Neil Warwick, partner at international law firm DAC Beachcroft, looks behind the headlines of the Government’s Budget announcement, which confirmed the location of eight freeports, with the announcement suggesting that these offer growth opportunities for sectors such as: renewable energy, research and development and healthcare.
The freeports are: East Midlands Airport, Felixstowe and Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames and Teeside.
The stated aim of the Government is that the initiative will:
- Establish the free ports as hubs for global trade and investment;
- Promote regeneration and create jobs; and
- Create a “hotbed” of innovation
The “free ports” terminology is being used, rather than “free zones”. Primarily this is because the outline proposals had to include at least one port (maritime or aviation). The secondary issue is that the term “free zones” has been tainted by the operation of free zones elsewhere in the world.
The parameters for the first round of bids, stipulated that each proposal must be confined to a geographic radius of 45km and must include:
- At least one port;
- One primary customs zone;
- Up to three tax sites of a maximum of 600 hectares;
- As many secondary customs zones as
In practice this means that the tax sites, which will be exempt from Stamp Duties and other taxes, will operate like Enterprise Zones and will be designed to attract manufacturers to set up in these zones, allowing for tariff-free and declaration-fee operations during the manufacturing process. The primary and secondary customs zones are intended to operate in the same way as bonded warehouses, where finished goods or components in just-in-time supply chains can be stored and released on a call-off basis, allowing for a deferment in paying duties and thereby easing cash-flow pressures. The need for at least one physical port is to allow for a point of entry for imports and exports.
The parameters set out by Government have allowed for two models to emerge naturally: a single site free port, and; a multi-port model, or the so-called “virtual free zone”. The single site model lends itself to large scale brownfield regeneration sites with deep water berths such as Teesworks in Redcar. The multi-port model is more complex and allows for a number of the components of the free port model to be incorporated in a “mix and match” approach.
Provided there is at least one point of entry (either a maritime port or an airport) or sometimes a combinations of types of “port”, it is possible to have the customs zones and the tax sites within the 45km radius with “virtual electronic corridors” between each designated site. This model lends itself to more densely populated areas as well as the traditional roll-on/roll-off ports.
Whilst this version of free ports is a relatively new concept to the UK and has the potential to be complex, many of the component elements required as a matter of law to create a free port already exist and could be quickly adapted to bring the concept to life. For example the ability to create bonded warehouses and Enterprise Zones together with the ability to carry out electronic clearances.
Provided there is flexibility to utilise existing legal structures together with a commitment to workers’ rights and a simplified governance system, this version of free ports should be positive for the UK economy.
