27 September 2018
Today is World Maritime Day, a chance to reflect on the importance of shipping safety, maritime security and the marine environment. This year celebrates 70 years since the establishment of the International Maritime Organisation (IMO), as such the theme for the year is “IMO 70: Our Heritage – Better Shipping for a Better Future”.
This gives us with the opportunity to look at current and future challenges and opportunities for Wales’ maritime sector. In Wales, our ports make a valuable contribution to our economy through supporting jobs, driving growth, and facilitating trade. The UK, as an island nation, will always move goods through our ports. Once we leave the EU and become a third country, EU-UK trade will continue to be important, and the impact of Brexit on our ports could be considerable.
“Free Ports” might provide one option to support ports post Brexit. With increased attention recently on the concept of “free ports”, this Blog post looks at what they are, how they are established, and whether they could be a boost to Welsh ports and maritime sector.
UK-EU future relationship?
We don’t yet know what the UK’s future relationship with the EU will be, we do know that a key feature of the UK Government’s proposals for a future economic partnership is the creation of a new Free Trade Area (FTA) for goods. And a key feature of this is no quota or rules of origin requirements for UK-EU goods, supporting ‘frictionless’ trade of goods at ports.
However an agreement is yet to be reached. While the response from UK transport stakeholders and related industries to the White Paper has been broadly positive, the response to the White Paper from Michel Barnier was less encouraging on key issues like facilitated trade and customs.
The UK Government has published a series of technical notices on how to prepare for a ‘no deal’ scenario. This includes businesses needing to apply the same customs and excise rules to goods moving between the UK and EU as are currently in place between the UK and non-EU countries, for example customs declarations; and safety and security declarations.
These notices are discussed in more detail in a previous research service blog.
Free Zones are areas which are geographically inside a country’s land border, but considered to be outside customs controls. In these areas, import duty and VAT are not applied until goods leave the zone and enter the host country, enabling added value processes to take place at the port. When located in sea ports they are often referred to as Free Ports.
Free Zones appear all over the world, from Brazil to Bulgaria, and act as catalysts for international trade by allowing traders and shipping companies to store goods with minimal expense and bureaucracy – hence they are being increasingly discussed in the context of Brexit negotiations and future trade agreements with the EU.
Free Zones and the EU
While there are currently no Free Zones operating in the UK, Europe enjoys a generous scattering, with around 80 populating 20 EU countries. According to the EU Commission, in November 2017, Croatia declared the most with a sizeable 11 Free Zones, while Germany and France sported two each.
The EU Customs Code permits any member state to declare ‘any part of their territory’ as a Free Zone. The zones must be enclosed and entrances and exits must be under supervision. The code states that ‘persons, goods and means of transport entering or leaving free zones may be subject to customs controls’.
Designation of Free Zones
The designation and operation of a Free Zone is subject to EU legislation set out in the Union Customs Code (UCC). Arrangements for establishing Free Zones in the UK are set out in the Customs and Excise Management Act 1979. Essentially, the Treasury can establish Free Zones by Order ‘as a special area for customs purposes’.
The designation of a Free Zone is therefore reserved to the UK Government i.e. it is a non-devolved matter.
Welsh Ports Policy
The Wales Act 2017 (“the 2017 Act”) devolves a range of executive powers in relation to Welsh ports, including responsibility for port development, as well as legislative competence in these areas. “Reserved trust ports,” as defined in Section 32 of the 2017 Act, are the exception and are not devolved.
“Trust ports” are independent statutory bodies governed by their own legislation. “Reserved trust ports” are essentially large trust ports, with size assessed by annual turnover – Milford Haven is the only reserved trust port in Wales.
However, as outlined above, designating an area as a Free Zone is reserved to the UK Government.
Could Free Ports be a Brexit-boost for Wales?
As part of an Assembly External Affairs and Additional Legislation Committee inquiry into the effect of Brexit on Welsh Ports, the committee heard evidence on 12 June 2017 of the potential benefits of establishing one of more Free Zones in Welsh ports. This is discussed in more detail in a previous blogpost. The Committee heard from experts explaining how Free Ports could:
- improve the appeal of Welsh ports by providing a stopover point where goods can be stored tax-free before being re-exported;
- help businesses manage their import and export costs; and
- bring increased shipments to the area, increasing employment and economic growth in the port areas.
Following this evidence, Free Ports were discussed in an evidence session with the Cabinet Secretary for the Economy and Infrastructure, Ken Skates, on the 3 July 2017. When asked whether the Welsh Government supports the use of Free Ports, he replied:
If the UK Government determines that free ports can be rolled out, then we’d certainly want to get our fair share of them, but not just in terms of sea ports; I think there is huge potential for Cardiff [airport] in this regard.
He went on to say that he though it more appropriate that the ports themselves, ‘individually and collectively’ decide which should be designated Free Ports, rather than the Welsh Government.
The British Ports Association says in its ‘Brexit Dividend: Supporting Trade and Growth’ (PDF 1.92KB) paper that designating free ports will “probably not provide a Brexit solution” for the efficient and reliable movement of ‘just-in-time’ goods (vital part in continental supply chains that are often complex and time sensitive). It says:
Dependent on the final Brexit agreement there could be competition issues to consider on customs and excise procedures, therefore free ports should be kept under review.
Article by Lorna Scurlock, National Assembly for Wales Research Service