Freeports

Debate between Judith Cummins and Simon Clarke

Thursday 11th October 2018 Westminster Hall

[Judith Cummins (Bradford South) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Hanson. I congratulate the hon. Member for Middlesbrough South and East Cleveland (Mr Clarke) and my right hon. Friend the Member for Birkenhead (Frank Field) on securing this important and timely debate.

We have heard how our ports play a vital role in facilitating our global trade, and about their importance to coastal communities and regional economies. However, 95% of our goods trade passes through our ports, which is significantly higher than the EU and international averages. Our businesses depend on our ports to get their goods to overseas markets. Our ports handle an estimated 500 million tonnes of freight each year, making our port industry the second largest in the EU, with more than 100,000 people in towns and cities around our coast employed directly, and many thousands more in supporting and related businesses. In 2015, the maritime sector accounted for approximately £4.7 billion in tax revenues—some 0.7% of the total tax take that year, with the port and shipping industries being the largest contributors.

I welcome the renewed focus on the maritime sector in the wake of Brexit. Although it is right that we consider the role that ports play, we must also consider that role in the context of Brexit. The Department for Transport estimates that in 2017, 55% of international tonnage passing through UK major ports was to or from the EU. It is still our largest trading partner, accounting for 44% of our exports and 53% of our imports.

The Government’s chaotic handling of Brexit could cause tariffs to be imposed on exported goods, along with increased paperwork, inspections, audits and so forth. It could cause bottlenecks at ports here and on the continent. Security or customs delays could cause substantial tailbacks leading up to our ports as freight lorries are forced to pool while waiting for ports in France or the Netherlands to clear any backlogs that build up there.

The impact on ports such as Dover, where 99% of through trade is to or from the EU, will be substantial. Other ports, such as those that are members of the UK Major Ports Group, have suggested that they are investing substantially in infrastructure and capacity expansion, to be prepared for any eventuality. Sadly, it seems that the Government have yet to adequately prepare for the same. Towards the end of last year, at a hearing of the Public Accounts Committee, Her Majesty’s Revenue and Customs told Members of Parliament that the new customs declaration system would not be fully up and running in time for Brexit and that the system had not been designed with any increased customs processing in mind.

That is precisely why Labour has repeatedly called for a new customs agreement with the EU, to ensure that our businesses can continue to export tariff-free and without friction at the border. Today’s debate should perhaps have focused on that and the Government’s complete failure to ensure that our ports are supported in the event of any change to our current trade relationship with the EU. Nevertheless, we are here to debate the reintroduction of freeports. I say reintroduction because, as many Members have alluded to and will remember, the UK has already experimented with freeports at the ports of Liverpool, Southampton, Tilbury, Sheerness and Prestwick airport. Those freeports, established while we were a member of the European Union, were freeports in the true sense of the term: a defined area outside our customs territory, where goods could enter without attracting taxes or tariffs.

If the Government are considering whether to re-establish such a model, will the Minister tell us why, under the coalition Government, it was decided in 2012 that the freeports would not continue? Are we really talking about not a freeport per se, but a free trade or free enterprise zone, where goods can be manufactured and services rendered without being subject to the ordinary tax and/or legal regimes of this country?

Ministers, including the Under-Secretary of State for Housing, Communities and Local Government, the hon. Member for Richmond (Yorks) (Rishi Sunak), have suggested that the Government should consider adopting the American model of free trade zones, in which businesses would be given tax incentives to relocate. Although there may be evidence to demonstrate that such a model creates employment and attracts investment, very rarely is any assessment made of the extent to which those jobs and that investment are displaced, resulting in job losses and business closures elsewhere.

There is evidence around the world to suggest that such free trade zones are exploited by investors and businesses that seek to take advantage of general tax holidays and lax employment laws, while failing to produce the economic benefits promised.

[Mr Simon Clarke]

I thank the hon. Lady for highlighting the importance of EU trade, with which I completely agree. On displacing business from elsewhere, which is really important, I know from conversations with Ministers that that is at the heart of the Treasury’s concern to ensure that we do not just end up shifting jobs from one part of our country to another. This is about winning business from outside the UK for the UK that otherwise would not be here. I do not believe, for example, that if we had a string of freeports around our country they would take jobs away from other port areas in the UK. It would be about winning new businesses and jobs.

[Judith Cummins]

I will come on to the importance of defining what is a freeport. A 2011 review of special economic zones by the World Bank suggested that many such models had become white elephants, with the cost of revenue lost to the Exchequer outweighing the benefits. At the same time, The Economist reported that they create distortions in economies and that many fail, leaving a long trail of failed zones that either never got going, were poorly run or in which investors gladly took tax breaks without producing substantial employment or export earnings.

Reports have repeatedly surfaced from free enterprise or free trade zones around the world that demonstrate lax enforcement of labour laws. Polish workers have been sacked for an illegal strike against poor working conditions at a business located in a special economic zone. There are similar examples in China, Cambodia and elsewhere. The European Parliament’s director general for external policies found that often in such zones

“the governance of labour rights may differ from the rest of the country and fall below international legal standards”.

If the Government are considering such a model, will they tell us how they intend to ensure that workers’ rights are protected and enforced? Will the Minister tell us what discussions he has had with trade unions?

Serious concerns have been raised about how a combination of tax incentives and relaxed monitoring and supervision, even by competent regulators, has resulted in a reduction in finance and trade controls and enforcement, creating opportunities for money laundering and the financing of terrorism. The intergovernmental Financial Action Task Force raised precisely those concerns in the inaugural review of free trade zones in 2015. It noted that

“the same characteristics that make FTZs attractive to legitimate business also attract abuse by illicit actors”.

The Financial Action Task Force also noted that FTZs have been used in the transport and production of weapons of mass destruction.