Ten freeports by Spring; Boris’s post-Brexit economic miracle

What should the Liberal Democrats do about Boris’s freeports idea? It is alleged that 85,000 jobs will be created.

What is a freeport?

It is a simple idea as old as customs duties themselves. Countries designate an area of land accessible in some way from outside their territory, as outwith their national boundaries for the purposes of customs, taxes and regulations. This means the freeport is a quasi-foreign territory free of all taxes and inspections, even though physically it is inside the host country.

The point is that goods or materials can come into the territory without paying any duties and taxes or having to conform to certain regulations, and then can be re-exported without any export red tape. Companies operating in the freeport area are usually not subject to any corporate income taxation.

This is useful for storage of goods, if for example there is sudden glut, or to defer taxes, or for factories in labour intensive industries like textiles or footwear, where all the goods produced are for export only. Nations with very low wages, monopolistic markets, and high import tariffs, constitute the majority of freeport hosts. Goods produced in the freeport have duty payable if they are ‘exported’ across the freeport border into the ‘host’ country territory proper.

The first problem with Boris’s freeport policy for the UK is that if companies are intent on using freeports they have the choice of thousands of low wage locations globally. In addition, some freeport locations (Singapore and Bremen are often cited) are used more for their logistical efficiency and special location.

Importantly, lower tariffs and fewer discretionary non-tariff barriers are now more prevalent across the OECD, much reducing the benefits of duty free imports & exports in freeports.

For these and other reasons freeports in the UK (and many across the EU) have closed. The last remaining ‘British’ freeport is in the Isle of Man, which follows UK and EU rules.

In attempting to dovetail freeport policy with Brexit, on behalf of their backers, some on Boris’s freeport advisory group have peddled the fiction that the UK would still have freeports if it wasn’t for the EU; which has ‘prevented’ them due to EU state aid rules.

There are still 95 freeports in the EU, however, mostly in lower wage Eastern European nations. Much of the duty-free benefits of freeports are actually within EU rules

What’s more, being outside the EU does not remove state aid rules. After a ‘no deal’ Brexit the UK will be subject to WTO rules on state aid, and would do well to note that many freeports have been subject to challenge by other WTO members, including the EU, on state subsidy grounds.

Thus freeports is a policy suited to low wage, high tariff, administratively bureaucratic, monopolistic countries which are not themselves markets for the goods being produced. It’s not exactly a UK-friendly idea.

Finally there is a much more important problem with freeports which has been driving the EU and now even Singapore, to review the basis of the policy. With goods able to be imported, stored and re-exported globally from freeports without customs checks, there has been a rapid expansion of their use for money laundering; typically senior kleptocrats purchasing multi-million dollar works of art and precious gems & metals, and storing them in specialist units in freeports.

So why has aristocratic Boris, with seemingly zero knowledge of industry, placed so much emphasis on this ‘miracle’ fantasy?

Two reasons. First, he is desperate for an impressive-sounding strategy to feed the optimism of the faithful, and get ‘no deal’ Brexit over the line; forgetting the 5+ years timeframe. For the second reason, observe carefully who is funding Boris’s freeport policy work. ‘Cui bono’ as Boris might say.

* Paul Reynolds works with multilateral organisations as an independent adviser on international relations, economics, and senior governance. He is an elected member of FIRC and an Executive member of Liberal International (British Group).

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13 Comments

  • nigel hunter 5th Aug '19 - 9:56am

    The boss of Bristols ‘Free Port’gave Johnson money for his PM campaign. He is just repaying the support. Does he really know what a Freeport is and does?

  • John Marriott 5th Aug '19 - 10:15am

    Singapore UK here we come? What next? Compulsory short haircuts and a ban on chewing gum in public spaces? Perhaps we can get our latter day Sir Francis Drakes to plunder a few freighters on the high seas. Will someone wake me up. This has all surely got to be a bad dream?

  • Barry Lofty 5th Aug '19 - 10:48am

    Every day we have another announcement from this unelected government about the fanciful sunny future we will all have with a no deal brexit. Wishful thinking in the extreme, when will parts of UK wake up to the real damage being done to this country of ours??

  • Rob Harrison 5th Aug '19 - 3:44pm

    In addition to Paul’s comments on money laundering, there are also serious issues with counterfeit goods. Whilst there’s maybe little harm in wearing you polo shirts with back-to-front crocodiles or those dubious Levi’s bought in Turkey, counterfeit pharmaceuticals are a major health problem in many parts of the world, as Europol – see the report at following weblink:

    https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&ved=2ahUKEwifndC1–vjAhVpzqYKHcAqCowQFjABegQIAxAC&url=https%3A%2F%2Fwww.europol.europa.eu%2Fsites%2Fdefault%2Ffiles%2Fdocuments%2Fcounterfeiting_and_piracy_in_the_european_union.pdf&usg=AOvVaw17tDxXjA9d6d4WgqytMVYO

  • But John, Admiral wee Moggs steam boat squadron lies at anchor in Grimsby. It awaits only the opening of the South Wales mines to mine the necessary high grade coal. Of cause they require small children to mine it properly so until the 1842 act preventing children working underground is repealed they will wait at anchor, but I’m sure an edict issued on the 1st of November will soon fix that. Meanwhile our brave Brexiteers train as able seamen, master mates and cabin boys. That is the ones who haven’t been designated to Tinkerbells flying faries or the 1st Imperial Unicorns aka the Blood Red Uni’s.

  • Good article, but can we please all agree to stop calling him ‘Boris’? It plays into the fluffy, harmless, lovable image that has been shown to be completely inaccurate. This is one of the most dangerous politicians that has ever been in Downing Street. He is deeply unpleasant, lies constantly, uses racist and homophobic language when it suits him, and is intent on inflicting huge damage on the country. Let’s stop treating him like a childrens’ TV character. We can refer to our own MPs by their first name, not others – and certainly not this one.

  • Than you very much for this. It shows the need to find ways of dealing with Boris’ make it up as I go along methods.
    The future is indeed bleak for our country if we do not do that.

  • Important point from TonyH. One of the most dangerous attributes of Mr Johnson is his love of words and aversion to thinking seriously about what they actually mean. Even his 18th century opinionated namesake who wrote a dictionary and cultivated a reputation for “being a character” could be turning in his grave.

  • Paul Reynolds 6th Aug '19 - 9:31am

    Yes perhaps we should just call him The Johnson.

  • @ Paul Reynolds “Yes perhaps we should just call him The Johnson.”

    I think Der Piffle would be even more appropriate, but as with The Donald there is something very dangerous about an unscrupulous self loving narcissist who specialises in sandpapering the truth and terminological inexactitudes.

  • Richard Underhill 6th Aug '19 - 10:42am

    David Raw 6th Aug ’19 – 9:58am
    My remaindered hardback copy of Boris Johnson’s fictional creation has been posted on E-Bay with a copy of a revue from the Observer which can be used as a book mark. Perhaps the former MP for Henley on Thames and Shadow Arts Minister told these jokes at Tory fundraisers.
    He was, of course, compelled by David Cameron to apologise to the people of Liverpool (or was it Merseyside?)
    This book contains an author’s s apology, right at the end, to the police who guard the Palace of Westminster.
    It should not be lightly tossed aside.

  • Daniel Carr 6th Aug '19 - 12:40pm

    Good read Paul – appreciate the well-explained summary here.

  • Catherine Royce 6th Aug '19 - 9:51pm

    So this is the answer to the backstop and the future of northern Ireland.

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