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NEW: Remember how Freeports are beacon of #brexit lands of opportunity? Turns out only 1% of U.K. imports can benefit from tariff arbitrage - which begs Q what ARE they for?? Stay with me. It’s a real head scratcher 1/Thread. https://on.ft.com/39T0WQu
So first off, Freeports were described in February consultation launch the thing that "capture[s] the essence of this Government’s ambition" - and lots Borisian phwaor about being "humming hubs" and "titans of trans-shipment" etc. @RishiSunak is a fan /2 https://www.nusghani.org.uk/news/freeports-consultation-boosting-trade-jobs-and-investment-across-uk
So how do free*ports* work - the port part. Well a key component (which the consultation document homes in on) is so-called tariff inversion.
Where you arbitrage the difference between tariffs on inputs (ingredients/raw materials/components) against finished products. /2
Where you arbitrage the difference between tariffs on inputs (ingredients/raw materials/components) against finished products. /2
This works in the US 'Free Trade Zones' where car components have higher tariffs than finished cars. And on petrochemicals.
So what about in the UK after Brexit? Does it have these opportunities for arbitrage?
To answer that question you have to look at UK tariff rates? /4
So what about in the UK after Brexit? Does it have these opportunities for arbitrage?
To answer that question you have to look at UK tariff rates? /4
The new UK 'Global Tariff' was published in May, so the @ft asked @uk_tpo @pholmes8 @juliamagntorn to run the numbers.
How much of UK imports after Brexit create space for inversion? You can read the analysis here, but it is tiny. Miniscule /5
https://blogs.sussex.ac.uk/uktpo/2020/07/28/tariff-inversion-in-uk-freeports-offer-little-opportunity-for-duty-savings/
How much of UK imports after Brexit create space for inversion? You can read the analysis here, but it is tiny. Miniscule /5
https://blogs.sussex.ac.uk/uktpo/2020/07/28/tariff-inversion-in-uk-freeports-offer-little-opportunity-for-duty-savings/
It found that under the UKGT only around *1 per cent* of UK imports by value could benefit from the arbitrage opportunity.
Of the 20 most imported inputs in the UK (covering 40% of UK’s imports of intermediate goods) 12 were duty-free 0 had a tariff of more than 4% /6
Of the 20 most imported inputs in the UK (covering 40% of UK’s imports of intermediate goods) 12 were duty-free 0 had a tariff of more than 4% /6
And indeed, when the UK published it's Global Tariff it actually made a big think about this - that it was reducing differentials and driving down tariffs....and yet in the @hmtreasury Freeports consultation document...look what it says are the key benefits? /7
So long story short, as @pholmes8 explains, "the trade benefits of a freeport are almost non-existent" - the "port" part of Freeports, that is.
Look at that list. Duty "suspension" and "inversion" are actually one thing, and as the benefits are utterly negligible/8
Look at that list. Duty "suspension" and "inversion" are actually one thing, and as the benefits are utterly negligible/8
As for duty exemptions for re-exports, well lots of those exist already.
And 'simplified customs procedures', given the minimal upsides, will themselves give minimal advantages.
So what IS the point of freeports? /9
And 'simplified customs procedures', given the minimal upsides, will themselves give minimal advantages.
So what IS the point of freeports? /9
It's a good question - because as the consultation document says it's not just about tariff inversion.
It lists other stuff such as... "speed up planning processes...tax breaks...regulatory flexibilities..." and other drivers of "innovation"...
But that begs another Q! /10
It lists other stuff such as... "speed up planning processes...tax breaks...regulatory flexibilities..." and other drivers of "innovation"...
But that begs another Q! /10
If all that streamlining is so good for business, why not do it for the WHOLE country?
Or is the idea to have regulatory 'free zones'? Are freeports really just 'enterprise zones' in disguise?
But that begs yet another Q? /11
Or is the idea to have regulatory 'free zones'? Are freeports really just 'enterprise zones' in disguise?
But that begs yet another Q? /11
The UK is already pretty streamlined (look at cost of setting up biz in UK v Germany) and it doesn't want a regulatory race to the bottom (does it?) so how do SEZs really deliver benefits? /12
As @pholmes8 observes, there might regulatory arbitrage for high-reg, high tax economies - say Shenzhen & Deng Xiaoping's China, or 1960's Ireland (Shannon Zone) but that is clearly not the case in UK 2020s.
So again, what's the point, if not tariff/regulatory arbitrage? /13
So again, what's the point, if not tariff/regulatory arbitrage? /13
Well, maybe - as the consultation document says - it's about levelling up. There is perhaps something telling in the "Most importantly" in the preamble....
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/878352/Freeports_Consultation_Extension.pdf
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/878352/Freeports_Consultation_Extension.pdf
So maybe this bring us closer to the truth...Freeports are just a device to shift activity to areas where the government wants to "level up"....which means (as lots of people have warned, and research shows) that Freeports actually SHIFT economic activity, not CREATE it /15
As my colleague @PickardJE found in this piece, more than 20+ ports and airports are vying for Freeport status (the cap at the moment is 10) so they must fancy a piece of the action...the question is whether the "action" is a net gain to the UK /16 https://www.ft.com/content/122cdc16-7435-4c7b-85e1-09cd10c1ab7a
The fact that the Vote Leave faction in No 10 is apparently holding out so hard on state aid (see threads passim) perhaps points to a more deregulatory intention than we realise, though for reasons above, its not clear how much it would really deliver. /17
I can see also that some port operators (many of which have long supported #Brexit) could do nicely out of tax breaks and rezoning land they have, but that's not necessarily in the national interest.
And I can see how Freeports can be used to hand a fillip to deprived areas/18
And I can see how Freeports can be used to hand a fillip to deprived areas/18
But the danger is that you're just robbing Peter to pay Paul...so you might create some winners, but of course losers vote too. So if you were cynical it may be it's just about picking the winners ahead of 2024 election. /19
You also, per @robertnpalmer of Tax Justice UK create fraud risk...and then, as he put it recently, Freeports become "glorified industrial parks on the edge of Tory target seats in the north and midlands.”
Either way, we need cogency. ENDS https://www.ft.com/content/122cdc16-7435-4c7b-85e1-09cd10c1ab7a
Either way, we need cogency. ENDS https://www.ft.com/content/122cdc16-7435-4c7b-85e1-09cd10c1ab7a
