80 | Tees Business
BREXIT: THE FREE
PORT OPPORTUNITY?
Peter Snaith, a partner in Womble Bond
Dickinson’s commercial team and head of
the manufacturing sector group, gives his
thoughts on the potential for a “Free Port”
on Teesside.
I
n 2016 Rishi Sunak, MP for Richmond,
published a report arguing that Free Ports
would have the post-Brexit potential to:
> increase manufacturing output
> reinvigorate the North
> promote trade.
With a "no deal" Brexit now being the
government's working assumption, it is
time for a realistic assessment of those
potential benefits.
Crucially, a free port is not an unregulated
tax haven. It offers practical benefits in
terms of reduced or delayed tariffs on
goods processed or assembled for re-
export or for eventual sale in the UK market,
avoiding repeated charges on goods such
as chemicals and car engines that cross
borders during the manufacturing process.
Its main function is to defend existing
industries and jobs, with the possible future
benefit of attracting new investment. The
potential benefits for our region associated
with a Free Port or free trade zone are
significant.
To work well, a free trade zone requires
detailed regulations, precisely tailored to
the practical and economic realities of the
region.
The current law
Post-Brexit Free Ports can be created under
the Taxation (Cross Border Trade) Act 2018.
In their basic form, the effect is simply to
delay customs duties on goods temporarily
stored within the port.
However, the law also allows the
government Treasury and HMRC to create
Free Ports that go significantly beyond
the basic storage procedure, and that
could deliver significant benefits such as
tariff-inversion where the tariff due on a
final assembled product (such as a car) is
considerably less than the tariffs that would
be payable on its separate components.
There is also a major administrative
benefit, reducing the cost and burden on
small and medium sized enterprises of
having to make separate applications for
benefits such as inward processing relief.
Physical or virtual zones?
Although most discussion has focused on
the possibility of geographically-defined
Free Ports, the law also allows HMRC to
treat a customs declaration as valid if it
is made through "a system for recording
information where the system is approved
by HMRC and the information is made
available to HMRC".
Where any such system is approved,
HMRC may also disapply any other
provision relating to customs declarations.
This potentially allows the development
and adoption of supply chain management
systems, based on technologies such as
blockchain and distributed ledger, that
would permit the creation of "virtual" free
zones.
The capacity of blockchain and distributed
ledger systems to demonstrate origin and
to track any transfer of custody or of value
would allow goods to be treated as within a
"zone" even if they are outside the physical
perimeter.
This could reduce the risk of distorted
or unfair competition, and protect supply
chain participants across the region. It also
mitigates to an extent the competition for
designated status between our regional
ports, if there is scope for more than one to
be created.
Likely developments?
Initially, at least, the government's focus is
likely to be on the designation and definition
of "physical" free zones and Free Ports.
Designation would not, in itself, deliver
significant benefit. To work well, such zones
would have to be specifically tailored to the
local economy, reflecting particular areas of
specialism (such as chemical processing or
automotive manufacturing).
It would also be essential to ensure
that designation conferred sufficient
benefit on the full range of supply chain
participants, including small and medium
sized enterprises that may not be "tier one"
suppliers, but who form the vital base for
local economies.
Consequently, any bodies applying for
Free Port or free zone status should act now
to consider the feasibility and detail of its
proposal. Applicants who go to the Treasury
and HMRC with a clear and detailed
understanding of their area's specific
economic conditions and needs, and who
engage with government to ensure that
regulations accurately reflect those local
factors, will significantly enhance their
chances of success.
From a regional perspective, it is
encouraging that there is potential for
more than one North East port to secure
designated status.
Before joining Womble Bond Dickinson, Peter Snaith worked as an in-house
lawyer in the chemical sector for a number of ICI’s international speciality
chemicals businesses. He was subsequently global legal manager for ICI’s
Acrylics business following its sale to Ineos. Since his return to private practice,
he has maintained a focus on working with chemicals and chemistry-using
companies and with manufacturing companies in general.
For more information, contact Peter Snaith on 0345 415 0000
or email [email protected]
Alternatively visit womblebonddickinson.com