our very own chinese take-away
After yet another round of unproductive Brexit negotiations fail to break the trade deadlock it’s time to accept ‘no-deal’ as the only possible outcome. Before last year’s landslide election, Boris Johnson boasted he had an “oven-ready deal” but the only thing emerging from his kitchen is the smell of something burning. As it transpired, this proved to be the culinary equivalent of his testing moon-shot. The sticking point is not, as is widely publicised, our fish supper, but state aid.
The EU, understandably, wants to prevent future UK government subsidies from creating lower-priced products undercutting those within the remaining twenty-seven. This is the big impasse as The Dom has long held freedom on state aid as the only true benefit of Brexit. To my limited knowledge the only possible compromise is that we need to accept we can’t wiggle out of previously agreed commitments and, by the same token, the EU need to acknowledge we can’t adopt the current EU-determined state aid rules forever, in perpetuity. Two-four or three-five years, whilst both economies work through the new operational trading procedures, sounds a relatively reasonable way forward.
In the meantime, the government apparently wants to revive the use of free ports to stimulate regional growth and boost trade after the PM gets Brexit done.
Free ports are de facto free trade zones, where normal import duties and tax rules do not, magically, apply. They operate within a country’s land area but outside its customs territory. Think of an airport’s duty-free shop where imports can enter and leave without taxes being levied. However, if the goods move out of the ‘duty-free’ zone into another part of the country then they are subject to the full import process including tariffs and taxes. So what exactly is the point of them I hear you ask? Well, the point is that whilst actually within the free port goods and products can be processed, re-engineered and/or manufactured. Finished goods often carry lower tariffs than component parts, so it makes perfect commercial sense for, as an example, a car manufacturer to import the parts via the free port, build the car within the free zone and export it to wherever in the world it’s profitable to do so.
When it works it helps stimulate the economy and served as the unlikely blueprint for China’s quest for growth and subsequent world domination. Shenzhen, China’s first special economic zone and a massive free port by any other name, opened in 1980 and has been followed by many more. Tens of millions of people now reside and work within free economic zones in the country. In total there are now estimated to be over 5,300 free trade zones across 135 countries and up until recently we too operated several limited free ports at Tilbury, Sheerness and Prestwick. A somewhat overly optimistic report from MACE estimates the creation of seven free zones could lead to 150,000 jobs and add up to £9bn to the UK economy. How it pans out in practice, within a developed as opposed to a developing economy, where it is argued it encourages only the relocation of jobs as opposed to the creation of new ones, remains to be seen.
In light of the impending no-deal, the government is pressing ahead with a free port/free trade zone policy and is proposing a series of incentives to develop this idea further including stamp-duty discounts, business rate holidays, development tax breaks and loosened planning controls. Expect to hear a lot more on this in the near future although how the EU would view such a prospective policy is unclear and uncertain. Again, to my small mind it smacks of state aid, but, hey, what do I know!
