How Cork to Belfast free trade zones could make the fightback against Brexit

How Cork to Belfast free trade zones could make the fightback against Brexit

Much has been made by British prime minister Boris Johnson of the opportunities at hand by creating up to 10 so-called free trade zones or low tax ports and airports across the UK, to offset some of the loss of competitiveness by British industry after Brexit.

The idea has been widely welcomed by a number of regional ports, particularly at unemployment blackspots of Newcastle-upon-Tyne and Tees ports, and the port of Milford Haven in Wales.

The concept of free trade zones is well established as a means of regenerating regions.

Despite Mr Johnson’s apparent lack of understanding of the Irish border, he is clearly aware of the striking results delivered by the Shannon Free Trade Zone in the Mid-West.

It was a backwater in 1959 when the Shannon Free Trade Zone was established.

But the region now boasts the largest cluster of North American investors.

More than 110 overseas companies have opened subsidiaries in Shannon, including global market leaders as Element Six, Symantec, Lufthansa Technik, Mentor Graphics, RSA Security, Molex, GE Capital, Ingersoll Rand, and Intel. The list goes on.

For a while, companies locating at Shannon benefited from a lower corporate tax rate than the rest of Ireland.

But despite the formal ending of the free trade zone status, some companies still tap reduced corporation taxes and a deferral of duty and Vat payable on imported goods from non-EU countries — until such time as the goods leave the Shannon Free Zone for another EU country.

Port of Cork
Port of Cork

In its heyday companies locating there also obtained approval to import goods duty-free from outside the EU for processing and re-exportation to non-EU countries.

In Brussels, any UK proposals to establish free trade zones will be well received, as they are common across the EU: Germany has two such zones, at Bremerhaven and Cuxhaven; the French port of Bordeaux has a free trade zone, as has Barcelona in Spain; and there are a further 17 across the rest of Europe. Currently, the UK does not have any.

One of the biggest threats to the UK economy is that business will choose to relocate operations in other EU countries.

This is a real threat, as businesses facing regulatory pressures such as those in the financial services sector are already moving to other EU locations, and locations such as Ireland look set to gain.

But for other less mobile sectors like agri-food firms and the motor industry, there are bigger issues of a loss of cost competitiveness due to tariffs and disruption to complex supply-chains.

Job losses and economic stagnation could well ensue, which would not be in the EU’s nor Ireland’s interests.

In a post-Brexit world where the UK could set its own policies, it might be possible to rebalance the costs.

Reducing corporation tax has been mentioned in the past by British politicians but if implemented on a national basis, it could turn the UK into an off-shore tax haven and would hurt UK government finances. It would also be seen by EU leaders as an act of aggression.

Free trade zones, on the other hand, could enable the UK to retain good relations with its largest trading partners, including Ireland.

They could also offset trading disadvantages when its losses access to the large EU’s single market, particularly for the most exposed regions and sectors.

The EU has permitted such zones to be set up to boost regions, including at Shannon, as a legitimate means of promoting development, and all without breaching the EU’s state aid rules, and other red lines.

Designating the port of Belfast as a free trade zone could be a lifeline for a region that will be hit hard after Brexit, with or without a deal.

Indeed, a good case can be made for creating a number of free trade zones across Ireland, in the areas most exposed to the hit to agri-food industries.

John Whelan is managing partner of trade consultants, the Linkage-Partnership

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