RED TAPE TIES U P UK FREE PORTS

Britain's experimental free ports are floundering in a "sea of red tape" that has prevented them from achieving practically any of the objectives intended by the government when they were launched two and a half years ago.

It is doubtful whether all of the six free ports, which were established with the intention of attracting businesses and creating jobs in port and industrial areas suffering from economic depression, will survive even their initial five year trial period.Given the government go-ahead in February 1984 with the intention of attracting hundreds of new firms and creating thousands of jobs, the free ports have so far admitted only a handful of companies, which have taken on no more than a few hundred employees.

Only two of them, at the ports of Southampton and Liverpool, can claim any measure of success - and they have created a total of only about 50 jobs.

Belfast, located at the principal airport in Northern Ireland, has been the most successful in this regard, attracting approximately 200 jobs. But 18 months after being designated it has not yet opened, largely because Customs and Excise has determined that the site lacks certain essential features, in particular secure fencing.

As a result, only one firm is operating inside the Belfast zone - and without the benefit of free port status.

Another free trade zone located at an airport is Prestwick, in Scotland. Since it opened in September 1985 only two firms have been attracted and about 80 jobs created.

The two remaining free ports, at Birmingham, in England's industrial Midlands, and Cardiff, in southern Wales, have yet to open. Of these, Birmingham, which is scheduled to begin operating next month, stands the best chance, with something like 200 firms showing interest.

Cardiff has had inquiries from less than half a dozen firms, and the general air of economic depression in the area does not inspire much optimism for a significant increase from this number. At least three of the free ports, Prestwick, Belfast and Cardiff, face the possibility of closure.

There are two main reasons for the lack of success of the British zones, while approximately 400 free ports operate successfully in other parts of the world. The government's first mistake was to locate them in places where it wanted to create jobs, rather than in areas where they could best serve trade.

The thriving ports of Felixstowe and Tilbury, on England's East Coast and therefore located much nearer to her main European trading partners, should have been top considerations. But they were passed over because they are successful ports and in less depressed areas than those chosen.

The second failure was never to have achieved the degree of deregulation and freedom from taxes that other countries grant their free ports.

In the past couple of weeks, strong criticism of the government's handling of the free ports has come from both managers of the zones and from an independent research body that first argued for their creation some five years ago.

James Boyle, chairman of Prestwick free port, said that development of the free trade zones in general has been "so slow that half of them are seriously considering whether they can continue in operation as free ports or whether it would not be more beneficial simply to switch to operating as ordinary industrial estates."

Belfast's marketing director, Fred McClenaghan, and Cardiff's operator, Peter Clark, have both expressed hopes that the government will change taxation rules to make the zones more worthwhile.

A report published recently by the Adam Smith Institute, the London-based economic research group, says that a sea of red tape is preventing the six free ports from competing on equal terms with their European rivals. The report, entitled "The Freeport Experiment," says that the effort to translate the general concept into policies that would guarantee the emergence of a series of vibrant, working U.K. free ports "was an almost unrelieved failure."

The new customs and tax regime intended to cut costs and reduce the vast amount of official paperwork never materialized.

The report largely blames Customs and Excise, claiming that it was never fully convinced of the need for free ports and accusing it of "contriving to thwart the intentions of legislators by rigid interpretation of rules, in place of the cooperation needed for them (free ports) to succeed."

It adds that the benefits available to U.K. free port users are even more conservative than they are entitled to be under EC regulations.

Business is also being lost to ports such as Rotterdam, which, unlike U.K. free ports, offer excise duty bonding arrangements.

Having surveyed U.K. free port operators, the report concludes that most of them believe that comparatively minor easing of the regulatory and tax regimes would produce a major increase in their marketability and chances of success.

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