This post by me was also on Left Foot Forward this morning:
Boris Johnson is proposing that the UK should, post-Brexit, have at least ten freeports. So it's worth examining what they do.
The first thing to say is that just as tax havens come in many shapes and forms so too do freeports. It's not wholly clear what the UK has in mind. In this case, the types need explaining.
From warehouses to laundering-zones
Some freeports are little more than what are called ‘bonded warehouses'. These have existed for many years and are locations where goods may be temporarily imported to a country without tariffs, excise duties and other taxes being paid before the goods are shipped on again. It's hard to argue against the usefulness of such facilities if, and this is the key point, the goods are never intended to stay in the place where they have been landed, temporarily. The arrangement avoids double tax, and double taxation has no more virtue than no tax. Such warehouse can be at either sea or airports.
Form here the story goes downhill. Another form of freeport are those described by Oddný Helgadóttir of Copenhagen Business School, with whom I have worked, as ‘luxury freeports'. These are usually located at airports. By far the most common item held in such places are works of art, although other small, high value items might also be found there. The one in Geneva is thought to hold more than a million such works of art, long unseen by their owners or anyone else, come to that.
Why do that? The attraction might be tax. Luxury freeports are usually exempt from all taxes, whether that be import tariffs, value added tax, capital gains tax or other charges that could be levied on the owner of art. And if that art is held through an anonymously owned offshore company (and the evidence is that it very often is) then it is also highly likely that the artwork will also be outside the scope of wealth taxes, and other rules on inheritance because its ownership will simply not be declared.
Hiding in plain sight
Economist Gabriel Zucman has suggested the ultra wealthy might be the biggest tax evaders in the world. Freeport activity of this sort is a way to achieve that, apparently legitimately.
That's not the only attraction of such places though. Mobile, and untraceable, goods of inherently uncertain value can be very useful indeed for another purpose, and that is money laundering.
Any old copy artwork can mysteriously inflate in value when a dodgy certificate of provenance is attached to it in such a place, and what went in as a poor canvas comes out as the way of turning illicit funds into legitimate cash, and all very often behind very opaque doors that mean no one can trace what is going on.
Something stinks
The hint of corruption has always hung over such freeports as a consequence, and who knows if recent law changes in the EU requiring improved money laundering controls upon such places will apply in a no-deal Brexit Britain? If not, any such locations in the UK would be very popular indeed.
What else do freeports do? Between the useful and the illicit as already described, there is the downright dodgy. These are the often quite sizeable freeports where businesses are encouraged to relocate themselves within a country. The incentive to move is a range of pretty dubious tax and regulatory incentives. These might be in the form of lower or no import tariffs; lower rates of tax on employing staff; an absence of business rates; reduced corporation tax, and more besides — including direct subsidies. The aim is to supposedly incentivise new business activity.
There is no real evidence from developing countries, where such arrangements are commonplace, that this ever works. All that happens is that existing business relocates into the freeport and their owners get richer.
This point is important, because the regulatory relaxations that goes alongside these tax reliefs often relate to employee protection; exemption from minimum wage and other employment rules; relaxation of health and safety requirements and even relaxed rules on product standards. All of those are a licence to abuse of course, and not just employees but consumers as well. Who takes advantage of all this? Get-rich-quick employers, of course.
And is there any chance of ‘trickle down'? Almost none at all, research suggests: that's another spurious claim for such relaxations of tax and regulations for which evidence is remarkably lacking.
The real motive
So why establish freeports? To aid and abet the free and possibly corrupt flow of wealth around the world is one answer. And to help capitalists of the worst sort make a quick buck is the other possible answer.
And that's about it, because no one else in society really benefits. But they do pick up the costs, in supporting low pay; having less tax revenue flow into the economy; seeing the wealth divide increase; and suffering the type of ‘fly-by-night' regulatory abuse that government should exist to stop, and not encourage.
Freeports are almost always a step in the wrong direction for any country. For the UK they will be another leap into the post-Brexit dark.
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Freeports are also legal in the EU. So why are they suddenly only such a good idea after Brexit?
http://www.progressivepulse.org/brexit/freeports-are-brexitwash
‘Free ports’ is shorthand for ‘ We couldn’t be arsed to get ready for BREXIT’.
It is in effect, an admission of failure but also obduracy in the face of known facts.
It is also an admission about our future as a country – as an offshore haven. With only the rich likely to benefit – even from a growth in informal (black) markets supplying to society, it will all end in tears.
It is such a pity that we must all be dragged down into this before a stop is put to it.
It is like we are entering some sort of economic ‘year zero’. So, this is what the end looks like.
Since you’ve mentioned The Doors & The End, is Slight Return a Hendrix reference?
Indeed Mike.
As Richard has said, we’ve just got to rebuild the whole bloody thing again (society) when we get the chance, so there will be a return of good ideas of some sorts – hopefully more than ‘slight’ too.
Who knows? Next time we might able to make it like that forever?
the moment I heard Jingo Johnson mention Freeports I smelled a rat,
bonded warehouses in certain instances make some sense but all the rest sounds quite shifty,
sounds a bit like ‘Special Economic Zones’ in another guise,
but isn’t this always the case, the original financially engineered products were futures to stabilise crop prices and derivatives to spread mortgage risk further afield than individual lenders,
both were broadly beneficial to all parties involved,
then financial engineering exploded into a plethora of convoluted and obscure transactions that only served to make the wealthy wealthier with less risk and at a greater potential risk to the entire system if they went wrong.
everything should be submitted to the ‘Cui Bono’ litmus test and only appoved if benefits are seen broadly across the spectrum, not bunched within a narrow interest group.
I don’t suppose a Corporation in the middle of an ancient City could become a Freeport?… just asking for some friends on a bus.
🙂
Sigh, here the lefties go again. Could it be possible that any proposal by anyone other than Corbyn or similar could be for good reasons?
Freeports are used all over the world, and are good for stimulating general business growth. Almost all goods that are re exported are already within customs regimes such as IPR, warehousing etc and this just adds to this.
I’d take the left more seriously when it comes to tax avoidance if they were not so bloody keen on it. Lest us not forget;
1. VAT avoided on purchase of Labour Party HQ by a very dodgy arrangement.
2. Selling off our Government buildings to known-tax avoiding Mapeley – absolutely torn apart by various Govt reports but we are locked in.
3. Allowing our tour operators to operate (actually suggesting they do it) a completely artificial no-commercial purpose tax scheme in order to avoid the implications of an EU judgement – the VAT transport scheme.
Constantly talking the country down. Depesssing.
TIN
You may not have noticed that I have criticised Corbyn, quite a lot
And FDave Hartnett for Mapeley and other matters
And Labour, come to that, for its lax attitudes towards tax pre 2008
But you do not operate on facts
You are only intent on trolling, as other deleted comments show
I suggest you go and play on far right web sites. You’ll feel any home there.
You will be deleted here from now on
TFN
Goodness me this is tiresome……………..
Your comment lacks context. Attitudes to tax by both Labour and the Tories are marked by Neo-liberal orthodoxy that this blog has always been keen to point out in the interests of social justice. That’s why Richard wrote a book on the subject of tax. He advertises here – get hold of a copy.
Added to that, using the free port idea in the context of BREXIT is an explicit admission of the failure to be ready for BREXIT, because if we were, we would be able to deal comfortably with dealing with new tariffs and inspecting inward and outward goods as they pass through and as the WTO would expect. There would be no free ports.
We are not ready, so we are going to turn a blind eye. Now – you’re an intelligent fellow – who might take advantage of that sort of laxity?
Hmm? And use your imagination. I mean, the Leavers talk about protecting our borders and then want to open up ‘free ports’?!!! Protecting our borders from faulty goods? Protecting our borders from money laundering? Protecting our ports from drug trafficking? People trafficking perhaps? Dodgy food? Or what?
Oh – and look where the idea came from – the good old CPS – that most open of think tanks:
https://www.cps.org.uk/research/the-free-ports-opportunity/
This idea has merde all over it I’m afraid to say and the bad boys will be all over these ports like flies on a cow pat.
Great!
Thanks PSR
In the light of other comments he has posted that I have delighted he will not be given the right to reply to this
I’ve been reading about the one in Luxembourg as well, which has the EU regulators sniffing about amidst dire cries from inside about killing the golden goose.
I think it’s high time all schemes to avoid or evade tax as their prime aim should ipso facto by made illegal unless specifically legalised (ISA’s). Though I’ve always been ambivalent about ISA’s. Okay they supposedly encourage savings, but do they house monies which would otherwise not be saved (and attract interest taxes)?
They are also a very middle class thing, the limits are of no interest to the wealthy and the poor have debts, not savings because wages and benefits are far, far too low. That child tax credits exist are an indictment on government over wage rates. They should not be necessary and are a public subsidy for inadequate wages.
ISAs are redistribution of wealth upwards
https://www.cityam.com/us-threatens-no-free-trade-deal-unless-uk-scrap-digital-tax-plans/?fbclid=IwAR1LeZskMr8Y8P4yBuZZKk0leJSQlBVNaGVlIqPTNrqVuW4VClIRGvL324w
I take it that this NOT a good idea; if only for the fact that Trump thinks it is ?
Agreed