16 November 2016

The UK can take up the Free Trade torch America is discarding

By Rishi Sunak

There is surely no more iconic moment in the history of boxing: Muhammad Ali, the greatest fighter there had ever been – though surely now past his prime – hunched on the ropes of a Kinshasa ring as the hammer blows of the bigger, younger George Foreman crashed down upon him.

For the disciples of free trade, Trump’s victory – sounding the death knell for both TTIP and TPP – has offered a symbolic opportunity to empathise with the ageing Ali.

And yet, for all body blows that free trade has taken, its potential to change people’s lives for the better is far from a spent force.

It is worth remembering, after all, that Rumble in the Jungle ended not with a victory for the younger Foreman, but with the wily Ali standing over yet another victim of his irrepressible right hand.

In Britain, the fightback has already begun.

Those who doggedly compare Brexit with Trump’s victory forget that making the UK more open to world markets was a central pillar of the “Out” campaign. As the date of the UK’s departure draws closer, the opportunities to take up the mantle America is about to discard will only increase.

Long the most potent symbol of trading nations, ports may well be the place to start.

Under an initiative known as the Free Trade Zone (FTZ) programme, the US has long been highly successful in leveraging its maritime logistics to reap the benefits of trade.

The basic premise of FTZs is to create areas, generally around ports like Boston and Seattle, which are legally designated as being outside of US customs territory.

For firms trading internationally this is a boon, allowing them to import components, manufacture their products and export the finished good without ever passing through US customs or paying import tariffs. Imports actually coming into the domestic market are also subject to reduced red tape and tariff reductions.

For America, these measures have provided huge benefits. FTZs (often called Free Ports) have generated almost half a million manufacturing jobs that might otherwise have gone overseas, securing substantial investments from firms such as Nissan – who cite the scheme as instrumental to their decision to remain in Tennessee.

Given that Britain has both a long maritime history and a ports infrastructure that is still the second largest in Europe, the adoption of Free Ports seems like a perfect fit. Unfortunately, the labyrinthine system of regulations that surrounds the EU Customs Union has made this impossible. By allowing a continent’s worth of protectionist special interest groups to lodge legal challenges against any attempt to create US-style Free Ports, Britain’s ability to capitalise has been stymied.

The result is that, while there are 250 Free Ports in the US and 3,500 worldwide, mainland Britain doesn’t host a single one. Once Britain leaves the EU, all that could change.

Britain’s ports are already disproportionately located in regions where investment is lacking, with more than 17 of the 30 largest ports based in the most deprived 25 per cent of Local Authorities. By designating these areas as havens of free trade, Britain’s manufacturers could create a jobs boom precisely where it is needed most.

Furthermore, free from the European Single Market’s stringent State Aid rules, port-based manufacturing clusters could be supercharged by a programme of targeted tax cuts, designed to reward firms that generate new jobs and invest in research and development.

When it comes to crafting an industrial strategy to spread the proceeds of globalisation more evenly, Free Ports tick all the boxes.

Not only do they generate employment outside of London, the jobs they create are disproportionately in manufacturing, rather than services, and provide an in-built incentive for firms to export.

Creating a new generation of Free Ports would send a resounding message to world that Brexit Britain intends to be a beacon of liberal trade.

Alone they will not be enough to convert an increasingly sceptical world to the gospel of Adam Smith; but, with persistence, they could be the first step in making Britain the showcase for a globalisation that leaves no one behind.

Rishi Sunak is MP for Richmond (Yorkshire). "The Free Ports Opportunity" is published by the Centre for Policy Studies.