UK – offering customs and tax breaks which it’s hoped will attract business – began in November 2020.

The winning sites are anticipated to be announced in spring 2021, and the government says the first batch of freeports will open later in the year.

In a statement accompanying the launch of the bidding, the Chancellor of the Exchequer, Rishi Sunak, confidently announced ‘our new freeports will create new national hubs for trade, innovation and commerce, levelling up communities across the UK, creating new jobs and turbo-charging the economy’.

You can’t eliminate people perpetrating crime, but you can have robust systems in place

John Stevenson
Director, T&I Communications

Freeports, used for the manufacture and storage of goods in transit, are not a new invention, with the earliest incarnations dating back to Renaissance Italy. Today, they sit within ‘free economic zones’ designated by the trade and commerce administrations of countries.

Freeports can make major financial contributions to a jurisdiction. For example, the Jebel Ali Free Zone in Dubai is one of the world’s largest free zones. It accounts for approximately a quarter of total foreign direct investment into the country and contributes about the same amount to Dubai’s gross domestic product, according to its owner, DP World, on its company website.

However, freeports have had a complicated history. Criminal organisations may attempt to exploit – for crimes such as money laundering – the same regulatory flexibility intended to attract business. Freeport critics have alleged an inherent lack of transparency.

In the past few decades, the Dubai Central Bank has signed agreements with free zones within the country, requiring them to share information on any financial transactions suspected of having links with terrorism or other crimes.

Even as the UK was announcing its bidding process in 2020, the EU introduced new rules to identify suspicious activities at freeports and zones.

Eric Mayer is Secretary of the IBA Anti-Corruption Committee and a partner and Head of Compliance at GSK Stockmann. Over his varied career, he has worked in-house and in regulatory law enforcement, gaining experience of many freeports and zones. ‘In special economic zones, you’ll have special activities’, he says wryly, as criminals exploit loopholes.

A freeport’s relationship with its immediate surroundings is also important. Arne Gniechwitz, also a partner at GSK Stockmann, says that the freeport within the Port of Hamburg – Germany’s largest seaport – was eventually abolished in 2013 because of a planning dispute between the City of Hamburg and the federal customs administration.

‘The City said we don’t want a freeport because it’s our city and our planning law’, he explains.

The UK government appears to have paid attention to the potential pitfalls of freeports as well as the perks of the model. Gniechwitz flags the government’s offer of public subsidy as unique. He also approves of the inclusivity of inviting applications from ports.

‘If I were the British government, these days, I would do something similar, just for political reasons – it’s great’, he says.

In addition, the UK’s bidding prospectus emphasises that pitches must have local authority support, as well as neighbouring an existing port, and demonstrate how the freeport will meet the economic and employment needs of the local area. As part of this ‘levelling-up’, eligible locations must also warrant economic stimulus.

Francis Tyrrell, a partner at the law firm Pinsent Masons, focuses on infrastructure planning and government affairs. Having studied the prospectus, he says it’s not an exercise in deregulation.

‘There are some elements of encouraging regulatory innovation, but the government has stated that it wishes to maintain standards with respect to security, safety, workers’ rights, data protection, biosecurity and the environment’, explains Tyrrell.

Potentially, he says, planning reforms and other changes that the UK freeport model would introduce will allow companies to react quickly to business needs.

In terms of regulatory oversight, ‘the government’s statements have made it clear they recognise that this has been an issue in other freeports across the world’, says John Stevenson, Director of T&I Communications.

Stevenson is advising on the DP World and Forth Ports-backed Thames Freeport bid, which spans two port operations at London Gateway and Tilbury, and a manufacturing site at Ford Dagenham.

Stevenson highlights the industry charter signed in January by all the major UK ports, committing to the Organisation for Economic Co-operation and Development Code of Conduct for Clean Free Trade Zones, as well as the UK’s money laundering regulations.

In addition, DP World and Forth Ports have ‘authorised economic operator status’, an international recognition of the security of their supply chain and customs procedures. ‘You can’t eliminate people perpetrating crime, but you can have robust systems in place’, says Stevenson.

Champions of freeports also flag the potential environmental benefits, from government subsidy encouraging the development of ‘clean’ technology on-site, to the revitalisation of rivers and other existing transport networks as supply routes for these facilities.

Car manufacturer Ford has been quoted as saying that it plans to automate its Dagenham site in the proposed Thames Freeport, to reduce pollution and vehicle congestion in the area.

There are still many questions being asked by critics of the freeport model and the government’s approach. Some have argued that the bidding should have started far sooner, in light of Brexit. Others say that freeports will simply move business from one part of the country to another and reduce tax income.

In January, England’s fractious relationship with the devolved administrations saw the Scottish government propose its own take on the freeport model.

Eric Mayer points to the wider issue of each jurisdiction’s freeport following its own rules as a headache for companies trying to negotiate the logistics of a supply chain. ‘It’s very difficult to create a freeport that caters for the needs of all industry segments’, he says. Some businesses, he adds, go for a convenient location over tax breaks.

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