Free Trade Zones

Freeports: back to business? – Lexology



Over the next few weeks, HFW will be launching a series of articles on the reintroduction of Freeports in the UK. We will examine the implications for companies operating in these Freeports, focusing on a number of industrial sectors, including shipping, construction, energy and resources, aviation and commodities.

The UK’s new Freeports aim to regenerate local economies, create thousands of jobs and boost international trade. Freeports may be back, but can they really deliver on the government’s promises?

(Re) introduce Freeports

On March 3, Chancellor Rishi Sunak announced his budget for the upcoming fiscal year. As expected, a large chunk of the budget has focused on preparing the UK economy to cope with the impact of Covid-19. A key part of his plan is the creation of eight new Freeports in the UK which, it is promised, will regenerate deprived areas of the country by creating jobs and encouraging international trade. But what does this mean for the companies that already operate in these ports and for those who choose to trade with us in the future?

There were previously several Freeports in the UK including at Southampton, Liverpool, Tilbury and Gatwick Airport. They continued to operate until 2012, when the national legislation establishing them expired. Therefore, there are currently no Freeports in operation in the UK. For several years now, Freeports have been an important part of the government’s Brexit strategy, but with the Covid-19 pandemic threatening the UK economy, they have now been placed at the forefront of government plans. In fact, Mr Sunak has been a passionate advocate for the reintroduction of free sports in the UK for many years – the Chancellor can be said to be bringing back free sports.

What are Freeports?

Freeports are special economic zones typically located in or around shipping ports or airports. Within these special economic zones, different rules apply on taxation, customs and construction and business rates in order to encourage and support economic activity. The official budget report1 tells us that “businesses will benefit from more generous tax breaks, simplified customs procedures and broader government support, bringing investment, trade and jobs that will regenerate the regions of the country that need it. need it most ”.

The rules applicable to Freeports generally mean that goods arriving at this port from abroad are not subject to tax charges which are normally paid to the government when the goods arrive in a country, provided that such goods remain in the port. and are then sent directly. again abroad without being transported internally to the initial country of arrival. These tax breaks make it easier and cheaper for businesses to do business in the country where Freeport is located. Most Freeports are designed to specifically encourage businesses that import, process and then re-export goods.

What is the legal basis?

HM Treasury already has the power to designate Freeports by statutory instrument under Section 100A of the Customs and Excise Management Act (CEMA) 1979. In terms of the overall legal framework, EU law largely governed Freeports from The United Kingdom in the past, in fair competition, the free movement of goods and services and the single market. EU law has limited the scope of Freeports somewhat, so the UK, which is no longer a member of the EU, now has the ability to write its own rules and reap the benefits economical that Freeports can afford.

However, even after Brexit, the creation of new free ports would also be subject to the future British internal subsidy control regime; its subsidy control obligations with the World Trade Organization; state aid obligations under the Northern Ireland Protocol; and the subsidy control provisions negotiated in all UK free trade agreements (including the EU Trade and Cooperation Agreement).

So what’s up?

The bidding process for Freeports opened in November 2020. Bidders were asked to demonstrate how they would achieve the government’s three key policy goals, namely: creating a hub for commerce and global investment; promoting regeneration and job creation; and the creation of centers of innovation. The deadline for submitting applications to become a Freeport was February 5, 2021 and there is no question of reopening applications anytime soon. The current list is therefore, as it stands, exhaustive.

The eight new sites, having won their application to become Freeports, will be located at:

East Midlands Airport

Felixstowe and Harwich

The Humber region

Liverpool city

Plymouth

Solent

The Thames

Teeside.

The UK’s Freeport model has been based on evidence from successful Freeports around the world, especially those in the US. We are informed that the UK Government has designed a ‘World Leading Tailored UK Freeport Model’ aimed at achieving the above three objectives. The benefits for those operating in and around these ports will fall into three broad areas: customs relief, tax relief, and relaxation of planning rules. The UK’s new Freeports are reportedly starting operations from the end of 2021.