How do we make a free port work for the North East?

Keith Taylor, managing director of UK Land Estates

BORIS Johnson’s free ports frenzy has polarised policymakers and the public.

Teesside is at the front of the queue and could be one of up to ten in the UK – if an advisory panel set up by the Government gives the green light.

And with so much rhetoric on the subject, it’s hard to understand what free ports practically mean for businesses and the general public.

Around the world free ports have been home to different types of industry – including tourism and manufacturing – and typically come with liberalised tax and regulatory status.

Cheerleaders of the idea tell us this will spill over into the regional economy. And there could be some truth in that.

As the provider of properties for scores of businesses in Teesside we get to know how many different sectors operate – and the opportunities and challenges they face, from supply chain to sales.

Duty-free imports and tax incentives could benefit many of our customers – even if their main location was outside of the free port.

Despite what some politicians say, EU rules do not stop us seeing some of the benefits free ports could bring.

In fact, current customs legislation allows for temporary storage and customs warehousing that would allow companies to store goods without importing them and paying duty.

Inward and outward processing means products can be imported from outside the customs union, processed – for instance by manufacturing into a new product – and exported again without incurring import duty.

However, duty on component parts may be higher than the finished product so it can be advantageous to import the parts into a free port, manufacture them there and then “import” them to the rest of the country.

A free port could facilitate this – attracting manufacturing jobs that otherwise might not be available in the UK at all.

Some employers may also see the upside duty deferred until the movement of the goods into the rest of the country, even if this is relatively small cash flow.

The question is, how will this benefit the wider regional economy? That’s the bit outside of the free port zone which presumably covers the former SSI steelworks site at Redcar.

Our manufacturing tenants based on Teesside Industrial Estate all have complex supply chain needs that would need to be taken into account.

Technology over geography could provide the solution.

If we adopted a virtual free port model, parts of the supply chain could be linked so that products are tracked and the benefits spread across the region.

That means multiple sites could benefit from the free port incentives and the chance to defer or bypass duties altogether.

With this model, various businesses could join the free port network – via sophisticated internet-linked tracking and decentralised databases.

Not being restricted by area might also prevent a displacement effect that some people fear, i.e. the movement of existing businesses into the free port zone from other parts of the region and country.

Either concept would require large scale infrastructure investment to make it work.

Expanded road and rail connections into and out of neighbouring major industrial centres would be needed to capitalise on the import of goods.

A report from construction consultancy Mace has called for the free port idea to be taken one step further.

It’s something that could work for the North East.

So-called “supercharged” free ports would combine ports and enterprise zones. The report claims trade could be boosted by nearly £12bn a year across the north.

Our region’s trade status makes this an interesting idea. Champions of the North East rightly trumpet the fact our region is the only one to consistently deliver a trade surplus.

However, much of that is attributed to just a handful of sectors – particularly automotive thanks to Nissan and the supply chain effect.

Pharmaceuticals and chemicals also play a significant part. What if we could build on that exporting prowess with a more diverse set of industries?

This is where teaming free ports with enterprise zones could be useful.

At the moment the region is split by local enterprise partnership areas – the North East LEP and Tees Valley Combined Authority – which is no good for developing strategy at scale.

Enterprise zones adjacent to free ports could help us sync up the region and capitalise on shared sectoral strengths and potential growth areas.

For instance, the Tees Valley Combined Authority and North East LEP both identify the energy sector as a priority within their strategic plans.

We could create shared enterprise zones that span the region – encouraging research and development intensive companies to move here. Our world class universities already make it an attractive place to lay roots.

With a free port on the doorstep, we would create the right conditions for those companies to stay and expand in the region as their research and development evolves into exportable products.

This strategy could also help us close the productivity gap between the north and south of the country. We’d target technology-driven, high-value industries with high productivity.

And there are examples where it’s already working.

On the Humber estuary, a cluster of world leading offshore wind specialists – including turbine manufacturers and servicers – has taken shape.

The connected enterprise zone means there are financial incentives and cost savings that make it effective for manufacturers and supply chains to share the same location.

Blue chip companies such as Siemens, E.ON and Centrica have taken advantage of the economies of scale – tapping into skills, affordable accommodation and good connectivity to key offshore wind sites.

There remains a lot of unanswered questions. Some of these free port models make assumptions about how UK trade policy will look after Brexit.

For example, the jury is still out on whether free ports would reduce the administrative burden on businesses. That depends on numerous criteria, not least how the UK’s customs regime overall will change after Brexit.

All Brexit scenarios considered, for the North East it’s worth keeping an open mind to the potential of free ports.

 

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