What are the UK free ports? | The Economist

IT STARTED IN 2016 with a report from Rishi Sunak, then a backbench MP, extolling the virtues of “The Free Ports Opportunity”. Five years later, free ports remain a favorite project of Mr Sunak, now UK finance minister, and a much-vaunted part of the country’s economic strategy after covid-19 and Brexit. On November 19, tax cuts became available in the first batch of the eight zones currently open: Teesside, in the north-east of England (a 30-minute drive from Mr Sunak’s constituency), Humber in Yorkshire and Thames in the south-east.

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Free ports are not a new idea; the first modern one opened in Ireland 60 years ago. These are designated areas, usually around a port, airport or rail hub, that have a different customs regime than the country in which they are located. They tend to offer duty relief on imported goods, so that tariffs are only paid in the country to which the final product is exported. This can mean that the final tax bill becomes less than the sum of its parts, as in U.S. free zones, where automakers avoid high levies on auto parts and instead pay a lower rate for finished vehicles.

Proponents argue that the tax break encourages businesses to operate in depressed areas. Some, like the largest free zone in the Americas, Panama, have indeed attracted new jobs and investments. Mr Sunak hopes the same will be true in Teesside, where a thriving port could help fill the void left by declining industrial jobs. But it’s not yet clear whether UK free ports will create new jobs or simply move them from one part of the country to another, with the Treasury missing some of the taxes businesses would normally pay. The government’s enthusiastic projections that nearly 100,000 jobs will be created have aroused skepticism among experts.

Free ports also carry other risks: the EU fears that areas in Switzerland and Luxembourg will facilitate money laundering, tax evasion and terrorist financing. The popularity of these havens has skyrocketed amid an increase in the crackdown on tax evasion. But the risk of such a jiggery-pokery is expected to be lower in Britain, where free ports will be focused on the continued manufacture and import and export of goods, rather than long-term storage for it. high-value art and investments. Green industries, such as the manufacture of electric vehicles, will receive special attention.

If free ports really make a difference, it will be thanks to the tax advantages offered. Firms operating within them will benefit from reductions in their stamp duties and national insurance bills, relief in corporate interest rates and an enhanced capital allowance, a form of tax relief on certain commercial investments. The business benefits are likely to be small. UK businesses can already defer payment of customs duties by guaranteeing goods in bonded warehouses, or bypass them altogether for items that are processed and immediately re-exported through special customs arrangements. Of course, leaving the EU has left Great Britain greater freedom in setting tariffs. But some 23 trade treaties inherited from previous agreements with the EU, including those with Canada, Singapore and Mexico, specify that companies that have not paid import duties cannot benefit from reduced tariffs when ‘they export to these countries. This will further mitigate the limited commercial advantages of free ports.

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