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Free ports and the blockchain come together to speed up seamless trade

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Some say they can boost manufacturing while others claim they are used to launder money and avoid tax. The issue of “free ports” has never been more topical, not least in the post-Brexit era. But are freeports really all they appear to be? What exactly is a free port? Typically, when goods enter a country, they have to follow the import regulations of that country. This often involves a tariff—a tax on those imports. A free port or “free zone” is an area that is inside the geographic boundary of a country, but which is legally considered outside the country for customs purposes. Goods brought into the free port don’t face import tariffs (though if they are then sent into the rest of the country for sale, they are then taxed accordingly) - writes Colin Stevens.

Free ports are an area, or linked area, that are subject to special rules to boost economic development, including differentiated duty treatment. These duty changes normally involve businesses avoiding onerous tariffs on imports and exports, and different models can be applied to different regions to boost specific industries. A Free port can exist in both inland as well as in traditional seaport locations.

For international supply chain perspective, free ports allows companies to rethink their logistics planning and warehousing needs and benefit from reduced business rates and tax benefits. Free ports can have better infrastructure and so offer higher digital connectivity than traditional port operations to facilitate import and export trade.

The higher level of digital connectivity may allow better connection to digital end-to-end supply chain with added benefit from digital port backlog management and customs clearance. This again can translate into higher efficiency: reduced waiting times, improved transparency and reduced costs.

Sometimes businesses operating within free ports receive other incentives, such as tax breaks. For example, the Canary island free zone has corporate tax rate of 4percent compared to 25% in the rest of Spain.

There are various economic benefits to free ports but it is claimed that they can be used by organisations to launder money and avoid tax.

In Europe, Copenhagen in Denmark is a freeport and there are two big free trade zones in Germany: the freeport of Cuxhaven, a covered area of about 147,800 square meters, and the freeport of Bremerhaven, around 4,000,000 square meters, The Port of Hamburg used to function as a free trade zone for 125 years, before its closure at the end of 2012.

According to the economic development agency of Germany, freeports in Germany have resulted in some 2,062 recorded foreign direct investment projects and the creation of at least 24,000 new jobs.

Economic freeports exist all over the world, including in the European Union, but, oddly, not in Belgium and the Netherlands, where two of the biggest traditional seaports in Europe exist (Antwerp and Rotterdam).

German MEP Markus Ferber MEP, EPP Group coordinator in the European parliament’s ECON Committee, told this website, "If free ports are used for their original purpose, i.e. to temporarily store goods in transit, there is little wrong with them.

“In fact, there are quite a few free ports in the EU. However, often those free ports are not used for that narrow purpose, but rather to support illicit activities, i.e. tax evasion and money laundering, which is why there needs to be tight regulation and effective enforcement in place. Otherwise, there is a severe risk of abuse. So, some scepticism with regards to free ports is often warranted.”

He went on, “I understand that the UK’s attempt to establish new free ports is mainly driven by a desire to revive economic activity in certain deprived areas, which also raises state-aid and fair competition concerns. This is therefore definitely an issue that would need to be carefully scrutinised in the framework of the EU-UK cooperation agreement".

However, digitalisation can address some of these key challenges. Higher level of interconnectivity between the buyers, sellers, traders, shippers, freight forwarders, insurance, port authorities and government allows sharing end-to-end supply chain information between parties digitally. This again provides port authorities and government access to accurate real time information which ability to drill down into historical data to detect any tax evasion and money laundering activities. Furthermore digital compliance monitoring can be used to prevent money laundry activities.  

Free ports exist within the EU, although in a more limited form than elsewhere in the world.

Freeports, or the equivalent (sometimes going by a different name) can be found all over the world, including in the Middle East.

Egypt has two, Port Said and the Suez Canal Container Terminal, and Morocco has just the one: the Atlantic Free Zone Kenitra. In the Middle East, Qatar has free zones and “special economic zones” with differing laws on taxation and corporate ownership.

Thailand has five: the Ports of Laem Chabang, Bangkok, Chieng Saen, Chiang Kong and  Ranong and Taiwan also has five: the Ports of Kaohsiung, Keelung, Taichung and Taipei and Taoyuan Air Cargo Park, Malaysia has just the one, the Port Klang free zone, while there are no less than six in Vietnam.

Surprisingly for its size, India currently has just four freeports, including the SEZ multi product free zone and another in Mumbai, the capital.

China’s first free trade port was opened as recently as 2018 in Hainan and there are now similar freeports in the cities of Guangzhou, Shenzhen and Tianjin.

One can also be found in the country’s 2nd city, Shanghai. As the bridgehead of China’s showcase project, the Belt and Road Initiative, Shanghai established the biggest pilot free trade zone in China.

Zhaoli Wang, of South China University of Technology, said, “Development basis, port shipping, talent attraction, service support, risk supervision and control are the five major comparative advantages and the important driving factors that need to be considered in exploring and leading the construction of China’s free trade port under the BRI.”

A spokesman for the Asia-Pacific Circle think tank said freeports can “foster sounder investments in the BRI area.”

He adds, “These trade zones are also very important tools which enable China to better anticipate and participate in the formulation of international rules and standards on trade and tariff conditions, to acquire greater institutional power and global economic governance.

“In the 13th Plan (2016-2020), the words “Free Trade Zones” or “Free Trade Areas” appear more than 11 times.”

Elsewhere in the region, Hong Kong has nine freeports, including the Central Ferry Piers, Victoria City, Container Terminal 9, Tsing Yi and Kai Tak Cruise Terminal at Kowloon.

China’s biggest free zone is at the City of Qingdao in in South China, and is worth 1.2 trillion RMB towards China’s GDP.

“The Qingdao FTZs aim is to function as an international land and sea trade corridor connecting China with other ASEAN countries, such as Vietnam, Laos, Thailand, and the Philippines. As an important gateway linking the land and sea routes of the BRI (also known as the 21st Century Maritime Silk Road and the Silk Road Economic Belt), these zones will be key gateways for tourism, cross-border finance, and logistics.”

One European company, LGR Global, is enthusiastically embracing the opportunities created by Qingdao and other freeports along the Belt and Road, and is offering customers an incredible suite of functional products and online services to digitize and optimize end-to-end trade finance & supply chain management.

Speaking to EU Reporter, Mr Ali Amirliravi, CEO and Founder of LGR Global, and creator of the Silk Road Coin (SRC) digital currency, said “In SRC Business Ecosystem we are connecting digital trade finance, cross border money movement and end-to-end supply chain in a single interconnected system. We are linking buyers, sellers, traders, shippers, freight forwarders, insurance, port authorities and government digitally together in our trading family. By using blockchain, smart contracts, IoT, AI and SRC utility token we have transformed traditional paper based process into digital where we are able to detect discrepancies in real time and share information between the trading partners and with port authorities and government. Furthermore our interconnected digital trade finance system provides constant, banking grade AML and KYC compliance monitoring to prevent money laundry activities.  

Our solution is built to reduce the total transaction cost to all trading partners in SRC business ecosystem. This means reducing operating cost, banking fees and facilitating physical product movement so goods will arrive to destination in good condition withing estimated delivery time. Our solution handles the requirements of both hard and soft commodities (i.e. food products). Our solution has dynamic IoT based track and trace capacity and real-time data feed integration (temp, humidity, GPS) to create opportunities for shippers and stakeholders to intervene immediately in case of trouble and to find solutions”. This solution is not only benefiting buyers to get their goods delivered in good conditions in promised time but also when things go wrong, shippers and insurance companies in claim processing.

In the future, our SRC Business ecosystem and our Silk Road Coin is designed to co-exist with digital RMB. “Adoption of the digital RMB will increase trade throughout the Europe and New Silk Road economies, and as our ecosystem will adopt digital RMB into our solution, we can work to further promote digital multi-commodity trading across the free ports in the New Silk Road.”

Aviation/airlines

Commission approves €800 million Italian scheme to compensate airports and ground-handling operators for the damage suffered due to the coronavirus outbreak

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The European Commission has approved, under EU state aid rules, an €800 million Italian scheme to compensate airports and ground-handling operators for the damage suffered due to the coronavirus outbreak and the travel restrictions that Italy and other countries had to implement to limit the spread of the virus.

Executive Vice President Margrethe Vestager in charge of competition policy said: "Airports are among the companies that have been hit particularly hard by the coronavirus outbreak. This €800 million scheme will enable Italy to compensate them for the damage suffered as a direct result of the travel restrictions that Italy and other countries had to implement to limit the spread of the virus. We continue working in close cooperation with member states to find workable solutions to mitigate the economic impact of the coronavirus outbreak, in line with EU rules.”

The Italian scheme

Italy notified to the Commission an aid measure to compensate airports and ground-handling operators for the damage suffered during the period between 1 March and 14 July 2020 due to the coronavirus outbreak and the travel restrictions in place.

Under the scheme, the aid will take the form of direct grants. The measure will be open to all airports and ground-handling operators with a valid operating certificate delivered by the Italian civil aviation authority.

A claw-back mechanism will ensure that any public support received by the beneficiaries in excess to the actual damage suffered will have to be paid back to the Italian State.  

The Commission assessed the measure under Article 107(2)(b) of the Treaty on the Functioning of the European Union (TFEU), which enables the Commission to approve State aid measures granted by member states to compensate specific companies or specific sectors for the damages directly caused by exceptional occurrences, such as the coronavirus outbreak.

The Commission considers that the coronavirus outbreak qualifies as an exceptional occurrence, as it is an extraordinary, unforeseeable event having a significant economic impact. As a result, exceptional interventions by the member states to compensate for the damages linked to the outbreak are justified. 

The Commission found that the Italian measure will compensate damages that are directly linked to the coronavirus outbreak, and that it is proportionate, as the compensation will not exceed what is necessary to make good the damage, in line with Article 107(2)(b) TFEU.

On this basis, the Commission approved the measure under EU state aid rules.

Background

Financial support from EU or national funds granted to health services or other public services to tackle the coronavirus situation falls outside the scope of State aid control. The same applies to any public financial support given directly to citizens. Similarly, public support measures that are available to all companies such as for example wage subsidies and suspension of payments of corporate and value added taxes or social contributions do not fall under State aid control and do not require the Commission's approval under EU State aid rules. In all these cases, member states can act immediately.

When State aid rules are applicable, member states can design ample aid measures to support specific companies or sectors suffering from the consequences of the coronavirus outbreak in line with the existing EU State aid framework.

On 13 March 2020, the Commission adopted a Communication on a co-ordinated economic response to the COVID-19 outbreak setting out these possibilities.

In this respect, for example:

  • Member states can compensate specific companies or specific sectors (in the form of schemes) for the damage suffered due and directly caused by exceptional occurrences, such as those caused by the coronavirus outbreak. This is foreseen by Article 107(2)(b)TFEU.
  • State aid rules based on Article 107(3)(c) TFEU enable member states to help companies cope with liquidity shortages and needing urgent rescue aid.
  • This can be complemented by a variety of additional measures, such as under the de minimis Regulation and the General Block Exemption Regulation, which can also be put in place by Member States immediately, without involvement of the Commission.

In case of particularly severe economic situations, such as the one currently faced by all member states due the coronavirus outbreak, EU State aid rules allow member states to grant support to remedy a serious disturbance to their economy. This is foreseen by Article 107(3)(b) TFEU of the Treaty on the Functioning of the European Union.

On 19 March 2020, the Commission adopted a State Aid Temporary Framework based on Article 107(3)(b) TFEU to enable Member States to use the full flexibility foreseen under State aid rules to support the economy in the context of the coronavirus outbreak. The Temporary Framework, as amended on 3 April, 8 May, 29 June, 13 October 2020 and 28 January 2021, provides for the following types of aid, which can be granted by member states: (i) Direct grants, equity injections, selective tax advantages and advance payments; (ii) State guarantees for loans taken by companies; (iii) Subsidised public loans to companies, including subordinated loans; (iv) Safeguards for banks that channel State aid to the real economy; (v) Public short-term export credit insurance;(vi) Support for coronavirus related research and development (R&D); (vii) Support for the construction and upscaling of testing facilities; (viii) Support for the production of products relevant to tackle the coronavirus outbreak; (ix) Targeted support in the form of deferral of tax payments and/or suspensions of social security contributions; (x) Targeted support in the form of wage subsidies for employees; (xi) Targeted support in the form of equity and/or hybrid capital instruments; (xii) Support for uncovered fixed costs for companies facing a decline in turnover in the context of the coronavirus outbreak.

The Temporary Framework will be in place until the end of December 2021. With a view to ensuring legal certainty, the Commission will assess before this date if it needs to be extended.

The non-confidential version of the decision will be made available under the case number SA.63074 in the state aid register on the Commission's competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the Competition Weekly e-News.

More information on the Temporary Framework and other action the Commission has taken to address the economic impact of the coronavirus pandemic can be found here.

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Copyright legislation

Commission calls on member states to comply with EU rules on copyright in the Digital Single Market

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The Commission has requested Austria, Belgium, Bulgaria, Cyprus, Czechia, Denmark, Estonia, Greece, Spain, Finland, France, Croatia, Ireland, Italy, Lithuania, Luxembourg, Latvia, Poland, Portugal, Romania, Sweden, Slovenia and Slovakiato communicate information about how the rules included in the Directive on Copyright in the Digital Single Market (Directive 2019/790/EU) are being enacted into their national law. The European Commission has also requested Austria, Belgium, Bulgaria, Cyprus, Czechia, Estonia, Greece, Spain, Finland, France, Croatia, Ireland, Italy, Lithuania, Luxembourg, Latvia, Poland, Portugal, Romania, Slovenia and Slovakiato communicate information about how Directive 2019/789/EU on online television and radio programmes is enacted into their national law.

As the member states above have not communicated national transposition measures or have done it only partially, the Commission decided today to open infringement procedures by sending letters of formal notice. The two Directives aim to modernise EU copyright rules and to enable consumers and creators to make the most of the digital world. They reinforce the position of creative industries, allow for more digital uses in core areas of society, and facilitate the distribution of radio and television programmes across the EU. The deadline for transposing these Directives into national legislation was 7 June 2021. These member states now have two months to respond to the letters and take the necessary measures. In the absence of a satisfactory response, the Commission may decide to issue reasoned opinions.

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Entrepreneurs

Winners of Europe’s largest youth entrepreneurship festival unveiled

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370,000 young entrepreneurs from 40 countries competed to become Europe’s Company and Start Up of the Year on United Nations World Skills Day 2021.

Swim.me and Scribo have been named the winners of the JA Europe Enterprise Challenge and Company of the Year Competition, after battling it out withEurope’s best young entrepreneurs today in Gen-E 2021, the largest entrepreneurship festival across Europe.

Organised by JA Europe and hosted this year by JA Lithuania, the Gen-E festival combines two annual awards, the Company of the Year Competition (CoYC) and the European Enterprise Challenge (EEC).

Following presentations from 180 companies led by some of the brightest young entrepreneurial minds in Europe, the winners were announced at a virtual ceremony.

The winners of the European Enterprise Challenge, for university age entrepreneurs were as follows:

  • 1st - Swim.me (Greece) who created a smart wearable device that preserves the orientation of blind swimmers in the pool. The system consists of an eco-friendly swimming cap and goggles and is intended for use in training conditions.
  • 2nd - Mute (Portugal), a sound absorption module, able to eliminate echo/reverb and unwanted frequencies in a room by using fabric residues. Relies as a professional, sustainable and innovative solution, that promotes a circular economy.
  • 3rd - Hjárni (Norway), whose goal is to become the world's most preferred supplier of eco-friendly tanning agents for sustainable leather production. While Europe's leather generates an annual value chain turnover of 125 billion euros, 85% of this leather is made using chrome, which is dangerous for both our health and environment.

The winners of the Company of the Year Competition were as follows:

  • 1st – Scribo (Slovakia), a solution to dry-erase markers that are not being recycled and produce a waste of 35 billion plastic markers every year. They have developed zero-waste dry-erase whiteboard markers made of recycled wax.
  • 2nd – FlowOn (Greece), an innovative adapter which converts outdoor taps into “smart taps” regulating the flow of water, reducing water consumption by up to 80% and reducing exposure to viruses and germs by more than 98%.
  • 3rd – Lazy Bowl (Austria), are an all-female company specializing in freeze-dried fruit ‘smoothiebowls’ which are free from both colorings and preservatives.

For the first time ever, the Gen-E Festival saw the announcement of a “JA Europe Teacher of the Year Award. The award seeks to acknowledge role of teachers to inspire and motivate young people, to help them discover their potential and lead them to believe in their power of acting and changing the future.

Sedipeh Wägner, a teacher from Sweden, won the prize. Ms Wägner is an experienced JA teacher who teaches at the Introduction Program, dedicated to migrants and vulnerable students to prepare for the national programme, teach them Swedish and possibly complement their previous education to meet the Swedish high school levels and standards. 

JA Europe, which organized the festival, is Europe‘s largest non-profit in Europe dedicated to creating pathways for employability, job creation and financial success. Its network operates across 40 countries and last year, its programmes reached almost 4 million young people with the support of over 100,000 business volunteers and 140,000 teachers and educators.

JA Europe CEO Salvatore Nigro said: “We are delighted to announce this year’s winners of the JA Company of the Year Competition and Enterprise Challenge. Each year over 370,000 students across Europe battle it out by designing their own mini companies and start-ups to compete at Gen-E, Europe’s largest entrepreneurship festival.

"Our intention is always to help boost career ambitions and improve employability, entrepreneurial skills and attitudes. Young entrepreneurs have so much to offer our society, and every year we see a new wave of enthusiasm towards solving societal problems with their own entrepreneurship. It’s reflected in the winners again this year, that young entrepreneurs not only see business as a means to a financial end, but as a platform by which to improve society and help people around them.”

JA Europe is the largest non-profit in Europe dedicated to preparing young people for employment and entrepreneurship. JA Europe is a member of JA Worldwide® which for 100 years has delivered hands on, experiential learning in entrepreneurship, work readiness and financial literacy.

JA creates pathways for employability, job creation and financial success. Last school year, the JA network in Europe reached almost 4 million young people across 40 countries with the support of nearly 100,000 business volunteers and over 140,000 teachers/educators.

What are the COYC and JA Company Programme? The JA Europe Company of the Year Competition is the annual European competition of the best JA Company Programme teams. The JA Company Programme empowers high school students (aged 15 to 19) to fill a need or solve a problem in their community and teaches them practical skills required to conceptualise, capitalise, and manage their own business venture. Throughout building their own company, students collaborate, make crucial business decisions, communicate with multiple stakeholders, and develop entrepreneurial knowledge and skills. Every year, more than 350,000 students across Europe take part in this programme, creating more 30,000 mini-companies.

What are the EEC and JA Start Up Programme? The European Enterprise Challenge is the annual European competition of the best JA Start Up Programme teams. The Start Up Programme allows post-secondary students (aged 19 to 30) to experience running their own company, showing them how to use their talents to set up their own business. Students also develop attitudes and skills necessary for personal success and employability and gain essential understanding in self-employment, business creation, risk-taking and coping with adversity, all with experienced business volunteers. Every year, more than 17,000 students from 20 countries across Europe are taking part in this programme, creating 2,500+ start-ups per year.

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