Free Trade Zones ("FTZ") are being introduced into the United Kingdom ("UK") as part of the post-Brexit landscape. In a measure aimed at developing the UK's trade strategy, the Government announced the creation of eight new freeport zones in England. The selected locations are East Midlands Airport, Felixstowe & Harwich, Humber, Liverpool City Region, Plymouth, and South Devon, Solent, Teesside, and Thames. These freeports are expected to be fully operational in late 2021. Discussions are also being held between the UK Government and foreign officials to establish further freeports in Wales, Scotland, and Northern Ireland, but nothing has yet been confirmed.
What are Freeports?
Freeports, also known as Free Trade Zones, are specially designated economic zones where normal tax and customs rules do not apply. They are established physically within a country's geographical borders, but outside of that country's customs borders, and they are usually located at ferry ports, airports, and rail ports. In such ports, goods can be imported, manufactured, and exported again without facing standard tariffs, or requiring normal customs checks. To illustrate the mechanism by which freeports will operate in the UK, we may think of a company that imports goods to be processed in the UK. These goods will be subject to regular tax and customs rules. However, with the new FTZ, the same company can now, import goods into the freeport without paying tariffs, process them into a final good, and then either pay a tariff on goods sold into the domestic market, or export the final goods without paying the UK tariffs.
Why does the UK need Freeports?
As established in its announcement, the main intention of the Government is to make the UK more attractive to foreign investment. Trade between the United Kingdom and the European Union was hammered in the first months of their new post-Brexit relationship, with record decline in British exports and imports of goods. With the introduction of these FTZs, UK officials expect to promote and incentivize the regeneration of the economy and the creation of new jobs in areas of the country especially deprived by the consequences of the Brexit and the Covid-19 pandemic. As part of the Government's commitment to stimulate the economy, these freeports are expected to act as national hubs for global trade and innovation.
Promoting trade is one of the main objectives of the UK. Freeports can offer benefits not only for the businesses within their zones, but also for the economy as a whole, and that is exactly what the UK needs. Companies that would particularly benefit will be manufacturers who import materials into the UK for processing which are subsequently exported from the UK. Transport, logistics businesses, and port operators should also benefit, as well as the local areas through increased investment and business activity.
While the biggest assets of the Freeports for companies may be the tariff benefits and the tax reliefs, businesses operating in freeports will be also authorized to use simplified import procedures. By undertaking fewer customs checks and less paperwork when goods are transferred from the freeport into the UK's domestic market, companies operating in the FTZ will be able to put their goods in the market faster and easier.
Freeports and UK's Trade Agreements: What is the
As we have analyzed in previous articles, the UK is immersed in its strategy to sign Free Trade Agreements with strategic countries that will guide its trade relations for this new post-Brexit era. Recently, the UK announced new trade agreements with 23 different countries which were received in the islands as a relief after months of uncertainty. However, these new trade agreements were negotiated before the implementation of the freeports, and they include clauses that specifically prohibit manufacturers in freeport-type zones from benefitting from the deals.
To date, some companies in freeports in Britain will not get to enjoy the full benefits of the new tariff and tax-efficient zones if they are exporting to certain countries including Canada, Norway, Switzerland, and Singapore. While the UK continues to conclude other trade agreements, they now have the challenge of trying to renegotiate the agreements with these countries to include the FTZs.
The UK Government is trying to stimulate the economy after the departure from the EU. Freeports are being received with optimism in the UK, as many people will benefit from job creation and innovation. While freeports are expected to begin working by the end of 2021, the months following are going to be crucial as British Officials will have to develop more solid legislation while negotiating new Free Trade Agreements with strategic partners.
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