‘Panic, Misinformation and Hysteria About Freeports is Drowning Out the Real Concerns’

The serious allegations and revelations about Teesworks and the Teesside Freeport have sparked renewed attention to the dangers of freeports and other kinds of special economic zone (SEZ), as has recent Government confirmation that eight new investment zones will commence operation in the 2024-25 financial year, with a further five in prospect.

This attention is vitally important.

Although a recent Government-commissioned review of Teesworks did not find evidence to justify allegations of corruption or illegality, it did identify multiple defects in decision-making and transparency, as well as questioning whether it provides value for money.

Many commentators, including anti-corruption experts, consider that this review was insufficient in its powers and scope, and are dubious about its failure to identify corruption. Certainly, it is unlikely that this is the end of the matter as regards the Teesside freeport or others, and investigative journalism by Private Eye, especially, continues to undertake outstanding reporting of this unfolding story.

However, these important issues are being obscured by the swirl of errors, confusions, and hyperbole which has reappeared around UK freeports and ‘charter cities’ or ‘states within a state’ – particularly on social media but also crossing over into the traditional media.

Dispersing this fog is difficult because the claims made are convoluted, fragmented, hard to pin down, and difficult to disentangle from the occasional truth they contain. They would be easier to evaluate if they were based on published research reports about the actual operations or rules of UK SEZs but, tellingly, they are not.

Unpacking what is being said therefore requires a lengthy explanation but, with misinformation on this issue now spreading like wildfire, it is worthwhile both in the interests of accuracy and – crucially – to prevent the false or exaggerated claims being made, giving advocates of SEZs an easy way to discredit their critics.

There is also a more narrowly political issue. To the extent that Labour has no apparent plans to dissolve SEZs if it comes to power, it is being suggested that the party is ‘complicit’ in what is claimed these SEZs consist of. 

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SEZs

Special economic zone is a generic term encompassing a wide variety of foreign trade zones, freeports, investment zones, industrial parks, export processing zones, enterprise zones, and even ‘charter cities’ (in this sense, the phrase ‘freeports and SEZs’ is a misnomer).

What all SEZs share is some form of derogation from the laws and regulations of the country within which they are located. But what that means, and the specific institutional and legal forms it takes, also varies considerably.

The actual or potential problems of SEZs around the world are well-established, including a lack of democratic accountability, tax evasion, money-laundering, and the erosion of environmental and labour standards, all the way through to grotesque breaches of human rights.

At the same time, one of the best-evidenced criticisms is that they are an ineffectual, and possibly counter-productive way of promoting economic activity, as they are more likely to draw existing activity to them – to the detriment of other areas – than to generate new activity.

With so many potential dangers and arguably so few benefits, it is entirely right and necessary that SEZs be subjected to very close scrutiny.  

In the UK, the derogations involved have predominantly meant tax exemptions of various sorts, including reduced or waived business rates and employer National Insurance contributions, investment support, and the relaxation of planning rules. Freeports, specifically, also suspend or simplify customs procedures and tariff payments until goods leave them.

It seems likely that some of the SEZs currently being developed in the UK will be given considerable rights to compulsorily purchase land and buildings as happened in the past with, for example, the London Docklands Development Corporation. The official intentions behind these SEZs have included boosting employment, economic growth, innovation, investment, and trade, and reducing regional inequalities, although their effectiveness in these respects is highly contested.

As this suggests, SEZs are not a new phenomenon in the UK, and can be traced back at least to the early 1980s, but they have come and gone, and changed name and detailed provisions over time. There have even been freeports in the past, although the last of these closed in 2012.

The variety of forms SEZs take also makes it hard to pin down the exact numbers involved, as does the fact that in the past few years the Government has made several proposals for different numbers of SEZs, some of which have been modified or abandoned, others of which are at different stages of creation.

As things stand, there are at least 60 enterprise zones still in operation across the UK which were created following the Coalition Government’s 2011 Budget. The current Government is creating at least 12 (perhaps 13) new freeports which are at various stages of development, and there are also the 13 new investment zones currently being created.

It is presumably adding all these together that leads to the figure of 86 frequently appearing on social media as the number of current and projected SEZs in the UK.

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States Within a State?

The UK has, or will soon have, a mixture of SEZs. What it does not have, and there are no announced plans for it to have, are charter cities.

Charter cities are a particular, and intensely controversial, form of SEZ, generally found in economically developing countries, in which, typically, a private company or consortium takes over the laws and regulations of a territory within the ‘host country’.

The most famous, or infamous, examples are the now abandoned zones for employment and economic development in Honduras. The claim that UK freeports are, or will become, charter cities started floating around a couple of years ago, based mainly on some rambling essays, by an author using a false name, on a now deleted website.

At that time, and again now, a particular focus of concern was the size of areas denoted on then newly-published Government maps of freeport areas, showing them to extend for up to 45 square kilometres. The concern was reasonable, for the maps were poorly annotated and explained, and became all the more so when combined with the claim that these entire areas were set to become ‘charter cities’.

But that claim was based on a misunderstanding: in fact, as independent experts have explained, it denotes the area within which freeport facilities (customs and tax sites) must be located, not the area within which the derogations (such as tax breaks) apply, although there remain uncertainties, and therefore significant and genuine concerns, about the scope of changes to compulsory purchase and planning regulations.  

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