Trade

From Blade Runner to Brexit in Englands industrial north

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 countrys 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 “worlds 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.”

Hes pushing to make a free economic zone out of a 4,500-acre site around a shuttered steel works, six times the size of Londons City banking district. The goal is to transform the region by attracting new clean energy companies and manufacturing at the deepest port complex on Englands east coast, he said.

The plan may be novel for the Tees, but it isnt 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 theres 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 Im 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 EUs state aid restrictions, hes aiming for zones similar to those that have helped supercharge growth in the United Arab Emirates and the United States.

The plan

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 Houchens office in a newbuild complex at Thornaby, through Middlesbroughs 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 Johnsons 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, its manufacturing and its heavy industry,” said Houchen. “Were not trying to store goods in the zone [but] the reintroduction of the kind of jobs we havent 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, its all about investing in industries that fit the region, he said, rather than trying to attract tech firms.

“We know were not going to become the next Silicon Valley,” said Houchen. “So were 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.”

The catch

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 its 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, its close to 10 percent. Locals complain that while the number of jobs may be up, they arent the high-paying ones lost in the steel plants.

Slashing environmental and labor rules offers one option, but thats something the Tees authorities insist they wont do.

Comparisons to U.S. special economic zones arent 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 wont displace investment from elsewhere in thRead More – Source