During his campaign for the Conservative-party leadership, Boris Johnson promised to establish free ports in the UK as one solution to dealing with the disruptive effects of Brexit for business. Free ports are zones where normal customs rules don't apply so that goods are imported tariff-free and can be used there in manufacturing.
After Brexit, for example, this could be beneficial for UK car manufacturers as they would not have to pay UK tariffs on parts from the EU, though they would still be liable for tariffs on the re-exporting of cars to the EU.
Nobody seems to be worried that this separate arrangement will threaten Teesside or Milford Haven's status as part of the UK
At the beginning of August, UK minister for international trade Liz Truss began a process to choose which ports will be so favoured. Teesside and Milford Haven have been mentioned as possible candidates, as they are located in economically depressed regions. She also suggested that such free ports could be accorded special tax and regulatory regimes to make them even more attractive for business.
From the early 1950s until Ireland joined the EU in 1973, Shannon Airport was such a “free port”. This facilitated the growth in exporting firms in the zone around the airport, at a time when companies located elsewhere in Ireland had to pay prohibitive tariffs on imported inputs.
Given that advantage, a significant number of firms established themselves in Shannon, and they exported nearly everything they produced. Over time, as tariffs on imports from Europe were reduced, and eventually abolished with EU entry, the benefits of this regime diminished; the special status disappeared in 1973.
However, while free port status for Shannon was beneficial in the 1950s and 1960s because of the high tariffs on imports into Ireland, the UK of the 2020s is unlikely to operate such a high import tariff system. That means the comparative gains from free port status would be lower, making it less likely that large manufacturing firms would relocate just to benefit from this regime.
To help the UK car industry, it would make more sense to nominate areas as free ports where their plants are already located (eg in Sunderland, for Nissan) rather than expecting the firms to move to a new free port.
Customs duties
The benefits of free port status will apply just to export goods, not to goods manufactured within the designated area and sold elsewhere in the UK. These will be liable for customs duties once they cross the border of the free-port zone. Otherwise, any goods would be able to enter the UK tariff-free by passing thorough a free port.
So cars made in a free port Sunderland using imported parts would attract some tariffs if sold to consumers elsewhere within the UK.
It is clear that a key feature of the proposed new UK free ports is that they will have a different customs regime and possibly also different tax and regulatory regimes than the rest of the UK. This will mean controls on movement between the free ports and the rest of the UK.
Nobody seems to be worried that this separate arrangement will threaten Teesside or Milford Haven’s status as part of the UK.
The original agreement between the EU and UK in December 2017 involved special status for Northern Ireland – basically a somewhat more generous version of the regime the UK government currently proposes for free ports in Britain.
However, because the DUP felt that having separate customs and regulatory rules for Northern Ireland would threaten its status within the UK, they forced a change. Instead of special status for Northern Ireland, the "special status" would apply to all of the UK – the backstop – until they found a way out of it.
As the DUP have not opposed the new UK government’s proposals on free port status for Teesside and Milford Haven, one solution to the current Brexit impasse would be to apply free port status to all of Northern Ireland, with terms along the lines of the December 2017 deal.
That would not only avoid the need for the backstop, but would represent a good deal for Northern Ireland.
While this solution would mean the terms of the free port status for Northern Ireland would be a bit different from those for favoured British ports, the common feature of all such free ports would be restrictions on the movement of goods across their borders to the rest of the UK, reflecting the different customs and regulatory regimes inside free port zones. If declaring Teesside a free port doesn’t threaten the union (and no-one suggests it would), why would a free port Northern Ireland?
