Yves here. With so much news and so many hours in the day, I must confess to having missed when UK prime minister Rishi Sunak started advocating for freeports, years before he became head of the government, and has recently implemented. These are a Seriously Bad idea, as in they effectively created lawless zones for commerce (admittedly parties would have to agree on the legal jurisdiction for any agreements they had consummated), and so of course the sort of thing diehard libertarians would advocate.
Freeports appear to be a UK answer to some of the problems caused by Brexit. Their appeal is that they are easier to implement than going back to the EU and entering into selective deals to remedy the damage. But as you will see, they are set to do collateral damage for their own.
First, from the New European in February:
The very name “freeport” had just the ring that an ambitious, young, right-of-centre politician could use to launch himself into frontline politics. Along with the smooth exterior and personal wealth to fall back on, Rishi Sunak needed a Big Idea….
So it was that in November 2016 Sunak teamed up with the Centre for Policy Studies to present the Freeports Opportunity paper that would announce him as a serious political thinker. Turning our ports into freeports would “provide an almighty boost to British manufacturing” and “fill the sails of the post-Brexit economy”.
Outside the UK’s own customs borders, even if within the country geographically, freeports would enable goods and commodities to be imported tariff-free and refashioned into products incurring lower tariffs when brought into the main economy or re-exported (so-called “tariff inversion”). …Today, he looked to the United States and its 250 “free trade zones”, citing success stories such as Nissan’s vehicle assembly plant in Tennessee. “By using tariff inversion,” he explained, its output had hit 640,000 vehicles a year.
What Sunak had missed, alas, were trade developments in Europe since ancient Delos that make the US a meaningless comparison. Where tariffs are common on imports into the US, they are minimal in Europe and the UK: non-existent within the customs union and, even outside it, trivial on UK imports from EU countries (first under transition arrangements and then under the UK-EU 2021 trade and cooperation agreement). Rolled-forward and new post-Brexit trade agreements with other countries around the world also keep tariffs to a minimum.
Although his freeport model was thus built on an entirely false premise, Sunak arrived at the Treasury in 2019 determined to push the policy through. By the spring of 2021, the eight English freeports had been named (four more in Scotland and Wales are in the pipeline). Foremost among them was Teesside….Nearly three years on and, with the exception of Teesside, very little has happened at the UK’s freeports. They are struggling even to find ways of spending the £25m “seed funding” handed to them by Whitehall. An ongoing parliamentary inquiry into freeports and investment zones recently heard from Peter Holmes, an academic, that the only business he had been able to identify as benefiting from the freeport advantage of tariff inversion was the dog-food industry….
The freeport game now, insisted Gove, was about investment incentives. The 2021 cohort were given a range of tax and business rates reliefs lasting five years. But even these are economically impotent, since they simply divert investment from one location to another.
The sort of good news is that because UK tariffs are low, the freeport scheme has not gotten all that far. But as the article elaborates, with supporting detail, the response has been to throw more money at investment subsidies. But the big winners so far indeed have been investors….but in property deals in Tessside. So there’s ample motivation to extend what amounts to a vehicle for looting.
And as the headline suggests, there is plenty of cause for concern if enough money is thrown at freeports for them to operate at more than a not-very-consequential level:
At the same time, freeports present serious security risks. Customs and border processes are substantially outsourced to private companies delegated as “responsible authorities”. At Liverpool freeport, for example, the “responsible authority” at one of the two customs sites is a maker of body-building supplements. On Teesside, the authority is a local shipping broker, but physical security at the customs zone perimeter is run by a family firm with a record of tax dodging, employing the owner’s son, who is not long out of jail after an 11-year sentence for serious organised drug crime.
The relative lack of border controls at freeports poses inherent risks – from drug and people smuggling to gun-running, money laundering, wealth concealment and much else. These have long been recognised. The EU clamped down on its version of freeports just before Sunak introduced his, citing a “high incidence of corruption, tax evasion [and] criminal activity”.
Note that the “body building supplements” is not as benign as it might seem. Over the years, body building aids sold openly and later cracked down on in the US include ephedra (a source of ephedrine and pseudoephedrine which can be used to cook meth), thyroid, and gammahydrabuterol, which is now a Schedule 1 drug.1 And that’s before getting to the sale of diverted or potentially adulterated or fake steroids, human growth hormone, and other performance boosters.
The Times was also critical, albeit using measured language. From a late 2023 article:
In March 2021 Rishi Sunak, when he was chancellor, announced eight sites in England that had been successful in bidding for freeport status: East Midlands airport, Felixstowe & Harwich, Humber, Liverpool City Region, Plymouth & South Devon, Solent, Teesside and Thames. The freeports were afforded financial benefits to “stimulate growth”: tax reliefs for businesses; the retention of 100 per cent of business rates by local councils, where typically a percentage would go back to Whitehall; simplified customs arrangements; and no tariffs on goods entering or leaving a freeport customs sites if imported.
Other growth levers at their disposal include arrangements to speed planning permission grants; seed capital amounting to £300 million; and targeted trade and investment support. Each freeport is a maximum of 28 miles in diameter and zones have sites where special customs measures are in place and one to three “tax sites” where the tax and business rates reliefs apply…
Small and medium-sized enterprises (SMEs) are concerned that they miss out on the benefits because they cannot afford to move into the freeport zones and the supply chains are not strong enough to include them…
The government has tried to address such concerns by creating “investment zones”…However, according to a survey from Make UK and Barclays, to be released this year, investment zones have proved just as opaque.
So again, notice more subsidies. The article also discussed whether freeports created jobs as opposed to merely stealing them from other spots.
Back to the Times’ final section:
Tuesday’s hearing ended with quickfire questions: “Are the incentives long-term enough?” “No.”; “Are the incentives big enough?” “No.”; “Is governance too opaque?” “Yes.”; “Will the current policy framework help the government meet its targets for levelling up?” “No.”
With economists unconvinced, the freeport policy has yet to prove itself.
The freeports have gotten back in the news since Sunak has been talking them up in the context of the upcoming Parliamentary elections as an accomplishment of sorts:
The Freeport’s and special economic zones give workers fewer rights, remove environmental controls and give large corporations years of tax exemptions. Billions of our money is being pumped into them.
— Jeremy F (@jeremyf1965) June 23, 2024
Oof! Great question on “how Brexit has denied young people a future”
Sunak says they can just work in the Teeside Freeport. pic.twitter.com/r3GULEBJHf
— Mike Galsworthy (@mikegalsworthy) June 20, 2024
To put this more simply: freeports are an example of the Singapore-on-Thames, or less charitably, buccaneering Britain post-Brexit model. Yet we see how a libertarian schem is serving to suck fund out of official coffers. Funny, that.
Now to Richard Murphy.
By Richard Murphy, part-time Professor of Accounting Practice at Sheffield University Management School, director of the Corporate Accountability Network, member of Finance for the Future LLP, and director of Tax Research LLP. Originally published at Fund the Future.
I have, as usual, published a new video this morning in which I suggest that Rishi Sunak’s very limited legacy will include the creation of freeports. They are, however, deeply dangerous places where the normal rule of law is suspended for the benefit of financial capital, usually at cost to the workers in the places and the communities that host them. As such, they undermine democracy. What could possibly go wrong?
The audio version of this video is here:
The transcript is:
Freeports are dangerous.
That, as an opening claim goes, is a big and bold one, because we have quite a lot of freeports in this country now, but they do nonetheless represent a significant threat to our well-being.
Why is that?
What is the problem with a freeport?
Look, let’s describe what a freeport is.
A freeport is a place where regulation of the normal sort that applies within the country is suspended for the benefit of those who are running businesses in that location. So, almost invariably, therefore, free ports exist to provide benefits to companies, employers, and those who are undertaking trade. And they do so by suspending the normal rules of taxation, and sometimes on other matters, like environmental protections, or employee protections, or whatever else.
Now, why should we have parts of the country where we deliberately suspend normal laws? What is the benefit of that for everybody else?
And why should some people be subject to lower levels of protection during the course of their working life because they work in a freeport compared to what they would have if they worked outside the freeport?
And that’s most especially true when no freeport has an advertised boundary. In fact, finding the border of a freeport is something that is incredibly difficult to do because these are, well, almost imaginary spaces. A few warehouses here, a warehouse or so there, ring-fenced inside a planning zone which is itself loosely described on a map, but which has no obvious border.
These freeports are figments of planner’s imaginations. Planners of all sorts; tax planners, regulatory planners, those who wish to plan to abuse environmental protection, those who most definitely want to abuse the rights of employees. And the danger is that when you create these things, and now most especially, put them under the control of private sector companies who are tasked with administering the reduced regulation in these areas in a way that is, well, to their best interest, not to the best interest of society at large, you end up with something which is particularly pernicious that is ruled by corporations.
Rule by corporations is a form of fascism. That is exactly how Mussolini described it as, in effect.
So let’s be clear. Whilst the free ports we have provide relatively limited exemptions from regulation at present, their very existence is a threat to the democratic control of this country by the government. And for that reason, they’re deeply pernicious and as dangerous as tax havens have ever been to the effective control of democracy over the well-being of most people in this world.
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1 My endocrinologist said the crackdown on GHB was entirely unwarranted. It produces a higher quality sleep than any Rx drugs, is out of your system in four hours, and can be whipped up in a kitchen. The scare was over the threat it represented to OTC and Rx sleep aids.
