27 February 2019
Ilona Serwicka is Research Fellow in the economics of Brexit and Peter Holmes is a Reader in Economics at the University of Sussex. Both are Fellows of the UK Trade Policy Observatory.
There are proposals to relax customs rules and duties in specially-designated areas known as free ports or more generally free zones. But these would make little impact on rebuilding the UK economy after Brexit, reveal Dr Serwicka and Dr Holmes in our latest Briefing Paper ‘What is the extra mileage in the reintroduction of ‘free zones’ in the UK?’
The creation of free zones, which would give companies the ability to defer payment of taxes on imported inputs and in some circumstances even avoid them altogether, have been mooted as a way to create thousands of new jobs, rebuild the nation’s manufacturing industry and regenerate deprived areas of the country once the UK leaves the EU Single Market and Customs Union.
But our analysis states that potential benefits and savings for businesses operating in free zones with simplified customs procedures, relief on customs duties and tariff inversion are likely to be limited in the UK.
While free zones could in some circumstances help increase export opportunities after Brexit, the academics warn that any economic benefits brought to free zones could simply be diverting economic activity from elsewhere. In the US their main impact has been to promote imports.
Dr Serwicka, Research Fellow in the Economics of Brexit at the University of Sussex, said:
“While some form of free zones could help with shaping export-oriented and place-based regional development programmes, UK policymakers will need to devise measures that counteract the possible risk that economic activity will simply be diverted from elsewhere. They will also need to offer a wider set of incentives for trade and jobs while keeping within the WTO and any ‘level playing field’ obligations that arise from new agreements.”
Our analysis questions previous research claiming free zones in the UK could generate up to 150,000 new jobs, add £9bn a year to the UK economy and narrow the North-South divide. We believe a smaller proportion would be genuine additional jobs and economic activity rather than just redistributed from elsewhere in the UK.
We find that while free zones in the US prevent “tariff inversion” costs, where tariffs on intermediate goods exceed tariffs on finished goods, such opportunities are slight in any likely UK trade policy scenario. The briefing paper also warns that free zones have costs as well as benefits.
The researchers observe that to have any noticeable effect, UK trade policymakers would need to offer a wider set of incentives in addition to just free zones. Yet, such incentives could be limited in scope by World Trade Organisation rules and “level playing field” obligations (state aid rules) included in a future trade agreement with the EU that the UK would be bound by.
Analysis of free zones operating within the US by Drs Serwicka and Holmes suggested limited evidence on their ability to create genuinely new jobs rather than just encourage companies to shift jobs from other parts of the country.
Dr Holmes, Reader in Economics at the University of Sussex, said:
“The UK Government will have to be innovative and inventive if it’s to build fruitful new trading relationships as a sovereign nation outside the EU.
“Free zones alone can’t do very much to promote overall regeneration.
“They will need to be incorporated into a far more comprehensive plan alongside other regional incentives to revitalise areas hollowed out by de-industrialisation and in need of services jobs as well as manufacturing.”
Disclaimer:
The opinions expressed in this blog are those of the author alone and do not necessarily represent the opinions of the University of Sussex or UK Trade Policy Observatory.
Republishing guidelines:
The UK Trade Policy Observatory believes in the free flow of information and encourages readers to cite our materials, providing due acknowledgement. For online use, this should be a link to the original resource on our website. We do not publish under a Creative Commons license. This means you CANNOT republish our articles online or in print for free.
To:
Dr Holmes, Reader in Economics at the University of Sussex.
RE: UKTPO
“The UK Government will have to be innovative and inventive if it’s to build fruitful new trading relationships as a sovereign nation outside the EU.
“Free zones alone can’t do very much to promote overall regeneration.
“They will need to be incorporated into a far more comprehensive plan alongside other regional incentives to revitalise areas hollowed out by de-industrialisation and in need of services jobs as well as manufacturing.”
What is your comprehensive plan and recommended regional incentives?
Have these received a fair hearing at the decision-making level of HMG?
Hi! Only just saw this. No simple answer to designed a plan that would work to address problems of declining areas. At minimum Social & educational infrastructure has to be restored.
The brief observes that to have any noticeable effect, UK trade policymakers would need to offer a wider set of incentives in addition to just free zones while warning that such incentives could be limited in scope by World Trade Organisation rules and level playing field obligations (state aid rules) included in a future trade agreement with the EU that the UK would be bound by.
Only just saw this. You sum it up well. Even if UK refused to sign FTA with EU it would still be bound by WTO rules.
[…] (UKTPO) also signals caution around evidence of the wider economic benefits of freeports. They query previous research claiming free zones in the UK could generate up to 150,000 new jobs, add £9 […]
[…] generous, they could in theory trigger action from the EU, under the terms of the new trade deal. Some trade experts argue that free ports could simply move investment from other parts of the […]
[…] generous, they could in theory trigger action from the EU, under the terms of the new trade deal. Some trade experts argue that free ports could simply move investment from other parts of the […]
[…] generous, they could in theory trigger action from the EU, under the terms of the new trade deal. Some trade experts argue that free ports could simply move investment from other parts of the […]
[…] generous, they could in theory trigger action from the EU, under the terms of the new trade deal. Some trade experts argue that free ports could simply move investment from other parts of the […]
[…] generous, they could in theory trigger action from the EU, under the terms of the new trade deal. Some trade experts argue that free ports could simply move investment from other parts of the […]
[…] generous, they could in theory trigger action from the EU, under the terms of the new trade deal. Some trade experts argue that free ports could simply move investment from other parts of the […]
[…] generous, they could in theory trigger action from the EU, under the terms of the new trade deal. Some trade experts argue that free ports could simply move investment from other parts of the […]
[…] generous, they could in theory trigger action from the EU, under the terms of the new trade deal. Some trade experts argue that free ports could simply move investment from other parts of the […]
[…] is, however, heedful of grifters and cronies. Free ports are a gimmick that’ll only divert jobs from nearby areas whilst encouraging (pdf) money laundering and tax evasion. The towns fund is […]
[…] is, however, heedful of grifters and cronies. Free ports are a gimmick that’ll only divert jobs from nearby areas whilst encouraging (pdf) money laundering and tax evasion. The towns fund is […]
[…] and they were abandoned as unprofitable in 2012. Other EU countries still have them. There is no evidence that they bring greater prosperity to local communities. In reality, like many of the sequelae […]