The Case for a ‘Foyle Free Trade Zone’.

Derry’s days as a regional transport hub appear to be largely behind it. In better times the city has served as a hub for shipbuilding, an international naval base, a thriving export centre and a key departure point for emigrants. Nowadays, the sole legacy of that is a small but important port facility at Lisahally.  Meanwhile, the town which bore witness to Amelia Earhart making aviation history 85 years ago contains a regional airport that survives largely through Council subsidies. And with its key tenant (Ryanair) all but withdrawing from the facility, its future is under some question. As for rail – until the 1960s Derry was an important hub with four different rail lines & stations offering links in every direction, and a further network of commuter stations in its hinterland. Nowadays the city has just a single station on the slow and infrequent line to Belfast, with the next nearest stop 20 miles away – making Derry the most isolated station on Northern Ireland’s rail network. And finally there’s road. Despite being promised a motorway connection to Belfast for the last 50 years, Derry remains the only city on the island of Ireland that isn’t connected by a motorway or dual carriageway. With the kind of infrastructure that would make a third world nation blush, it is little wonder that Derry has languished at the top of the UK’s unemployment table for years.

However – the possibility of a major reboot for the city’s infrastructure could arise from a very unexpected quarter. Whilst there is genuine concern at the impact Brexit may have on Northern Ireland, and particularly on border areas, being removed from the EU could potentially bring some unexpected benefits. Once Brexit is complete, the UK will resume full control over its own tariffs and taxes. And that has prompted some in Westminster to float the idea of creating ‘Free Ports’ and ‘Free Trade Zones’ – particularly in economically disadvantaged areas like Derry.

Download a PDF of the map…

Free Ports and Free Trade Zones

Free Ports and Free Trade Zones are like Duty Free shops for industry – i.e. designated areas which, for customs purposes, are treated as if they were outside the country in which they are actually based. Foreign goods can enter Free Ports, go back out again or be stored there without incurring the usual taxes, tariffs and red tape. Tariffs are only paid on goods which leave the port and enter the local economy, though often at reduced rates. Free Trade Zones (FTZs) operate in a similar way, and are like an extension of a Free Port. Foreign goods can enter them without incurring any taxes, providing those goods are intended for re-export. For example, an FTZ could contain a car assembly plant – importing hundreds of components from around the world, and putting them together to create finished vehicles. By importing the foreign parts through the Free Port and assembling them within the Free Trade Zone customs duties and red tape would be avoided on those parts, and the finished cars would be cheaper to make and re-export. FTZs are therefore all about attracting investment, boosting manufacturing and employment and promoting international trade.

 

A Global Phenomenon, Invented in Ireland

There are over 3,500 Free Ports and FTZs in 135 countries around the world, providing employment for over 66 million people. The United States has over 250 FTZs hosting 420,000 jobs, and they have helped retain domestic manufacturing that would otherwise have moved elsewhere. Interestingly, Free Trade Zones are a concept that was invented right here in Ireland ! In the 1940s, planes had to stop in Ireland to refuel before continuing on to mainland Europe. Instead of taking the easy option of using Dublin Airport for this, the Irish Government instead saw an opportunity to boost regional development by establishing a new airport at Shannon. The plan worked well for a decade until the introduction of jet planes meant that Europe could be reached non-stop from the US. With the airport’s future in jeopardy, the Irish Government again showed great imagination by creating the ‘Shannon Free Zone’ in 1959. This was an area around the airport which offered low taxes and duty-free incentives for businesses to locate there. It was the world’s first Free Trade Zone, and was an instant success – accounting for a third of the Republic’s goods exports within a decade. After Ireland joined the EEC in 1973, Shannon’s perks had to be gradually removed. Regardless, the Shannon Free Zone is to this day the biggest multi-sector business park in the whole of Ireland – with over 100 international firms employing 7,000 people and generating €3.3bn in annual trade. It is also the island’s largest recipient of foreign investment outside of Dublin.

 

Post-Brexit Free Ports ?

Although common elsewhere, there are currently no Free Ports or Free Trade Zones in the UK and EU regulation makes it nigh-on impossible to set any up. So in November the influential ‘Centre for Policy Studies’ in London published a report called ‘The Free Ports Opportunity’. It recommended that the UK should seize the opportunity Brexit presents to establish Free Ports in disadvantaged port cities around the UK. They estimate that 86,000 new jobs could be created in this way, both at the ports themselves and via the manufacturing clusters that would develop nearby. For a Government nervous about Brexit, Free Ports offer two very attractive benefits. Firstly, they can be introduced quickly and easily – providing a rapid economic boost to reduce the negative impact from EU withdrawal. Secondly – as most ports in the UK are owned by independent statutory bodies rather than the State (including Foyle), they would require little or no government funding and could instead raise capital for themselves (contrast that with the impending reduction in Northern Ireland’s Corporation Tax rate, which is expected to hit Stormont’s block grant by £240m every year). A Free Port and Free Trade Zone in Derry could therefore provide the single biggest post-wartime boost to the city’s economy.

 

Foyle Free Trade Zone

So what might a Foyle Free Trade Zone look like ? Not only should it make Lisahally a Free Port, but by also granting the same status to City of Derry Airport the concept could be amplified dramatically. The 3 mile stretch of largely industrial and agricultural land between Foyle Port and the Airport could then serve as the Free Trade Zone – creating a huge new economic engine room bounded by two international transport hubs, Lough Foyle and the A2 (see map). This would not only usher in a golden era in manufacturing and logistics for the city, but would also provide a lifeline to its ailing transport infrastructure. City of Derry Airport’s viability would be greatly improved with Free Port status, as would its value – enabling the council to not only remove subsidies, but to potentially sell it. And with the Derry to Belfast train line running through this new Free Trade Zone, a brighter future could also be envisioned for the railway. New rail stations at either end of the Free Trade Zone – one serving the Airport & the fast growing village of Eglinton at its eastern end, and a second serving the Port & and the neighbouring Strathfoyle community at its western end – would connect the FTZ and these two transport hubs directly into Ireland’s rail network. It would also open up the possibility of rail freight returning to Northern Ireland for the first time since 2003, and reintroduce a commuter rail network for the city.

 

Making the Case for Derry

There is no guarantee that the UK Government will introduce Free Ports/Free Trade Zones, but the idea is certainly being discussed in Westminster circles. It is therefore vital that a new Stormont Government seizes the initiative and helps make the case both for Free Trade Zones in general, and for one located in NI. As with the Free State Government’s decision in the 1930s to look beyond Dublin and towards Shannon, I would urge Stormont to likewise, for once, look beyond Belfast as the preferred location for any such facility in Northern Ireland. Derry has all the ingredients needed to create a Free Port – an existing port facility on a train line, with significant available land and a neighbouring airport. Derry and Strabane have the greatest economic need of any area in Northern Ireland – with an unemployment rate more than twice the UK average – such that a Free Port/FTZ in the north west would have a greater economic and social impact than in any other location. It would also be a catalyst for major improvement in the city’s infrastructure, finally addressing a decades-long disparity which has stunted the region’s economy and population growth. And from a practical and financial viewpoint, Derry has significantly more land available beside its port than Belfast does – especially as Belfast City Council intends to use a lot of its brownfield harbour land for housing. With land values significantly lower in Derry than in Belfast, locating such a facility in the north’s second city would also come with a substantially lower price tag. Finally – locating such a facility on the Foyle would ensure that the best days are no longer all in the past for a city that what was once a great regional and international transport hub.

Fifty years ago the Irish government consciously looked beyond Dublin and created economic history at Shannon through foresight, creativity and a desire to spread economic benefits throughout their jurisdiction. For once Stormont should be persuaded to do the same, and to get behind a campaign to create a Foyle Free Trade Zone for Derry and the North-west region as a whole.

 

Steve Bradley is a regeneration consultant, commentator and writer based in London. He is originally from Derry. @Bradley_steve

 

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  • Thomas O Hagan

    “Derry remains the only city on the island of Ireland that isn’t connected by a motorway or dual carriageway” …Armagh is not connected by rail, motorway or dual carriageway!

  • Am Ghobsmacht

    Nice thinking.
    A university expansion and this could really give the place a serious shot in the arm.

    If it came to pass then it would further justify the Derry -Limavady-Coleraine-Ballymoney-Ballymena motorway idea too.

  • NMS

    Interesting piece, though I am not sure how the Irish Govt (& EU) would take to a beggar my neighbour project like this located just outside the EU’s borders. One option might be to return Donegal to the UK. While an eminently sensible proposal, I am not sure whether the natives would agree.

    Letterkenny has changed from a village of around 1300 people to a town of 22000, thanks to the border. Any improvement in the position of Derry, would be extremely dangerous to it.

    Why would anyone choose to locate in Derry over say Poland, particularly for manufactured goods? Almost all Polish towns of similar size to Derry are close to EU wide infrastructure, (road, air & rail) also they will be remaining within the largest Single Market & Customs Union in the world. Derry also does not have a university, a basic requirement for a modern vibrant economic region. Letterkenny is better set up for development than it.

    Irish FDI manufacturing is almost exclusively now of goods which are very small and cheap and easy to transport. (Pharma, computer chips etc). The Irish FTZ experiment, which went hand in hand with serious tax advantages, involved basic manufacturing processes, not modern manufacturing. Lack of membership of the Single Market & Customs Union trumps almost everything.

    Hard to see much of a future for a peripheral corner of a peripheral region of a State which has decided to opt out of the largest market in the world. Many similar sized towns in continental Europe are struggling to survive without the self inflicted problems of this small corner of the UK.

  • Roger

    Tuam isn’t either.

  • scepticacademic

    Sounds like pie-in-the-sky to me. What type of businesses do you think could be attracted to such a FTZ? I’m struggling to think of any mobile investors that would choose this over, say, a Polish EPZ. The northwest has multiple structural and geographical disadvantages that you seem to have wished away – eg no critical mass or obvious comparative advantage in any industry, a weak and small domestic business base with low levels of entrepreneurship, remoteness from any major centres of consumer or industrial demand, a high % of non-employed/disengaged from the labour market, weak further education and training infrastructure, a limited graduate talent pool, etc. Add in the likely loss of single market access and it looks bleak.

  • ted hagan

    I fully agree with your idea of Donegal, with a population of 170,000 ‘returning to the UK’.
    No sooner would it be in the UK than a NI referendum would have it out again, with a united Ireland at last.
    There is a reason for having the border where it is, you know.

  • NMS

    Having just got rid of a whole load of freeloading malingerers, why would any sane person want UKNI?

  • NMS

    Also, only 158,755 people in Donegal in 2016, bound to be a few thousand less since Census!

  • Brian Walker

    Splendid idea. An even better alternative would be a post-Brexit cross border free trade zone to allow complementary companies on either side to take advantage of both sets of trading terms.

  • Brian Walker

    An unworthy comment to a serious proposal,Ted. This is an economic not a constitutional idea, similar to Fruit of the Loom’s cross border development 30 years ago.

  • ted hagan

    I was responding to a comment, not the article, if you don’t mind.

  • Croiteir

    That will do nicely

  • Paddy Reilly

    Clearly then two different definitions of ‘city’ are being used here, one of which is a town with a population of a decent size, and the other a town with at least one cathedral.

    There is yet another definition, the American one, which covers any town, cathedral or not.

  • Roger

    Two cathedrals was what I thought my test was based on.
    But whatever Mrs Windsor or Cathedrals say, is Armagh really of “decent” enough size to warrant a city tag in general parlance? Your American definition throws it all up in the air. Maybe let’s limit ourselves to English as understood in the British Isles.

  • eamoncorbett

    Will be soon Roger , plan to extend Limerick / Galway motorway to Tuam.

  • Pigeon Toes

    Think Armagh is officially designated as a city as is ahem Lisburn and Newry ….

  • Paddy Reilly

    Population of Armagh, 14,749. A city for ecclesiastical purposes, but not for motorway or rail purposes.
    Population of Derry 93,512, rising to a quarter of a million for the surrounding area. Supply one motorway, please.

  • Roger

    That’s what my reference to Mrs Windsor intended to acknowledge. She’s the one who made the designations.

  • Roger

    Tuam: 9,950 and grew over 30% in most recent 10 year census period. Armagh has around 5,000 more, true. It grew at less than 2% over equivalent 10 year period.

    Letterkenny town has 19,588, around 5,000 more than Armagh but we don’t typically call it a city either. It doesn’t have a motorway either.

  • Roger

    I love UKNI. I love Ireland too. I don’t care what either cost.

  • Steve

    Thanks for your comments ScepticAcademic. Brief responses as below :

    1. The key over-riding attraction of an FTZ is tax privileges. EU members can’t implement them, so a Polish Enterprise Zone wouldn’t be able to compete financially vs a non-EU FTZ in Derry.
    2.The North West does indeed face major structural challenges, which far rom wishing away my article has outlined in some detail. These limitations are acknowledged by Stormont and are due to be addressed anyway. Work is wlel underway to enable the Derry to Belfast train service to be increased to an hourly service ; work to dual the first section pf the A5 (Derry to Strabane) is commencing this year ; dualling of the A6 continues to progress, with the Dungiven bypass the next section likely to commence. So these limitations are due to be addressed anyway. And creating Free Ports and an FTZ in the North-west would provide the perfect incentive to expedite that already-planned infrastructure work.
    3. The list of disadvantages you’ve outlined for Derry also apply very much to NI as a whole. Sure it’s all difficult and bleak, so let’s throw in the towel rather than seek creative and workable solutions to the challenges NI faces.

  • Steve

    I’m not sure I get the points you’re raising here NMS :

    – Would the EU/ROI be happy to see a Free Port and FTZ set up next door ? No. Just as I’m sure the UK wasn’t happy when the Shannon Free Trade Zone was set up in the 50s. Could they realistically do anything about it ? Also no. Countries are perfectly entitled to pursue their own economic benefit.
    – Letterkenny is a component part of the north-west economic area, of which Derry is the central hub. Far from being “dangerous” to Letterkenny, a significant lift in Derry’s economic fortunes would also lift Letterkenny’s too. It would provide jobs for people living there, it would see greater money being spent there by Derry people etc. You don’t seem to understand or appreciate that the level of interaction between Derry and the Inishowen/east Donegal area is incredibly high already. It wouldn’t magically stop if Derry’s ecomomy had a big boost – it would continue and most probably amplify.
    – I’ve answered the question re choosing a Derry FTZ over Poland as a manufacturing location above. It all comes down to the financial incentives involved.
    – Derry DOES have a University ! Albeit a wholly unsatisfactory one for the size of the city and its needs, but there is one none-the-less. There is a long-standing promise and campaign for it to be doubled in size to a minimum of 10,000 students, and land is available to do so. A Free Port and FTZ would provide a catalyst for that expansion to finally be delivered.
    – The Irish FTZ at Shannon obviously didn’t involve modern manufacturing processes, as such processes didn’t exist in the pre-EU/EEC era when it was run as a proper FTZ with generous tax breaks. Membership of the EEC/EU saw those perks removed. The manufacturing processes used in the 1950s and 1960s were obviously not what we would call now “modern”. Again – I’m not getting your point here.
    – As for your final paragraph – you’re right. Let’s all just give up on NI and emigrate :o)

  • Steve

    Armagh is a city in the same way that Wells in Somerset is – i.e. just on paper. Neither are really considered cities if we’re honest. And Tuam isn’t a city, and as far as I’m aware never has been.

  • Steve

    Unfortunately the EU wouldn’t allow a Free Trade Zone, in the true sense, to be established in the ROI.

  • SilentMajority

    The problem for Derry is that since partition the policy of the NI government, including the recent Stormont failed Assembly, was Belfast only and is likely to continue.

    As such NI’s second city and Ireland’s fourth has been left in relative isolation and any proposal that would upset this is likely to be strongly resisted and frustrated.

    The 1916 rising and partition damaged its prospects and that of its inhabitants and the 30 year campaign of the recent ‘troubles’ truly kicked the place that was already on its knees. So much for liberation and revolution.

    The result is that it has suffered from both the supposed liberators and the opposition and left sandwiched between these two forces and a victim of it. When the National Universities were established Belfast influence was used to ensure the superiority of Queen’s would not be challenged in the north part of the island and since partition any such university establishment for Derry has been equally frustrated and stultified and the infrastructure and employment opportunities equally denied. What was gained was really crumbs that were given reluctantly and only after much complaining.

    The hope that the broader church of the EEC would change this position has not entirely removed this unenviable position Derry has found itself in, although EEC border region funding has been a life line in some respects.

    Derry and the west perhaps need to be some form of protectorate that has no connection at all with Belfast or the east. This could be either within the UK or otherwise, as this is really irrelevant. The survival and welfare of the place and its residents has not been looked after by the self interested elites and masters in Belfast. An alternative is long over due.

  • scepticacademic

    Ok, I appreciate that it’s easier to critique than identify workable solutions. And I agree that it’s time for some creative thinking. And that the post-Brexit era may open up some new possibilities.

    re #1: The Polish SEZs have 2 key advantages over your Derry FTZ (proximity to core EU markets and inside Single Market), plus they are able to offer a pretty good package within EU State Aid rules due to their structural funding status ( http://www.paiz.gov.pl/investment_support/investment_incentives_in_SEZ ). Meanwhile Slovakia (attracting a lot of FDI recently) has lower costs, structural funding, 10% CT and uses the Euro.

    re #2: The infrastructure investments you mention are undoubtedly welcome and will help but my worry is the lack of joined-up thinking – e.g. where is the HE and FE strategy to capitalise on this new infrastructure (and your proposed FTZ)?

    re #3: I think greater Belfast has enough critical mass to make some headway and has been doing so, to an extent, based on a moderate-sized, relatively affordable and fairly capable talent pool plus a bit of INI grant assistance, low office rents and air connectivity to UK cities. Other towns/cities are really up against it. (Btw, I think the south is having similar issues outside Dublin and perhaps Cork, Limerick/Shannon and Galway).

    Finally, I’m still wondering about my main question: “What type of businesses do you think could be attracted to such a FTZ?”. I’m honestly struggling with this. I fear the talent pool in the NW is not large (or good) enough to attract knowledge-intensive projects and the cost base is not low enough to attract cost-sensitive projects. Stuck in the middle?