ExxonMobil has launched an extraordinary lawsuit against two investment firms for the alleged offense of filing climate-focused shareholder proposals. The fossil fuel giant’s underlying goal: killing a federal regulatory effort that would make it easier for all U.S. shareholders to voice environmental and social concerns about the companies they own.

Critics say the company is also trying to intimidate shareholders from ever proposing such resolutions again in the future — under threat of being tied up in expensive litigation and incurring punitive financial penalties.

If successful, the Exxon lawsuit could set a legal precedent wrestling control away from regulators and cracking down on activist investors working to enact more climate-friendly policies. 

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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. 

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.

An aerial view of the Port of Felixstowe, Suffolk, part of 'Freeport East'. Photo: John Fielding/Wikimedia Commons

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.  

In recent weeks, there has been a resurgence of these and similar ideas, and even a X (formerly Twitter) community, which currently has more than 500 members, built around them. Though this latest upsurge does not always use the term ‘charter city’, it makes the same claims by talking of the UK SEZs being ‘states within a state’ or ‘countries within a country’ – with corporations able to set their own tax systems and laws, including environmental and employment laws, to the point where many rights are, or could be, suspended.

If anything, this latest version is even more alarming than before in claiming that all 86 UK SEZs (thus including the old enterprise zones) are such ‘states within a state’.

Flawed Logic and Motivated Reasoning

None of this was true when it was first claimed and none of it is true now.

What is certainly true is that there are free-market and libertarian think tanks which advocate for such developments. It is true that those think tanks, and many individuals within them, are influential with the Government.

It is true that, in 2010, one of them, the TaxPayers’ Alliance, circulated some notes championing charter cities in the UK. It is no doubt true that many Conservative MPs would agree. It is true that Jacob Rees-Mogg’s father wrote a book extolling the kind of libertarian dystopia associated with charter cities and their advocates. And it is true that Rishi Sunak, who is a longstanding advocate of freeports, was once taught by the Stanford economist Paul Romer who was the architect of the contemporary charter cities concept (whether this really means, as is invariably claimed as some kind of clinching evidence if true, that he was 'Sunak’s mentor’ seems improbable since Romer has “no recollection of ever interacting with him”).

But there are no ‘dots to be joined’ here. Whatever any of these individuals or organisations may want, as a matter of fact there is no legal basis in the UK, and no legislation in prospect, which would enable in name, or in effect, anything remotely like charter cities or ‘states within a state’ or ‘company towns’ or any of the similar claims which are circulating.

UK SEZs are part of the UK and remain entirely within the UK’s legal order, and there is no way that they could ‘become’ charter cities, or have their own legal order, without primary legislation (and, as will become clear later, without violating the UK’s trade deal with the EU).

This isn’t one of those issues where there are valid points on 'both sides’ of the debate. It is quite clear cut and beyond rational debate.

UK SEZs do not make their own laws and they do not have the power to set different employment or environmental regulations from the rest of the country.

Except in the most circuitous of ways, UK SEZs have nothing to do with the East India Company or with Hong Kong Freeports during the Opium Wars. Such comparisons make for good rhetoric but are based on the confusions arising from SEZ being a generic term which can be applied to multiple things.

The result has been to conflate all the different kinds of SEZs there are, or have ever been, or have ever been proposed, across different centuries and around the world, and to ascribe characteristics of any of them to current UK SEZs.

At its heart is a well-known logical fallacy along the lines of ‘a dog is an animal. An elephant is an animal. Therefore a dog is an elephant’. What then proceeds is the familiar practices of all ‘motivated reasoning’, which selects or twists evidence to fit assumptions, and mistakes absence of evidence for the presence of a hidden agenda. It soon becomes easy for perfectly well-intentioned people to become completely invested in ‘proving’ the fallacy to be true, and for social media echo chambers to amplify the message, and possibly make it even more inaccurate in the process.

In this particular case, it seems to have gained credence mainly among many who, confronted with similar logic and reasoning from Brexiters, would readily detect its deficiencies. If this case is different perhaps it is because, superficially, it looks like another of the well-founded critiques of Brexit.

Brexit and Freeports

Although most of the UK’s SEZs predate it, Brexit has given new impetus to concerns about them, not least because the Government proclaims the new freeports, specifically, to be a ‘Brexit benefit’ and trumpets the idea that this is because they will be free of EU rules that governed the previous UK freeports.

It is true that the EU has such rules and that these are more stringent than those of the World Trade Organisation, with which the UK has to comply. That the Government, in its desperation to show some value to Brexit, should make a great deal of this is not surprising.

What is more surprising is that critics of these new UK freeports should adopt a mirror-image form of the Government’s rhetoric, by inferring that this means that EU freeports, including those which the UK used to have, are not of concern because they are ‘tightly regulated’, whereas the new UK version will be completely different.

This is a rather starry-eyed view of EU freeports which, like other SEZs, have themselves been criticised for fostering corruption, tax evasion and criminality. That is clearly not an argument for UK freeports, but it does demonstrate that for critics to draw a sharp distinction between ‘tightly regulated’ EU freeports and post-Brexit UK freeports is misleading.

That, in turn, should give pause for thought to those who believe that post-Brexit freeports are set to be deeply malign – whereas their pre-Brexit version was, if not benign, then at least no worse than merely ineffective.

Freeports and State Aid

In reality, as these critics rightly identify, the principal way that post-Brexit freeports differ, or may differ, from those allowed by the EU, relates to state aid, which is indeed tightly controlled in the EU version. However, it is bizarre that they should focus on this issue, given that their wider critique comes primarily from a broadly left-wing viewpoint.

Are they suggesting that state aid is automatically a bad thing? After all, a standard criticism made of the EU by the left, including ‘Lexiters’, is that its restrictions on state aid mark it out as a neoliberal organisation. Why, then, would anyone on the left argue that the UK making more extensive use of state aid than the EU allows should be seen as a problem?

Conversely, if UK’s post-Brexit freeports are, as these critics insist, a playground for ‘anarcho-capitalism’ and the most extreme forms of neoliberalism and libertarianism, that can hardly be squared with the criticism that they are ramping up the provision of state aid.

This criticism is not just ideologically incoherent, it also misses or obscures two crucial points.

The first is that, in fact, post-Brexit UK freeports, and the UK generally, are not able to operate independently of EU state aid rules. It is true that the UK no longer has to obtain advance approval from the European Commission for things such as freeport tax breaks, but it is bound by the state aid provisions within the 'level playing field’ commitments of the Trade and Cooperation Agreement with the EU.

Indeed, there have already been concerns raised by the EU that UK freeport tax incentives (which is what is specifically at issue, though subsidised asset sales could become another) may violate those provisions. Whether they do so, and if they do what action the EU takes, remain to be seen, but it demonstrates the falsity of the claim that UK freeports can simply ignore EU state aid rules, and of the claim that UK freeports are constrained solely by WTO rules.

What is even more important is what this criticism obscures. The EU may object to freeport state aid because it gives the UK competitive advantage. Right-wing neoliberals may object to it because it distorts market competition. But the real concern should be whether freeport tax incentives and highly subsidised asset sales are in fact a cover for cronyism and corruption.

It is this possibility, rather than some idea that ‘state aid’ is inherently wrong, or that EU state aid rules are inherently virtuous, which lies at the heart of the accusations which have already been made about Teesside Freeport and which, very likely, will emerge about others in the future.

Finally, it has been suggested that, to the extent that UK Freeports do not comply with EU Freeport regulations, their existence is a bar to the UK re-joining the EU. This is not true. In the course of any accession process, UK SEZs would simply have to be amended over an agreed period of time to comply with EU rules, as has happened with the SEZs of many accession countries, such as Poland, in the past.

Since freeport derogations are time-limited, this would not likely give rise to contractual disputes. Even if it did, suggestions that this would lead to the UK facing legal claims in a ‘secretive court’ under an ‘investor-state dispute settlement’ (ISDS) mechanism are puzzling. ISDS features in some international trade and investment agreements and has had relevance to some charter city contracts, so this suggestion is likely to just be based on the underlying confusion of freeports and charter cities, since it is a mystery what agreement or associated ISDS mechanism might give rise to such legal claims in relation to UK freeports.

Retained EU Law

The other, quite different, Brexit issue which is being mentioned in relation to SEZs is that of EU law and regulation – especially that relating to employment and environmental standards. Specifically, it is claimed that the Government has axed huge swathes of what was Retained EU Law (REUL), with more to follow.

It is a strange shift in logic because, even if it was true, it would be true for the UK (or in some cases only Great Britain) as a whole, whereas the ‘state within a state’ claim is that SEZs have different laws and even different legal systems from the rest of the country.

But, in any case, it is also misleading.

It is true that Boris Johnson, Liz Truss and, at one time, Sunak, all promised to shred the majority of Retained EU Law. How deeply this would have bitten into employment and environmental protections will probably never be known, as we don’t know which things would have escaped the shredder. But the fact is that, much to the outrage of Conservative deregulatory Brexiters, Sunak was forced – for pragmatic rather than principled reasons – to substantially water-down what became the Retained EU Law (Revocation and Reform) Act of 2023. The bulk of what is now called ‘assimilated law’ has been kept.

It is true that one thing which hasn’t been assimilated is the Retained EU law relating to port service regulations, and some of the freeport critics have lighted on this as being significant – but mistakenly so. It has been axed because UK ports are mostly not state-owned, which is nothing to do with Brexit, and the regulations are only relevant to freeports, specifically, to the extent that they might have contradicted some of the tax breaks being offered. However, the decision to create those tax breaks had already been taken, so the Act changed nothing in that respect.

Crucially, the Act has allowed almost no changes to employment rights, and most EU case law has been written into UK legislation. With regards to environmental regulations, the concerns about the extent of what would be scrapped under the original proposals have not eventuated, although there have been losses, especially of air pollution laws, and to the extent there is divergence from EU rules it is mainly passive (not following EU changes) rather than through actively scrapping existing rules.

That’s not to deny that there is plenty to be concerned about in this, including substantial uncertainty about how assimilated law will operate, and plenty more that could be written. But it has nothing to do with SEZs specifically.

Deregulation

Of course, it is always perfectly possible that this Government, or a future one, might remove some or all employment rights, environmental protections (and literally anything else). That could come from future UK legislation which might, in turn, annul some or even all assimilated law or, most concerningly of all, from individual ministers using statutory instruments, rather than legislation, to do so.

Nevertheless, as things stand there has been no significant, and certainly no wholesale, regulatory change in these areas.

In any case, as with the state aid issue, the UK would be constrained by the level playing field provisions of the Trade and Cooperation Agreement, which contain non-regression clauses relating to employment and environmental protections.

More generally, detailed academic research on post-Brexit regulatory divergence of any sort shows that is has been relatively limited and that, again much to the anger of Conservative deregulatory Brexiters, “non-divergence is the new consensus in British politics”. To reiterate, while this could change, doing so would affect the whole country, not just SEZs. So if a government was minded to make such a change, why would it want to confine it to SEZs? And, even if it did, that would still not make SEZs ‘states within a state’, setting their own law: it would be a political decision by the government, and enacted by national law, just like any other.

The understandable concern that the Government will pursue a strategy of deregulation stands in its own right – but it doesn’t need some bizarre theory behind it about the creation of charter cities.

In fact, the Government has explicitly stated that “there is no deregulatory agenda in freeports”, including in relation to workers’ rights and environmental standards. Of course, it may be misleading. If so, that could be demonstrated by pointing to evidence that there has been such deregulation, or that the legal apparatus has been created to make it possible. Yet, there was nothing in the freeport bidding process which made any reference at all to bidders acquiring the ability to make their own laws, or to set their own taxes, or to establish their own labour and environmental standards (in fact, the regulatory constraints enumerated would make many free-marketers weep). Even more importantly, there has been no law passed or ‘charter’ granted which would allow them to.

If that isn’t enough, consider that the first of these freeports became operational in 2022, but there are no examples of corporate-created law being in place, or of a different set of employment rights or environmental regulations being in force, within them.

The same goes for the 60 enterprise zones which, we are told, are among the 86 SEZ ‘states within a state’. They have had many years of operation, including three years since the Brexit transition period ended and EU law ceased to be binding, to create such corporate legal or regulatory systems. Yet here, too, there are no examples of this having happened.

Evidence and Expertise

The fact that so many exaggerated or inaccurate claims about UK SEZs are gaining traction is a testament to the Government’s failure to communicate its policy and, no doubt, to the lack of trust that many people have in its intentions.

But, even if the Government’s communication was perfect, it would not be able to disguise the genuine and serious criticisms of its SEZs which exist: their questionable economic value, their questionable value for money, their capacity to lead to corruption and criminality, their lack of transparency and accountability, and their capacity to dilute or over-ride local planning controls.

It is not necessary to deny these criticisms, and it is certainly not necessary to defend UK SEZs, including freeports, in order to challenge the wilder accusations that are being made about them. Indeed, challenging those accusations is an important part of ensuring that the real criticisms are not drowned out or discounted.

Similarly, to the extent that many of the accusations are associated with criticising Brexit, they detract from all the many real criticisms of Brexit. It becomes all too easy to dismiss these real criticisms as ‘Brexit Derangement Syndrome’ simply by pointing to such unfounded assertions.

That is especially unfortunate since, whereas Brexiters have been notoriously disdainful of experts and evidence, those opposed to Brexit have tended to be more careful to rely on them. Yet it is notable that these charter city or ‘states within a state’ claims about UK SEZs are not based on any professional research and are not coming from reputable academic experts in a relevant subject or established journalists.

It seems highly unlikely that such experts, many of whom are themselves highly critical of Brexit, are suddenly coy about endorsing what would, if true, be a major and damning critique of it.

The more obvious, and correct, conclusion is that, on the basis of the available evidence, they know it is not true.

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With his company on the brink of bankruptcy, a driver for cash-delivery service Armaguard says he reckons he could think of a way for the company to avoid going under.

“I don’t want to give too much away, but I’ve heard the company needs truckloads of cash if it’s to avoid bankruptcy,” driver Callum Hannebery said. “Like we’re talking literally bags and bags of money”.

The company, which delivers cash to Australia’s major retailers, says it has sought loans and other lines of credit, but has exhausted all avenues of funding. “I’ve just got a cheeky feeling there might be another way,” Hannebery said.

In a statement today, the company said it was looking for a financial lifeline. “We’re really at the point now we’re we need a lot of cash to become available to us. Unfortunately money doesn’t grow on trees or magically fall off the back of a truck,” a spokesperson for the company said.

“Um … leave it with me,” Hannebery said.

____

Headline by Adam Reakes 

The post Armaguard Driver Reckons He Can Think of Way for Company to Avoid Bankruptcy appeared first on The Shovel.