This note sets out the background to the Government's policy on freeports.

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What are freeports?

Freeports are designated areas where goods can be imported from outside the UK without paying customs duties. Customs duty becomes payable only when the goods, possibly after processing, enter the domestic market. Other incentives on tax, planning and reduced red tape may also be available.

There are over 70 freeports in the EU and freeports existed in the UK before 2012. Supporters of freeports argue that their effectiveness is reduced by EU rules on state aid. They go on to argue that leaving the EU means freeports will be able to provide greater opportunities for the UK. The Government has said that the UK will not be subject to EU state aid rules but this is likely to be one of the most difficult areas in the negotiations over the UK’s future relationship with the EU.

Government policy on freeports

The Conservative Party Manifesto included a commitment to create up to ten freeports around the UK. According to the Government, the aim of the policy is to “boost trade, jobs and investment with a view to building innovative business clusters that benefit the local area and level up the economy across the UK.”

The Government published a consultation paper in February 2020. This sought views on the Government’s proposals, including policies on customs, tax, planning, regeneration and innovation. Some of these policy areas are reserved to the UK government but others include areas which are devolved. The Government has said it intends to work with the devolved administrations so that freeports can be created in Northern Ireland, Scotland and Wales.

According to the Government’s consultation, airports, rail ports and sea ports could be considered. Freeports could be located next to ports or inland. Two or more ports could collaborate to form a freeport.

How much of an advantage will freeports offer?

We do not yet know how much of an additional advantage freeports will offer the businesses that use them. For example, we do not yet know how high the UK’s tariffs on imports will be once the transition period comes to an end. The Government is currently consulting on the UK’s post-Brexit tariff regime. Both the UK and the EU have said that they wish to maintain zero tariffs on trade between them. However, the outcome of the negotiations on the future trade relationship is, at the moment, unknown. As the future tariff levels are not yet known, we do not know how big an advantage freeports will get from the ability to import with no tariffs.

Criticisms of freeports

Critics of freeports point to the risk that they will simply transfer business away from other areas of the UK without increasing the overall size of the economy. There have also been concerns about risks relating to money laundering and tax evasion.

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