Most Favoured Nation: Charter Cities
Conspiracy theories and EVs
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If you spend too much time on Twitter (guilty), you may have noticed that quite a few people are incredibly concerned about something called charter cities.
[For those who spend less time on Twitter, just type ‘charter cities’ into the Twitter search bar to see what I mean.]
The reason these people are concerned goes something like this:
Brexit was part of a global conspiracy by libertarians to use free ports as a gateway to carve up the UK into charter cities, which would be run by corporations, sit outside of the normal rules of the state, and have no labour rights, environmental protections, planning constraints, etc. The UK is already planning to withdraw from the WTO when Trump next gets elected, and work with him to create a network of global charter cities as part of a deregulatory race to the bottom.
They point to government maps of the 8 approved freeport sites — which show the expansive outer boundaries of the Freeport sites in blue — as evidence there is a secret plan to allow consortiums to eventually take over and carve out entire swathes of the country and turn them into privately owned charter cities.
This is of course all complete nonsense — the explanation for the big blue circle on the map above is that the government set an arbitrary 45km limit constraining the distance between the different sites [the little red bits] of a regional Freeport cluster, for example — but people do seem to have convinced themselves versions of this story have merit.
Prof Chis Grey — someone who I think it is fair to see is not shy in his criticism of the UK government — has written an excellent piece on why this conspiracy theory is tosh
To add a couple of additional points:
An important thing to understand is that the UK government’s desire to create a load of freeports in the UK was driven by one thing and one thing only: the desire to announce it was creating a load of freeports in the UK.
In the post-Brexit context, good news stories for Brexit supporters was in short supply and announcing some freeports (which importantly have the word “free” in them) was an easy headline.
Once announced, the government then had to try and figure out what exactly it is they wanted the freeports to do.
As I’ve written before, they basically settled on a combination of classic customs facilitation that traders can do anyway and special enterprise zone-style temporary tax relief and streamlined planning rules:
From a customs perspective, freeports sit outside of a country’s normal tariff and taxation regime. This allows companies to import goods into a freeport without paying the import tariff and VAT that would otherwise apply. The tariff and VAT becomes payable if the good is moved out of the freeport and into normal circulation within the host country, but nothing is due if the good is instead exported out of the freeport to somewhere else.
… [but] …
UK customs rules already allow, for example, firms to make use of so-called duty drawback processes to reclaim tariffs paid on inputs incorporated into exported products; or to store inventory outside of the UK’s formal customs territory in so-called bonded warehouses.
In an implicit acknowledgement that the traditional benefits of freeports are not a large enough draw, the government has included additional incentives for firms operating out of the newly created freeports. These include stamp duty tax relief on land purchased within a freeport prior to 30 September 2026; enhanced capital allowances; time-limited employment tax incentives including employer national insurance contribution relief; business rates relief; possible government investment; and streamlined planning rules.
All pretty dull, tbh. And hardly a corporate takeover of swathes of the UK.
And you know what. Fine. I’m not a hater. Give freeports a go. I’m slightly sceptical they will create any UK-wide value, and think they will probably just lead to companies doing things they would have done anyway in slightly different places, but I can understand why specific towns and regions might want to be one. [Particularly because a cynic might note they provide a useful excuse for government to throw money at electorally-useful bits of the country.]
Further undermining the idea that freeports are the tip of the iceberg of a government-sponsored corporate takeover is the fact that now they have been announced [remember, the point of announcing freeports was mainly to have announced freeports] government is no longer particularly interested in them. The implementation has been shunted around a number of departments, and bidders are being made to jump through numerous hoops to claim the proposed benefits on offer. It’s all apparently a bit of a nightmare, with quite a few of the companies involved wishing they’d never bothered in the first place.
So anyway, don’t believe everything you read on the internet.
Everyone is at it
Back in the real world, the US has announced new plans to subsidise electric vehicles and the EU [and quite a few other countries] is not happy.
Simon breaks it down nicely in the piece linked to by Sabine — read here — but the basic issue is that the EV tax credits created by the new US Inflation Reduction Act are conditional on:
As of 2024, at least 40 percent of the critical minerals in EV batteries being sourced from the US or a country which the US has a free trade agreement with. This limit will rise to 80 percent in 2026.
As of 2024, the EV battery having at least 50 percent North American content. This limit will rise to 100 percent in 2028.
As of 2024, no EV battery having critical minerals sourced from a “foreign entity of concern”. [Ed: love a good euphemism for “China”.]
If this all sounds a bit like an attempt to force US carmakers to onshore battery production you would be right. It’s a pretty blatant violation of the US’s WTO national treatment commitments [not that it cares] and you can see why the EU might have a problem with this.
But the thing is, everyone is kinda at it. While legally very different — other countries would struggle to argue the EU and UK have breached their WTO obligations — in the EU-UK Trade and Co-operation Agreement both parties have ultimately made tariff-free trade in electric vehicles contingent on … drum roll … the battery being made in either the EU or the UK.
Which, y’know, sounds a little bit like what the US is trying to do. [Although I emphasise once again mainly to keep the trade lawyers off my back: legally very different from what the US is doing.]
I meant to share this last week, but forgot. Lucian Cernat has created a cool infographic comparing industrial and agricultural tariffs around the world. Naught naughty **checks notes** South Korea.
As ever, do let me know if you have any questions or comments.