19.We received evidence that drew attention to the potential benefits of freeports and the establishment of one in Wales. These benefits included the economic stimulation that could arise from freeports, such as increased employment and economic investment.
20.The Milford Haven Port Authority stated that freeports may have “several direct and indirect benefits” that could stimulate local, regional and national economic development, leading to job creation, investment and reducing regional inequalities. Associated British Ports, a port owner and operator with a network of ports in the UK, also stated that freeports could create “new high-skilled jobs” and could encourage growth in “concentrated business clusters”. Professor Andrew Potter, Chair in Logistics and Transport at Cardiff University, agreed that increased manufacturing and processing activity could create additional jobs.
21.Stena Line Ports Ltd, the operators of Holyhead and Fishguard ports, suggested that freeport status could grow and develop a port by attracting a more “diverse international customer base” as well as international import or export operators that would facilitate investments. They also indicated that freeport status could enable it to provide services and berthing facilities that would attract a wider range of vessels types and increase passenger cruise traffic. They added:
In addition, such status would also increase the attractiveness for businesses within the port limits, particularly marine connected business as well as providing a more economical place for business that sectors such as those in the sustainability space require to develop their business. There is also of course little doubt that any new business attracted to a future Holyhead Port Freeport Area would also bring benefit to the existing ferry businesses.
22.Professor Potter also suggested that the customs and tax benefits afforded by freeports could be attractive to businesses, especially “improving cash flow by delaying the payment of duties (or even avoiding these if the goods are exported rather than entering the UK)”. He referred to the example of those who deal with seasonal goods, who may be able to stockpile items within the Freeport before peak demand.
23.The Milford Haven Port Authority suggested that freeports could “serve as a vehicle for galvanising HM Government funding for infrastructure and innovation grants” and claimed that freeports would “be able to act in a coordinated manner in obtaining accelerated planning permissions, bidding for innovation, and overall supporting emerging businesses end-to-end”.
24.Stena Line Ports Ltd indicated that any “increased traffic” as a result of freeport status would create “greater prosperity for the region through direct and indirect employment; it would add value to the Port, the locality, the North Wales region and UK economy”.
25.The British Ports Association, who represent a 100 members across the UK, also welcomed the measures proposed in the UK Government’s consultation document:
The customs elements of freeports do not traditionally benefit gateway ports, such as Ferry ports - where freight typically enters and leaves immediately. However, certainly for ferry ports and other types of port, planning incentives and other business easements suggested to be included would be very helpful in helping those operators expand and develop.
26.Associated British Ports felt that freeports could reinvigorate the South Wales industrial base due to “excellent links” to “key manufacturing zones” such as the West Midlands through the M5 and M4 corridors. They also stated that freeports could support heavy industry such as the steel industry by creating a “local source of demand for their products” and inland manufacturing sectors such as the automotive sector. They added that marine access could encourage global trade with markets such as North America, Ireland and Iberia.
27.However, we also received evidence that questioned the purported benefits of freeports and suggested that there could be disadvantages to their establishment. Some of the main concerns expressed to us included the extent of any economic benefits, the impact on customs infrastructure and the impact of freeports on the competitiveness of the port sector more generally.
28.We heard concerns about the actual benefits that freeports could bring. For instance, Professor Winters suggested that “the only concessions a Freeport offers its firms are on customs duties in terms of simplified procedures, deferral of duty on goods imported into the zone and then transferred to the rest of the UK, and freedom from duties for goods imported into and then re-exported from the zone”. He explained that the Government was also considering “coupling these [concessions] with policies such as tax concessions equivalent or similar to those provided to Enterprise Zones, of which the UK already has 61, eight of which are in Wales, and also relaxations of planning regulations”. According to Professor Winters, the tariff concession arising from freeports would be of minimal value and “do little to encourage economic activity within the freeport” in light of the UK Government’s intention to agree a zero-tariff trade agreement with the EU. Such a deal would, if agreed, and when coupled with the Continuity Trade Agreements already signed with third countries, set tariffs to zero on more than half of UK imports.
29.In its written evidence, the Centre for Cities expressed scepticism about the UK Government’s “wildly optimistic job creation predictions” in the freeports initiative. They pointed to an estimate from HM Treasury in 2011 that enterprise zones would create 54,000 private jobs by 2015, but only 13,500 of these had been created between 2012 and 2017.
30.Concerns were also raised about the skill level and nature of jobs created. The Centre for Cities, for example, suggested that 95% of the jobs created by enterprise zones were lower skilled. Similarly, Professor Potter claimed that the majority of jobs would be manual labour rather than highly skilled jobs, mainly due to the nature of movement and processing goods rather than product development.
31.The risk of economic and employment displacement was raised in a number of submissions to the Committee. The Centre for Cities indicated that freeports could encourage businesses to move from their primary location to capitalise on the benefits that these zones offer. Their research suggests that at least one third of the jobs created in enterprise zones in 2017 were relocated from elsewhere. Associated British Ports agreed that freeports may encourage businesses to move from inland locations to ports, and Professor Potter referred to the risk that any new jobs in the locality of a freeport may be displaced. Professor Winters also felt that some geographical areas may be unfairly advantaged:
Even if firms do not get up and move with the introduction of a Freeport, as the economy evolves, if an enterprise zone is effective, firms outside it will be less competitive in local labour markets than firms inside, and in an economy with relatively full employment (to which the UK will, we hope, soon return), they are almost bound to decline in relative size.
32.We heard concerns about the potential impact of establishing a limited number of freeports on the competitiveness of the port sector more generally. For instance, the British Ports Association disagreed with the Government’s proposal of having ten freeports, suggesting that this figure represented “an arbitrary and unnecessary cap on the ambition of the ports sector, in Wales and the whole of the UK”. They expressed concern that this could impact regional competition, and could see some ports prioritised at the expense of others, including in Wales.
33.Stena Line Ports Ltd were also keen to ensure that Welsh ports are not disadvantaged by nearby English ports, highlighting the danger that businesses that might have located to Holyhead could move elsewhere, for example to Liverpool.
34.Associated British Ports expressed concern, in their written evidence, about the “disruption of natural competition” within the market and that an unfair bidding process could distort the market. One suggestion put forward by Associated British Ports was that the benefits of freeports to the local Welsh economy as well as the broader UK economy should be included in any bidding process and assessment.
35.Milford Haven Port Authority warned that a freeport status would require “some additional customs infrastructure,” stating that there is currently “limited customs capacity to check on foreign marine vehicles”. Stena Line Port Ltd reiterated concerns about the implications of additional checks that may arise from the UK’s withdrawal from the EU and expressed their firm belief that “customs controls for both Brexit and any potential ‘Freeport’ checks should as far as possible be handled digitally with physical intervention kept to a minimum”.
36.Professor Winters also raised concerns about customs processes at freeports:
[…] import procedures may be simplified, but they will not be abolished and any good leaving the Freeport for the rest of the UK would have to complete regular procedures at that stage. Moreover, whereas a good entering the UK from outside faces one set of formalities, a good entering via a freeport would face two–i.e. on both entry to and exit from the Freeport.
37.Professor Potter’s evidence highlighted some of the infrastructure implications that would arise from freeports. According to Professor Potter, “there would be a need for high speed broadband connections, both through wired and mobile technology”. These connections would be needed at the port, but also “potentially along key corridors too”. In addition, “inland transport by both road and rail links would need to be considered” for the movement of goods, although the extent of any additional road and rail links would “depend upon the nature of products being handled at the Freeport”. He also raised concerns about transparency due to the position of several goods outside the customs and tax rules of countries. As an example, he warned that “extremely high value articles” may be stored in freeports to avoid import duties or to evade tax in selling them.
38.We heard that a number of successful freeports across the world could be used as case studies for a successful freeport model in Wales. The Port of Milford Haven referred to the creation of Special Economic Zones (SEZs) in Poland in 1994, aimed at tackling rural unemployment and attracting foreign direct investment via major corporate tax relief. It is estimated that SEZs had generated over EUR20 billion of investments and created over 186,000 jobs by 2012.
39.The port also outlined other successful case studies where benefits of Free Zones can be seen in the “right environments” such as Dubai’s Jebel Ali Free Zone as a hub for regional businesses. They also referred to Tanger Med Free Zone in Morocco as an example of “best practice in terms of investment impact” that has a “broadly similar sector mix” to the port in southwest Wales.
40.Associated British Ports felt that the US model of freeports/zones where ports of entry are connected to other inland zones with manufacturing activity could be relevant in Wales. According to Associated British Ports, such a model could help “cement cross-border ties to areas such as the West Midlands that are served by Welsh Ports. It may also facilitate the effective creation of free trade corridors from east coast ports to those ports that serve destinations in Ireland”.
41.However, Professor Winters cautioned against the assertion that the US model stimulates economic activity within their zones, stating that this is mostly due to “tariff inversion” that is not used in Europe. Professor Winters elaborated:
In the USA several sectors, but most notably vehicles, pay higher tariffs on their imported inputs than they pay on the finished product. Hence producers can reduce their liability to tariffs by locating in a freeport so that the inputs pay no tariff on entry and, as part of the final product, pay the lower rate on exit into the US economy. That is, freeports in the USA are essentially import processing zones. Similar opportunities are not available in significant quantities in the UK. It is possible that there is scope to import these into the Welsh ports from the Republic of Ireland, which might offer some return from establishing a Freeport in those ports, but overall the trade that could be so created is probably rather small, and the tariff-savings even smaller.
Overall, Professor Winters suggests “that the trade benefits to the UK of freeports, strictly interpreted, are small” and could “fail to have desirable, or even detectable, effects on UK international trade”.
42.The current UK Government consultation on freeports, and the strong interest being shown by Welsh ports in pursuing freeport status, make this an important moment to recognise the positive role played by ports in terms of trade, inward investment and job creation in Wales.
43.While there are competing arguments about the potential economic benefits of freeports, the major Welsh ports have responded positively to the consultation and have set out different proposals for how freeport status could enhance their operations and boost their contribution to the Welsh and UK economy.
44.Freeports could play an important role in stimulating economic development and regeneration and potentially offer much-needed opportunities for supply chains and manufacturing in Wales following the UK’s withdrawal from the European Union.
45.Freeports are not, in themselves, a silver bullet for economic regeneration and development. Freeports need to fit alongside other policy measures to boost productivity and stimulate economic growth - particularly if the problems of economic displacement activity are to be avoided.
46.The nature of ports means that the economic gains that accrue from their activities are often felt nationally while port communities themselves remain among the poorest parts of the country. If freeports are to make a lasting contribution to ‘levelling up’ the poorest regions and nations, freeport bids should be assessed for the additional economic and social gains envisaged for the communities nearby.
47.The UK Government should set out in greater detail its assessments of the economic potential of freeports and how it intends to use freeports as one tool among a broader set of policies to promote economic and regional development and to ‘level up’ the regions and nations of the UK. The Government should also detail the lessons it has learnt from the experience of enterprise zones, and from the previous incarnation of freeports from 1984 until 2012.
17 Port of Milford Haven ()
18 Associated British Ports (FRE0002)
19 Professor Andrew Potter (FRE0003)
20 Stena Line Ports Limited (FRE0005)
21 Professor Andrew Potter (FRE0003)
22 Port of Milford Haven (FRE0006)
23 Stena Line Ports Limited (FRE0005)
24 British Ports Association (FRE0004)
25 Associated British Ports (FRE0002)
26 Professor L Alan Winters (FRE0001)
27 Professor L Alan Winters (FRE0001)
28 Centre for Cities (FRE0007)
29 Centre for Cities (FRE0007)
30 Professor Potter (FRE0003)
31 Professor L Alan Winters (FRE0001)
32 British Ports Association (FRE0004)
33 Stena Line Ports Limited (FRE0005)
34 Associated British Ports (FRE0002)
35 Port of Milford Haven (FRE0006)
36 Stena Line Ports Limited (FRE0005)
37 Professor L Alan Winters (FRE0001)
38 Professor Andrew Potter (FRE0003)
39 Port of Milford Haven (FRE0006)
40 Port of Milford Haven (FRE0006)
41 Associated British Ports (FRE0002)
42 Professor L Alan Winters (FRE0001)
Published: 8 May 2020