Chris Grey explores the various claims around Freeports and Charter Cities – and whether they are an extreme manifestation of a libertarian Brexit

Freeports

There are many good reasons to criticise Brexit, and one thing that its critics can take pride in is that, largely speaking, their case is based on facts, evidence and logical argument. But that is not always so – and a recent explosion of false claims about Freeports and Charter Cities provides a cautionary tale.

When the Government began developing its plans for Freeports in 2020, announcing these as a benefit of Brexit, many derided the suggestion. Freeports are allowed by and exist within the EU, and the UK had had some while being a member until deciding to close them down in 2012. So it was mocked as another Brexit false claim. 

But the mockery was based on a misunderstanding.

Freeports take a variety of forms and those within the EU are constrained by EU rules, especially those on state aid. So the Government was correct to claim that, post-Brexit, UK Freeports could be different. However, this doesn’t mean that they are a complete free-for-all, because they still have to comply with World Trade Organisation rules and be consistent with the level-playing field conditions, including those on state aid, in the UK-EU trade agreement.

Subsequently, eight Freeports have been approved in England. In effect, they combine features of long-familiar Enterprise Zones, regional development policy and ‘classical’ Freeports.

They allow businesses to claim substantial national insurance and tax reliefs and to access particular government grants, as well as offering a more ‘supportive’ – for which it is probably fair to read one-sided – planning system.

They also enable simplified customs and tariff procedures, including not having to pay duties on imports until they leave the Freeport zone as imports to the UK or as re-exports to another country. One thing this enables is ‘tariff inversion’ meaning that, in cases where the trade tariffs on raw materials or part-finished goods are higher than on the finished product, firms can import them tariff-free before finishing the good for eventual sale at the lower tariff.

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In practice, it isn’t actually clear that these new Freeports will differ in any significant way from those allowed under EU law. The Government claims the UK Freeports will allow more subsidies to business than as an EU member, but the evidence for that is disputed. Apart from that, the new Freeports differ from those the UK used to have in two main ways, but neither of them required Brexit. 

One is to incorporate a package of tax reliefs along with the ‘classic’ Freeport provision of customs and tariff benefits. The other is to create the Freeports as 45 Kilometer zones around the port (or airport) itself. That defines the locus within which the Freeport facilities may be located (for example, a customs warehouse holding part-finished goods set to benefit from tariff inversion). It just means that the facilities don’t need to be literally at a port, preventing potential pressure on a small infrastructure.

There are two main kinds of persistent criticism of Freeports, including those in the EU.

One is that they aren’t economically effective, being more likely to relocate activity from adjacent parts of the country with little or no net benefit. The other is that they may have disbenefits, especially in facilitating tax evasion and money laundering or in leading to lower environmental and labour rights standards.

The Government claims that its new Freeports will be economically beneficial while having rules to prevent all of these disbenefits, and any reduction of environmental and employment standards is explicitly ruled-out.


Charter Cities

At around the same time that post-Brexit Freeports were being developed and discussed, reports began to circulate on social media – often using #CharterCities – that the ‘real’ agenda behind Brexit was to introduce ‘Charter Cities’ into the UK.

This is a concept with a long history, but its contemporary emergence is associated with development economics – whereby an outside country, or a private corporation or conglomerate, would be granted control of a city or other zone in a developing country and run it on, typically, low tax, low regulation lines.

Advocates claimed this would aid development in countries where there were corrupt or ineffective legal systems, but it attracted substantial criticism for being economically exploitative and neo-colonial.

Since then, the idea has been extended so as to mean granting a private company or consortium a ‘charter’ to completely run a city or zone within any country, regardless of development level.

In particular, it has come to mean that a Charter City would be able to dispense with all, or almost all, environmental and labour standards, set its own tax rates, scrap any minimum wage that applied in the host country, dismantle social security and health systems, create its own immigration rules, and run its own police service and, effectively, its own civil courts. Apart from foreign policy and criminal law, these would virtually be mini-states ruled by corporations.

In a generic sense, Charter Cities, like Freeports, are amongst many different kinds of ‘Special Economic Zone’ (SEZ).

SEZs exist in considerable numbers, perhaps in the low thousands*, all over the world – a well-known example being Shenzhen in China. A few SEZs could be considered Charter Cities. In particular, one variant of SEZs was Zones of Economic Development and Employment (ZEDEs) in Honduras, which gave rise to the ‘model city’ of Próspera, widely cited as the template for Charter Cities. However, its future is now in doubt because Honduras has since rejected ZEDEs as violating its constitution.

Some SEZs, perhaps many, give rise to serious concerns about human rights abuses, working conditions and criminality. 

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The Genesis of False Claims 

Entirely unsurprisingly, the Charter Cities idea – which has spawned various think tanks and lobby groups – is strongly supported by a whole swathe of right-wing, free market libertarians. Equally unsurprisingly, there is much overlap in membership between the groups specifically focused on Charter Cities and many of the generalist think tanks of the free market right, including those within the UK. And, once more unsurprisingly, many of those individuals and think tanks are very pro-Brexit and very influential with the Government and with individual Conservative politicians.

As a result, two related, and entirely bogus, propositions are now widely circulating.

One is that because some of those who are pro-Brexit are also advocates of Charter Cities, and those who advocate Charter Cities are mainly pro-Brexit, then, ‘therefore’, the secret agenda behind Brexit is the creation of Charter Cities in post-Brexit Britain.

The other is that, having belatedly realised that the Government’s Freeports are not necessarily the same as those which the UK had as an EU member, some have pivoted to asserting that, ‘therefore’, they are Charter Cities in all but name, thus ‘proving’ the first proposition true.


Charter Cities Do Not Explain Brexit

The first of these propositions is a conspiracy theory, pure and simple. Like most conspiracy theories it touches on some realities, but then distorts or falsely extrapolates from them.

For example, in some versions, Brexit is described as a ‘live experiment’ being conducted by the ‘Babson World Operating System’. There is a real initiative by a spin-off company of Babson College in the US called the Babson Global Competitiveness and Enterprise Development Project. It promotes and supports Charter City-type developments and undoubtedly has a free market and libertarian agenda. But calling it a ‘World Operating System’ is hyperbole, making it sound far more sinister and powerful than it is. 

It’s also true that multiple connections exist between Babson Global and free-market think tanks and their staff, many if not all of whom support Brexit. It’s undoubtedly true that they meet, talk, share funding sources, and sit on each other’s governing bodies. It’s true that they are often very secretive, especially about their sources of funding. But that doesn’t mean they are secretly running some ‘live experiment’ on the people of Britain.

Like all conspiracy theories, it can’t really be proved or disproved not least because, for its advocates, the very fact that there is no evidence for it is proof that it must be true, because ‘of course’ there would be no evidence of a secret agenda. 

However, its inherent implausibility is obvious. Brexit was supported by all sorts of people for all sorts of reasons. They included Lexiters, protectionists, nationalists; people nostalgic for the war and empire, people opposed to immigration, people who just wanted to ‘give David Cameron a kicking’. And, most certainly, free market libertarians.

The suggestion that it was all orchestrated by the latter group, to pursue their agenda, is as fatuous as – and surprisingly similar to – that made by some who are pro-Brexit that the Remain campaign was the creature of liberal globalists, their think tanks and Establishment stooges.

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Freeports Are Not Charter Cities

The second proposition is more easily discredited. The UK’s new Freeports are nothing like Charter Cities. The only connection between them is that both are a kind of SEZ. But they are of totally different sorts.

Crucially, Freeports have no ‘charter’ given to the operators to set their own laws and regulations. So claims that within the Freeports workers’ rights, the minimum wage, unionisation, immigration laws, environmental regulation, access to the NHS and benefits system, and public policing can be changed or abolished are wholly untrue.

These and similar claims can all demonstrably be shown to be untrue simply by reading the terms under which bids to operate Freeports were made. There is nothing in them which would allow any of these claims to be true, and no legal basis for them to be true. Nor is there any way that Freeports can ‘morph into’ Charter Cities. If Charter Cities ever became a policy, they would need a whole new legal basis just as they would if Freeports had never existed.

This is not one of those situations where there is room for legitimate debate. It is just flat-out false to equate the Freeports with Charter Cities. It’s not a matter of semantics. They are substantively and significantly different things.

When those putting these claims forward point to the lack of coverage of them in the ‘mainstream’ media, it’s not because of a conspiracy of silence – it’s because they aren’t true and there isn’t even the tiniest shred of evidence for them being true.


The Dangers of Conspiracy Theory

The growing circulation of this conspiracy theory is highly dangerous.

Firstly, it can cause real alarm. People living in the areas of Freeports may believe they are about to be chucked into some kind of dystopian libertarian hell. That is exacerbated by suggestions that, because the Freeports extend to a diameter of 45 kilometres, whole chunks of land are being transferred to a new corporate legal order. But there is no such legal order, and the 45 kilometre zone just marks the limit within which port facilities and businesses associated with them can be located. 

Secondly, it distracts from and discredits the genuine criticisms and concerns about Freeports. These include issues of economic effectiveness, governance and accountability, value for money, planning laxity, tax evasion, and corruption. It’s absolutely necessary to monitor these and also to monitor whether government promises are kept that no environmental or labour standards will be reduced, whether within Freeports or more widely. None of this is aided by nonsensical claims about Charter Cities.

It is certainly important to be vigilant. No doubt there are some powerful actors who would like to see something like Charter Cities created in the UK, or indeed wholesale national deregulation. However, crying wolf about what is actually happening with Freeports isn’t helpful, and is actually unhelpful, in resisting that.

Those wishing to make arguments against Brexit have more than enough truth on their side without needing to have recourse to fantasies and lies.

*The estimate for the number SEZs across the world was corrected on 16/08/22 to reflect a more accurate figure of thousands rather than hundreds.

Chris Grey is Emeritus Professor of Business and Management Studies at Royal Holloway, University of London. He writes the ‘Brexit & Beyond’ blog and is the author of ‘Brexit Unfolded’

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