MIDDLESBROUGH, England — Boris Johnson has a plan to turn the U.K.’s old industrial port towns into freewheeling outposts of “global Britain.”
The plan means setting up so-called free economic zones offering lower import taxes and looser regulation to lure investment in up to 10 ports. It chimes with the swashbuckling Brexiteer vision of an outward-facing British economy restored to its glory days, and also spins a positive view of the country’s future outside the EU.
“Let us begin work now to create free ports that will drive growth and thousands of high-skilled jobs in left-behind areas,” Johnson pledged outside 10 Downing Street after becoming prime minister. In one of the candidate areas, Teesside, on Friday, International Trade Secretary Liz Truss will announce the appointment of a panel of ministers and experts to figure out the “world’s most advanced free port model” that will generate “thousands of jobs.”
But will it work?
Ben Houchen, the 32-year-old Conservative mayor of Tees Valley, a cluster of deprived cities in the northeast of England, wants to get the green light to start a pilot project around the mouth of the River Tees. He reckons free ports offer a “physical representation” of how Brexit can “deliver more control and say over international trade policy.”
The 20-minute train ride from Thornaby to cheery seaside town Redcar trundles past the skeletons of shuttered factories and steel plants.
“I get extremely frustrated as people talk about this very dismissively,” Houchen said in his office overlooking the river just days before Truss’ visit. “One of the reasons we came up with the concept 18 months ago is that there was such a negativity about Brexit.”
He’s pushing to make a free economic zone out of a 4,500-acre site around a shuttered steel works, six times the size of London’s City banking district. The goal is to transform the region by attracting new clean energy companies and manufacturing at the deepest port complex on England’s east coast, he said.
The plan may be novel for the Tees, but it isn’t new. A U.S. Congress report estimated there were more than 3,000 free economic zones worldwide in 2013. Britain closed its last free port in 2012, although there’s one on the Isle of Man, a U.K. crown dependency outside the EU. There are more than 80 across the EU offering various kinds of relief from taxes and tariffs to spur growth.
The top of Eston Nab in North Yorkshire, which looks down at the view over the industrial area of Teesside and Middlesbrough | Dan Kitwood/Getty Images
But the U.K. is dreaming bigger.
“What I’m talking about is not comparable to those in the EU,” said Houchen. “What they consider a free zone is basically a large warehouse.” Instead, outside the single market, customs union and the EU’s state aid restrictions, he’s aiming for zones similar to those that have helped supercharge growth in the United Arab Emirates and the United States.
Whatever Brexit brings, the Tees Valley, which in 2016 voted heavily in favor of the U.K. exiting the EU, will feel the impact. Once a heavy industry jewel in the British economy, its horizon of furnaces, chemical works and docks inspired the opening cityscape scene in the 1980s dystopian thriller “Blade Runner.”
But its days of industrial glory are long gone. The 20-minute train ride from Houchen’s office in a newbuild complex at Thornaby, through Middlesbrough’s dilapidated central station, to cheery seaside town Redcar trundles past the skeletons of shuttered factories and steel plants.
In 2015, a steelworks overlooking the beach was closed at Redcar, costing 3,000 jobs. That delivered a body blow to the local economy, although chemicals processing and oil rig-scrappage plants still dot the landscape.
If Johnson’s team gives the go-ahead for the free port project, Houchen thinks 37,000 jobs can be generated within 20 years and around £2 billion added to the local economy. He argues that at least half of that will come along anyway owing to a shift to wind energy and hydrogen production in the region, but will be “turbocharged” by a free port zone bringing new manufacturing to the area.
The tanker Louise Knutsen is moored alongside an oil facility on the banks of the River Tees | Ian Forsyth/Getty Images
“This site is chemicals, processing, clean energy and energy production, it’s manufacturing and it’s heavy industry,” said Houchen. “We’re not trying to store goods in the zone [but] the reintroduction of the kind of jobs we haven’t seen in this area for decades.”
To do that Houchen talks of abolishing corporation tax, employee national insurance contributions and business tax rates for companies moving in, in addition to offering direct subsidies for research projects that will help foster innovation. The Department for International Trade said in a statement that the zones can relieve businesses of “unnecessary checks and paperwork, and include customs and tax benefits” while noting that some of the most successful areas mandate “liberalized planning laws.”
Around the Tees, it’s all about investing in industries that fit the region, he said, rather than trying to attract tech firms.
“We know we’re not going to become the next Silicon Valley,” said Houchen. “So we’re quite happy to exclude consumer tech; the Amazons and the Googles of this world. Stop them relocating to this area just to get tax breaks.”
But not everyone is as starry-eyed about the prospects for a free zone on the Tees.
“I think there are so many flaws in it that it’s unlikely to get a lot of traction,” said Peter Holmes, an expert on trade at the University of Sussex. “None of this is going to develop high-skilled jobs. They would be jobs in warehouses and assembly plants. These are not the kind of things that transform a region.”
Despite recent improvements, unemployment sits at just over 6 percent across the region — 2 percentage points higher than the national average. In Hartlepool, the furthest north of the conurbations covered by the Tees Authority, it’s close to 10 percent. Locals complain that while the number of jobs may be up, they aren’t the high-paying ones lost in the steel plants.
Slashing environmental and labor rules offers one option, but that’s something the Tees authorities insist they won’t do.
Comparisons to U.S. special economic zones aren’t entirely valid either, as companies there take advantage of higher tax on components than on finished goods. For example, car assembly plants benefit from importing parts to a customs-free zone and only pay taxes on the finished vehicle, which is taxed at a lower rate than the individual parts.
“This has absolutely no relevance with the EU tariff system,” Holmes said.
That pours cold water on the insistence that the 250 zones employing 420,000 people in the U.S. offer a model for Britain. “If the U.K. model is implemented as successfully, it could have a significant economic impact,” the Department of International Trade said.
It will also be a struggle to persuade the U.K. Treasury that the plan won’t displace investment from elsewhere in the country, and just siphon tax revenues through Teeside that would otherwise head straight for the public purse. Houchen insists that’s not the case, and incentives offered would attract new investment.
In addition, the move comes just as Brussels takes a keen look at free ports and their potential for crime and deregulation. The European Commission this month labeled such sites an “emerging threat” that offer crooks a way to launder cash and shift counterfeit goods, but this isn’t the model Teesside is looking at.
Stanley, one of the cheapest places in the U.K. to buy a house. Much of the North East of the United Kingdom voted to leave the European Union | Dan Kitwood/Getty Images
Depending on how hard the U.K. crashes out of the EU, the plan wouldn’t be covered by watchdogs in Brussels anyway.
Regardless, Houchen counters he’s got legal advice that is clear there won’t be a problem. “The one thing free zones don’t do is turn a completely useless site into a brilliant site,” said Houchen. “You can’t turn a site in the Sahara into an amazing free port.”
The quick take on special economic zones is pretty alluring — look at the transformation of sleepy towns in China and the Middle East into forests of glass skyscrapers and factory complexes. But the reality is trickier, especially in developed countries. Shannon, a once vital Irish refueling stop for transatlantic aviation but otherwise a provincial backwater, was turned into a hub for big business thanks to its free zone. Despite that success, Shannon has created only 7,000 jobs, a fraction of what Houchen is proposing.
Slashing environmental and labor rules offers one option, but that’s something the Tees authorities insist they won’t do, ruling out making the port a haven for migrant labor.
A British Steel manufacturing site in Skinningrove in 2017 | Ian Forsyth/Getty Images
But that may hobble the dreams of creating an economic powerhouse, Holmes said. “You’re not going to make much difference to this region unless you give a substantial change in the cost [for business]. The cost saving from the free zone itself is going to be minimal.”
Keeping locals onside with the plan is key to satisfying one of the underlying causes of Brexit — a feeling of disenfranchisement outside the country’s rich southeast. While lawmakers argue over multibillion pound new infrastructure schemes around London such as a third runway at Heathrow and a rail scheme to Birmingham, the north has been relatively starved of public investment.
“The north is just all rusted up,” one local on Redcar’s high street said, declining to offer a name given the febrile political climate. “It’s a brilliant idea if it actually emerges.”
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