Chamberlain Walker

Supercharged Free Ports: a report for the MACE Group

Chris’ recent report ‘Supercharged Free Ports’, for Mace Group, sets out a vision and economic case for well-connected ‘Supercharged’ Free Ports throughout the Northern Powerhouse. This has two aims. The first is to help position the UK as a more open economy post-Brexit, the second is to rebalance the UK economy.

Realistically, free trade deals with other countries won’t come quickly or easily post-Brexit. We might, optimistically, have such deals in place with the US, Canada, Australia and New Zealand at or soon after the end of the 2019-21 (first) transition period, though with clear challenges in the case of the US.

One way to open up the UK economy quickly – on a unilateral basis – could be to adopt Free Ports. These exist all the around the world. There is thought to be around 3,500 of them, all told. The US has nearly 200. We don’t have any in the UK because it is not permitted while we are in the EU.

Free Ports allow goods to be imported into Free Port area without paying import duties. They don’t count as part of the domestic customs area. That means that factories operating in the Free Port area can import goods, use them to make products higher up the value chain, and then export those products back out again without paying domestic import duties. That boosts profitability and the ability to invest for the future.

There is a broad consensus that we need to rebalance the UK economy. The Northern economy produced £330bn of economic output in 2016 (UK £1,747bn), yet in a balanced economy it would have produced £400bn, around £70bn more. That’s £1,500 for every northern household.

Much of the Northern Powerhouse narrative has been about improving connectivity between our great northern cities to support ‘agglomeration’ effects to boost productivity. But that narrative misses one of the North’s most important assets – its ports.

Five of the UK’s top twelve ports are in North and they handle 28% of the UK’s trade by tonnage, even though the North produces only 19% of UK GDP. They are vital assets with significant economic potential. Many have established or emerging industrial clusters around them including, most notably, off shore wind in Britain’s Energy Estuary, the Hull and Humber. These clusters include three of the four prime capabilities and areas identified by Transport for the North that will drive future productivity and economic growth, including advanced manufacturing and energy.

The Northern Powerhouse vision could be enhanced by improving connectivity with the northern ports (as well as the northern cities) and making those ports ‘Free Ports’. Those Free Ports could be then ‘supercharged’ by layering on enterprise zones (Hull already has one).

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The idea would be to increase the amount of international trade coursing throughout the Northern powerhouse, driving up productivity and GDP per head there, and rebalancing the UK economy.

With better connected ‘Supercharged Free Ports’, the report goes on the explain, we could have ‘agglomeration plus’.

Our modelling and analysis draws on estimates from the academic literature of the impact of trade on GDP, long run price elasticities of imports and exports, as well as some of the international evidence around the impact of ‘free trade zones’ on trade growth historically. We model the impact of having Supercharged Free Ports against a ‘soft Brexit’ counterfactual scenario without them. This counterfactual has low tariff and non-tariff barriers with the EU and similar deals with the US and Canada. As such, the estimated impact of Supercharged Free Ports is likely on the cautious side.

Through a combination of price response and agglomeration effects, the analysis shows that designating seven Supercharged Free Ports throughout the Northern Powerhouse could eventually boost international trade by £12bn and add £9bn a year to northern GDP, in today’s money. That would be enough to close the GDP gap between North and the rest of the UK by 10 to 15 per cent.

Selected media coverage:

The Telegraph