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Abu Dhabi, UAEMonday 10 December 2018

Will free trade zones boost UK's economy post Brexit?

Former fishing powerhouse Grimsby could be revived, say proponents of free zones, but others argue such moves would not benefit anywhere in the UK

FILE PHOTO: Fish buyers stand next to boxes of cod during the daily auction at the fish market in Grimsby, Britain November 17, 2015. REUTERS/Phil Noble/File Photo
FILE PHOTO: Fish buyers stand next to boxes of cod during the daily auction at the fish market in Grimsby, Britain November 17, 2015. REUTERS/Phil Noble/File Photo

Business leaders in Grimsby, in north east Lincolnshire, England, attracted derision late last year when they called for Grimsby docks to be designated a free trade zone.

Professor Alex De Ruyter of Birmingham City Business School, the founder of the country’s first Brexit studies centre, said the plan for a “free port” in the town was “pie in the sky thinking”.

But others were more positive. “As Britain charts a course for Brexit, the government should give our ports the freedom to recapture their proud history as the engines of our economy,” Rishi Sunak, Conservative MP for Richmond (Yorkshire), said at the time.

A free port, or free trade zone, is an area geographically within a country’s boundaries, but designated outside of its customs area. In theory, a free port allows manufacturing and value added processing to take place on goods before customs are imposed.

Once home to the largest fishing fleet in the world, Grimsby’s fishing industry has since dwindled, and in 2016 it voted 70 per cent in favour of leaving the European Union.

What remains of the maritime trade in this northern backwater is a fish processing industry that employs more than 5,000 people – nationwide the processing industry is worth some £6 billion (Dh30.9bn). Fish caught, largely by foreign vessels, is bought through the port and developed into fish products for sale across the UK, some of it is even re-exported. Grimsby mobile fishmongers are known across the country, while the town’s Sealord factory produces 80,000 fish fingers for Britain every day. The transition from a fish catching to fish processing industry has been something of a success, but now it is under threat from the same “Brexit Grimbrarians” who continue to embrace the EU divorce so enthusiastically.

Import duties, and customs delays brought in by Brexit, risk delivering a terminal blow to an already comatose industry in the town.

Given the adamantly Eurosceptic stance of Grimsby, many were angry when business leaders from the fish trade called on the government to consider free trade exemptions for fish imports coming through the docks. Some accused Grimsby of wanting to “have its fish-cake and eat it too”.

Speaking in parliament, Simon Dwyer, a spokesman for Seafood Grimsby & Humber, a cluster group for the industry in the region, said: “It would mean those ports having the privilege of not putting import taxes or duties on seafood.”

Conservative MP Martin Vickers labelled it a sign of post-Brexit optimism. “We couldn’t do that if we wanted to at the moment,” said the Eurosceptic Tory.

“But once we get control of our own economy again, that is one of the things that could be looked at and which could be very beneficial.

“That emphasises the freedoms and opportunities that could be opening up after Brexit.”

Yet as local industries and national government scramble to make the most of post-Brexit opportunities for free trade, or brace for damage limitation, depending on who you ask, everything is up for consideration.

A paper authored by Mr Sunak, and published last year by the Centre for Policy Studies, noted that “goods can be imported, manufactured or re-exported inside the free trade zone without incurring domestic customs duties or taxes”. Free ports, it claimed, could bring as many as 86,000 jobs to the UK’s economy.

Although there are no free trade zones in the UK, they have been credited with adrenalising economic growth in a number of other countries. One of the largest in the world is Dubai’s Jebel Ali Port which, despite the UAE’s relatively small import market, has grown to now employ more than 135,000 people. Companies from across the world carry out manufacturing and value-added processing in the zone, before re-exporting their goods.

Mr Sunak’s paper suggested that the economic benefits would be disproportionately felt by some of the poorest in Britian – 17 of the country’s ports are in the UK’s lower quartile. Free ports would focus economic growth on these areas, Mr Sunak’s report claimed they could help “re-balance the economy”.

Duty exemption in the ports, it is claimed, would attract business involved in the processing of raw goods into finished goods, perhaps even with the intention of eventual re-export.

But there is evidence that despite a significant import market, the potential for free ports in the UK is limited. The Office for National Statistics noted in early 2017 that “the import of finished manufactures accounted for 53 per cent of imports in the three months to February 2017, and increased by 1.3 per cent between the three months to November 2016 and the three months to February 2017”. That is to say, less than half of the goods imported into the UK are intermediate or raw goods that require further processing and thus might benefit from free trade zones, ports or otherwise.

While acknowledging that free ports do have their use, Richard Ballatyne of the British Port Association is sceptical. “The free ports concept itself, where it’s relevant definitely, there’s people interested, but for the majority of our EU freight, it’s a solution for a different challenge”, he tells The National.

“It’s not the solution for Brexit, a lot of our freight comes through what we call gateway ports, where the freight just comes through and goes straight out the gate. It’s not being processed, or used for manufacturing or repackaged, so for those ports, all a free port would do would be to shift the customs barrier to the end of the port gate”, he adds.

Furthermore, of the 17 ports in the lowest UK quartile, only one – Teesside in north-east England – has a significant manufacturing and processing industry that might reap the benefits of a free trade zone.

Only last month, the Mayor of Teeside, Ben Houchen, launched a campaign for Secretary of State for Exiting the European Union David Davis promised to consider with the “most open mind possible”.

Mr Houchen said: “Teesside

powered the first industrial revolution and it has aspirations to do it again.”

Some opponents of the proposal claim free ports are incompatible with being part of the European Customs Union, but others point to numerous free trade zones already operating across the EU, such as the Shannon Free Trade Zone in Ireland and Barcelona’s Zona Franca.

Free ports may bring post-Brexit opportunity for some of the UK’s ports, including Grimsby docks, and as a concept, they do appear in line with the outward looking UK promised in the Brexit campaign, but they are not the panacea some Brexitees suggest.