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UK Lawmakers Discuss Potential Post-Brexit Free Zones

by Jason Gorringe,, London

10 January 2018

During a January 7, 2018, debate in the UK House of Commons, UK lawmakers discussed the country's plans to leave the EU, its customs union, and value-added tax area.

The debate was on the content of the Taxation (Cross-border Trade) Bill, which is to set out the future arrangements between the EU and the UK on tax and trade.

There continued to be consternation as to whether leaving the customs union and value-added tax area is the right decision for the UK, with Prime Minister Theresa May having earlier reinforced that the UK is heading towards a hard Brexit involving exiting all three.

As well as discussing the impact on local businesses and in particular businesses' cash flow, a minister from Labour, the leading opposition party, Anna Turley suggested that the Government should consider whether it can solve some of the issues surrounding maintaining strong ties with the European Union, facilitating trade post-Brexit, and the cash flow considerations by establishing free trade zones.

Such zones, which are particularly prevalent outside the European Union, often provide preferential tax settings to encourage investment and innovation within their borders and suspend certain customs and tax obligations for temporarily imported goods.

In her address to lawmakers, Turley said: "Around the world there are approximately 3,500 free trade zones employing 66 million people across 135 countries. There are currently none in the UK."

"Conferring free trade status on a UK port would place it administratively outside of customs territory. It would mean that goods could be imported, manufactured, or re-exported inside the free trade zone without incurring domestic customs duties or taxes, which is paid only on goods entering the domestic UK economy. As well as bringing benefits through customs taxes and duties, free zones also support economic activity through financial incentives such as research and development tax credits, regulatory flexibility, and tax reductions. They are recognized around the world as playing a major role in retaining, re-shoring, and growing domestic manufacturing activity and boosting trade. In the US there are 250 free trade zones, and they also play a major role in the economies of Singapore, Hong Kong, Indonesia, and the United Arab Emirates."

"Ports are already a vital strategic asset for the UK, accounting for 96 percent of all trade volume and 75 percent of trade value. The free port concept builds on our maritime history and an existing UK strength. The creation of a free port would increase employment and economic activity in areas where economic need is high and could play a major role in rebalancing our London-centric economy."

"The development corporation – the only one outside London – has set out its ambition to create 20,000 additional jobs in high-value manufacturing over a 25-year period, adding GBP1bn in gross value-added for the local economy. This would be substantially enhanced through the creation of a free port."

"This Bill provides an opportunity to establish the legislative basis to enable such a system to be set up in the UK, potentially giving a quick and powerful boost to the British economy as we go forward in Brexit negotiations. However, such a zone is not dependent on leaving the EU. Other member states have free ports, including the ports of Bremerhaven in Germany, Le Verdon in France, and Shannon in the Republic of Ireland. In fact, there are currently 85 free port zones within the European Union," she noted.

"Moreover, the Secretary of State is already empowered to designate free ports by statutory instrument under Section 100A of the Customs and Excise Management Act 1979, which is still in force. Indeed, the UK itself had five free trade zones until 2012, at which point the statutory instruments that set them up expired, so the framework is in place and the opportunity is there."

"I conclude by asking the Minister the following questions. First, does he agree with the principle of free ports, and does he recognize the role they can play in driving and rebalancing our economy? Secondly, will the Government be using this Bill to amend the free port powers created by the Customs and Excise Management Act? If so, will they use the opportunity to bring forward powers to enable Teesport to become a free port or subject to special customs arrangements?"

In a later response, in returning to the question, the Parliamentary Under-Secretary of State for International Trade, Mark Garnier, said: [Turley] asked a couple of important questions. The first was whether the Government were supportive of free trade zones. The simple answer is yes, but with a caveat that we need to understand them a great deal more. Her second question was whether the Government would advocate Teesport as a free trade port. She made a strong case for that–she speaks very well on behalf of her constituents. The Government will be very happy to engage with her and hear her case for that."

TAGS: United Arab Emirates | tax | investment | business | value added tax (VAT) | Ireland | export duty | energy | law | accounting | Singapore | United Kingdom | tax credits | excise duty | manufacturing | France | Germany | Hong Kong | Indonesia | import duty | trade | free trade zone | research and development | Europe | Other | Tax

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