U.K. Mulls Introduction of Freeports

Now that U.K. has left the E.U., the Government's Department for International Trade says it is free to make its mark as a champion of free trade, and freeports (free trade zones) are on the table.

The Government is developing a tariff schedule that will enter into force January 1, 2021. The bespoke regime, known as the UK Global Tariff, aims to ensure U.K. businesses compete on fair terms with the rest of the world. A four-week consultation period is now underway.

Goods coming into the U.K. will no longer be subject to the E.U.’s Common External Tariff as they have been for nearly 50 years, and the new tariffs will come into effect for imports from any country the U.K. does not have a free trade agreement with. This comes as the Government sets out details of the U.K.’s approach to negotiating free trade agreements with countries including the U.S., Australia, New Zealand and Japan.

As part of the consultation, the government is seeking views on:

• removing tariffs of less than 2.5 percent and rounding tariffs down to the nearest 2.5, five or 10 percent band;
• removing tariffs on key inputs to production and
• removing tariffs where the U.K. has zero or limited domestic production.

Additionally, the British Ports Association (BPA) notes a new consultation on the introduction of freeports. Traditionally, a freeport is an area outside of a country’s customs territory but within its physical borders. This allows certain goods to be transhipped or processed through a port without attracting customs duties. As a result, components could be added to a product and re-exported without generating additional prohibitive costs.

The BPA is part of the Government’s Freeports Advisory Panel and it is calling for Ministers to maximize their ambition and remove the cap on potential number of freeports and include a much broader package of measures that would benefit a wide range of different U.K. ports.

The U.K. has 125 cargo-handling ports. The BPA says freeport status will benefit ports differently depending on their current traffic/business profile and specialization. Some will naturally be keener than others, but there will be more than 10 that will want to benefit, and Government should not place an arbitrary cap on this ambition.

Freeports will not solve issues around new ‘frictions’ that will be introduced at certain gateway ports at the end of the Brexit transition period, but the BPA will continue to call for a strong trade agreement with the E.U. that prioritizes minimizing the erection of new non-tariff trade barriers.

If the U.K. ends up striking a low-alignment trade deal with the E.U. (or if it does not agree a deal at all), free ports may help alleviate cost burdens that may be placed on some industries that have cross-border supply chains, says the BPA.

The British Ports Association believes that a UK freeport model should be much wider than the traditional customs free zone model. More details are available here.