1.Special economic zones are geographically defined areas within which governments can provide fiscal and regulatory incentives to facilitate economic activity. A freeport is considered one type of special economic zone and the term is often used synonymously with “free zone”. There is no single definition of freeports and the exact arrangements can vary from country to country. The House of Commons Library has described freeports as:
[ … ] designated areas which enjoy various concessions on customs. They may also enjoy other tax and planning advantages and reduced bureaucracy.
While being within a country’s geographical borders, freeports are effectively outside a country’s customs borders. Goods imported into a freeport are generally exempt from customs duties until they leave the freeport and enter the domestic market. No duty is payable if they are re-exported.
The Government has characterised freeports as:
[ … ] secure customs zones located at ports where business can be carried out inside a country’s land border, but where different customs rules apply. They can reduce administrative burdens and tariff controls, provide relief from duties and import taxes, and ease tax and planning regulations.
Freeports are usually located in proximity to a sea border but can also be situated inland.
2.Freeports are distinct from enterprise zones. The UK introduced enterprise zones in 2012. These are “geographically defined areas, hosted by Local Enterprise Partnerships in which commercial and industrial businesses can receive incentives to set up or expand”. Incentives offered in England include business rate discounts alongside a range of other funding initiatives, simplified planning and superfast broadband. Enterprise zones do not have to be located in proximity to a port and in general, do not offer customs concessions. There are 48 enterprise zones in England currently and similar policies have been adopted in the devolved nations.
3.Due to the absence of an agreed definition of freeports, estimates on the number in operation globally vary, but studies have suggested that there are approximately 3,500 free trade zones in operation worldwide. Amongst the most notable is the Jebel Ali freeport in Dubai. It is one of the largest freeports in the world and its success has been attributed to its highly liberal approach to taxation, the permitting of 100% foreign ownership of businesses within the site, and no restrictions on the repatriation of profits, or controls on foreign currency exchange. There are also over 70 free zones in the EU but it has been contended that the operation of these zones is limited by EU state aid rules.
4.Seven freeports operated in the UK at different points between 1984 and 2012, when the Statutory Instrument that established the remaining five freeports (Liverpool, Southampton, Port of Tilbury, Port of Sheerness, and Prestwick Airport) expired. In 2018, the Government indicated that the zones were not redesignated in part due to concerns about customs assurance. It added that it understood that “many of the companies that operated in those free zones now benefit in almost exactly the same way as they did before from customs facilitations the UK already offers”. In evidence, the Chief Secretary to the Treasury, the Rt Hon Steve Barclay MP, told us that the original policy was “limited to UK port boundaries, did not allow multiple sites, did not allow sites to interact with each other, and was focused only on customs, not on tax, spending, planning or innovation”. Charles Hammond, Chief Executive Officer of Forth Ports, ran the port of Tilbury for seven of the years it was a freeport. He explained:
All it did at Tilbury was helped a number of the panel product importers to defer duty and there was a slight cash flow benefit. There was a comment earlier in the panel about what the rationale was for stopping the legislation and I think the comment was made that there was not any great benefit.
I would tend to agree with that. It helped us to reassure customers that their cargo was secure and they had their own police force there as well. The cargo was traceable and there was a small cash flow benefit for customers, but I do not really regard the freeport status we had at Tilbury at the time as really comparable to what we are talking about in the Government consultation document now. If we were returning to that, I would say it would not merit attention at all.
5.Upon her appointment as Secretary of State for International Trade in July 2019, the Rt Hon Elizabeth Truss MP, listed freeports as one of her three priorities in the role. She later announced the creation of the Freeports Advisory Panel in August 2019 to advise the Government on the creation of up to ten freeports across the UK. A commitment to establish up to ten freeports was included in the 2019 Conservative Party Manifesto. Following that year’s General Election, a consultation on freeports was published in February 2020. The Government responded to the consultation in October, after extending the deadline for stakeholders to respond due to the Covid-19 pandemic. A bidding prospectus, setting out the parameters for freeport bids in England, was published shortly afterwards with the deadline for submissions set for 5 February 2021. The freeports offer includes devolved policies and the Government indicated that it was working with the devolved governments to establish separate allocation processes. In the subsequent Budget on 3 March, the Government announced the locations of freeports in England, at East Midlands Airport, Felixstowe and Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames, and Teesside. We did not seek evidence on individual freeport locations as part of this inquiry and have not commented on the specific sites chosen in this Report.
6.Our scrutiny has focused on the objectives of the freeports policy and the package of measures available within the chosen sites. Our predecessor committee held a one-off evidence session on freeports in September 2019. We launched our inquiry in April 2020. Over the course of four evidence sessions, we heard from twenty witnesses, including the Chief Secretary to the Treasury, and the Minister of State for Regional Growth and Local Government at the Ministry of Housing, Communities and Local Government (MHCLG), Luke Hall MP. In addition, we took evidence from ministers and an official from the devolved governments. Our other witnesses included academic and legal experts, port operators, civil society organisations, local government and business representatives. We also received 17 pieces of written evidence. We are grateful to all those who provided oral and written evidence to our inquiry. We also acknowledge the work of the Welsh Affairs Select Committee in this area, including their report examining Freeports and Wales.
7.We acknowledge the Government’s intention is to establish freeports in the UK and our scrutiny has focused on the implementation of the policy. This Report seeks to consider the objectives for the policy and proposals for its evaluation, which will be key in assessing the long-term success of freeports (see Chapter 2). We examined the Government’s proposed design for freeports in the UK and the cross-departmental working required to implement the policy (Chapter 3). We heard about the importance of the overall freeports package and considered the main aspects of the Government’s proposals for freeports (see Chapter 4). The freeports offer includes devolved policies and therefore, we gave particular consideration to how the policy would be implemented in the devolved nations (see Chapter 5). We also considered the long-term oversight and governance arrangements for freeports (see Chapter 6).
8.It is routine for select committees to examine ministers as part of their inquiries. Such evidence-taking is an important part of government accountability and the scrutiny process. It enables committees to hear directly from the Government on its policies. In seeking to do so for this inquiry, we issued invitations to the Department for International Trade (DIT) and HM Treasury (HMT). These invitations were declined and both departments suggested that it would be more appropriate for the other to attend the session to assist the Committee. We subsequently wrote to the Secretary of State for International Trade and the Chancellor of the Exchequer with further invitations, but these were also declined. The provision of written evidence was offered as an alternative. In seeking to find a resolution to the impasse, our Chair raised the issue with the Speaker of the House of Commons and the Chair of the Liaison Committee, Sir Bernard Jenkin MP. The Chair of the Liaison Committee brought the matter to the attention of the Prime Minister during a public evidence session in January 2021. Following this, ministers from HMT and MHCLG committed to appearing before us. The session took place in February, a number of months after our initial request, and both ministers offered their apologies for the delay in appearing before us.
9.While we acknowledge the apologies from the Chief Secretary to the Treasury and Minister of State for Regional Growth and Local Government during their appearance before us, we find this episode of evident confusion and apparent unwillingness to appear before us extremely regrettable. Aside from hindering the important role Parliament plays in scrutinising the Government, this unwillingness caused substantial delay to our evidence-taking, and to the preparation of this Report.
2 UK Trade Policy Observatory, What is the extra mileage in the reintroduction of ‘free zones’ in the UK? (February 2019), p 2
3 Freeports, Standard Note , House of Commons Library, 16 November 2020, p 4
4 HM Government, Freeports Consultation Boosting Trade, Jobs and Investment Across the UK (February 2020), p 9
6 Enterprise Zones, Standard Note , House of Commons Library, 21 January 2020, p 3
7 Enterprise Zones, Standard Note , House of Commons Library, 21 January 2020, pp 4–5
9 Centre for Policy Studies, The Free Ports Opportunity (November 2016), p 4, Vivid Economics, A proposal for a national Free Zone policy (July 2019), p 8; see also United Nations Conference on Trade and Development, World Investment Report 2019 (2019), pp 137–138, UK Trade Policy Observatory, What is the extra mileage in the reintroduction of ‘free zones’ in the UK? (February 2019), pp 2–3
11 Freeports, Standard Note , House of Commons Library, 16 November 2020, p 5; see also
12 Freeports, Standard Note , House of Commons Library, 16 November 2020, p 5
13 HC Deb, 11 October 2018, [Westminster Hall]
17 “Trade Secretary announces Freeports Advisory Panel will ensure UK is ready to trade post-Brexit”, Department for International Trade and HM Treasury press release, 1 August 2019; see also “Liz Truss hosts first meeting of the Freeports Advisory Panel”, Department for International Trade press release, 6 September 2019
18 Freeports, Standard Note , House of Commons Library, 16 November 2020, p 7
21 Welsh Affairs Committee, Second Report of Session 2019–21, , HC 205
22 ; see also ,
23 Oral evidence taken before the Liaison Committee on , HC (2019–21) 1144, Qq99–101