Friday, August 9, 2019

UK Government Looks to Free Ports to Boost Trade - but Does It Understand the Pitfalls?

Where Are the Advantages and How Does One Keep Out the Criminal Elements?
Shipping News Feature
UK – It seems that the new Conservative administration is prepared to happily talk its way through uncharted territory as it charges toward a very possible no deal Brexit scenario. The latest initiative has been mentioned by the uninspiring figure of the Right Honourable Elizabeth Truss MP, the new Secretary of State for International Trade and President of the Board of Trade, namely the establishment of Free Ports in the UK.

Britain of course, despite claims from Chief Secretary to the Treasury Rishi Sunak and Conservative party chairman James Cleverly , formerly had these (and with EU oversight still does), and their demise came about, not so much as a command from the EU, but rather that the national legislation allowing them expired in 2012. It is simply not true, as has been claimed, that there are no Free Ports under the jurisdiction of EU countries.

Under the heading ‘Free Zones’ effectively the same thing, Spain has the Canaries, France has Guyana and even the UK has the Isle of Man. In the EU Free zones are enclosed areas within the customs territory of the Union where non-Union goods can be introduced free of import duty, other charges (i.e. taxes) and commercial policy measures, and the EU even publishes a full list of where they are.

Mr Sunak issued a detailed report outlining all the advantages of these Free Zones, and certainly there is a valid place for them, particularly in a structure such as is the EU trading bloc. By way of a Free Zone a manufacturer can gather together myriad pieces to produce a whole. Electrical and electronic goods, automobiles etc. are particularly good examples. By utilising premises within the Free Zone the manufactured goods can then be re-exported without being subject to customs import duties etc.

However the disadvantages, particularly the way they are used by criminal elements, are manifold. Even outwardly respectable businesses can carry more than an undercurrent of criminality. Whilst the EU polices the way the Zones are controlled it is very aware of the potential abuse, hence its study last year looking at the money laundering, tax evasion and tax avoidance risks connected with free zones, particularly those that function as (semi) permanent storage for high value goods, and often referred to as Free Ports.

As the EU tries to monitor the activities of those who use the Free Zones, one country on its borders has for decades actively promoted the very secrecy and conditions for potentially criminal activity. Switzerland’s Free Ports are viewed by many as the ultimate tax avoidance scenario, presumably not the public face of Britain that a responsible government will wish to promote.

With hordes of public servants diverted to deal with the problems arising from leaving the EU, does the country have the resources to properly police the activities of any such new zones? We currently have constant rumblings over the level of VAT fraud and Border Force are pushed to the limit, with many obvious crimes simply going uninvestigated.

As the entire UK would effectively become a Free Zone itself post Brexit, in some ways mirroring the Swiss position, Ms Truss and co should perhaps ask, what is the purpose of this latest pronouncement, and do they fully understand the concept? It would appear that, either those in power do not comprehend exactly what they are trying to create or, critics might say, they are happy to allow in the dubious elements which find the thought of avoiding taxes, an unmissable opportunity.

Photo: Liz Truss, described by George Monbiot in the Guardian as ‘indissolubly wedded to a set of theories about how the world should be, that are impervious to argument, facts or experience’.