In November 2016, the pro-free-market think tank Centre for Policy Studies published a report advocating for the establishment of freeports in post-Brexit Britain.
The document, titled The Free Ports Opportunity, maintained that freeports – a kind of special economic zones where usual customs laws do not apply – would be a boon jobs, and help “re-connect Britain with its proud maritime history as a trading nation and act as a beacon of British values, signalling the country’s openness to the world.” The author of the report was the MP for the Yorkshire constituency of Richmond, elected for the first time in 2015. His name was Rishi Sunak.
Five years and a staggering career later, Sunak, as the chief secretary to the Treasury, unveiled a plan to launch up to ten freeports across the country. In a consultation paper featuring images lifted directly from Sunak's CPS report , the government said that freeports will be “innovative hubs which boost global trade, attract inward investment and increase prosperity in the surrounding area by generating employment opportunities in some of our most deprived communities around the UK.” Shortly after the announcement, Sajid Javis resigned as chancellor following a proxy row with chief Number 10 advisor Dominic Cummings, and Rishi Sunak was swiftly elevated to the office. With a longtime proponent of freeports now installed in the Exchequer, their creation has become even more likely. But what are they supposed to accomplish – and how?
Believe it or not, freeports and similar special economic zones don’t necessarily have to do with maritime matters or trade. They might do so in a situation like China in the 1970s, which started setting tens of special economic zones to act as free-market enclaves against a backdrop of tight import regulation. And they do serve a specific function in the US, whose foreign-trade zones are often used as assemblage sites for imported electronic or mechanical components – the reason for that being that in some cases US tariffs on components are higher than those on finished products.
But in the UK “the actual customs element – the ‘free port’ element – is absolutely minor,” says Peter Holmes, a reader in Economics at the University of Sussex. After Brexit, Britain will not be part of the EU’s customs union and will have “fairly low” tariffs after Brexit. In any case, goods entering a freeport tariff-free will still have to pay tariffs once they enter the UK or any other country. “You're not actually eliminating the tariffs: you're just differing when they get paid. It's not easy to see what the benefits are with that,” Holmes says.
That is why Holmes thinks that the government’s freeports initiative may well streamline some customs procedures, but, chiefly will be about “all the other things.” Freeports and special economic zones have sometimes been regarded as places for experimentation both from a technical and regulatory standpoint.(For instance, they are a favourite conversation topic among libertarian seasteaders.)
Indeed, the UK government’s paper mentions – in a bout of Cummingsism – that the freeports could be set up as “controlled environments” to trial cutting-edge transport technologies. And, regardless of tariffs, freeports could offer tax breaks to businesses setting up shop in the area.
“The document refers to creating a ‘regulatory sandbox’,” Holmes says. “Are they going to completely relax planning regulations? They say that they're not going to undercut labor protection – but if you really wanted to get a big benefit from this, you would abolish the minimum wage in the freeports; you'd just massively deregulate health and safety. You’d try all of that.”
The ultimate reason to do that, apart from rekindling the country’s buccaneering yen and tinkering with some autonomous cranes, might have more to do with a concept that keeps popping up in this government’s pronouncement – and actually appears five times in the consultation paper. That is: “level up”. As a matter of fact, freeports and similar special economic zones are often wielded as pork barrels, aimed at reviving this or that depressed region.
“Zones are often established in locationss for political reasons – essentially to make a specific constituency happy – rather than where they make economic sense,” says Dr Susanne Frick, a fellow in Local Economic Development at the London School of Economics. “In particular, zones are often located in areas that are economically disadvantaged, but those zones' track record is particularly poor in terms of their ability to attract investments.”
It is tricky to assume that a few tax breaks and some techno-baubles will suffice to convince companies to set up shop in those zones. “The question here in the UK is therefore: why are those firms not located in these areas anyway – and are freeports actually addressing these bottlenecks?” Frick says. Companies will invariably choose to operate in regions with adequate infrastructures and a skilled workforce. The success of Sunak’s freeport experiment hinges on whether he is ready to tackle all the other factors – skills, education, infrastructure, transport – that made disadvantaged zones disadvantaged.
The alternative, according to Frick, is pretty dire. “In a bad case scenario, [these zones] simply don't gain any traction and any public investment in their establishment is lost,” She says. “In a worst case scenario, already established business relocates to the zones and pays significantly less taxes than before without generating any more economic activity and employment.”
Gian Volpicelli is WIRED's politics editor. He tweets from @Gmvolpi
This article was originally published by WIRED UK
