CHAPTER X.—Continued. FREE PORTS AND BONDED WAREHOUSES. § 4. FREE ports and warehouses represent the methods whereby the transit and commerce of a country can be relieved from some of the defects of protection. But there is an important difference in the degree to which they are free from adminis ⚫trative control. Free ports and warehouses, alike, do not form part of the customs area, in that they represent areas in which goods, the free circulation of which is dependent on payment of duty, are exempt from the payment so long as they do not traverse the limits of the area in question. But whilst the essence of the idea of the free port is to relieve from the obligation of customs supervision as well as the payment of customs duty, the relief afforded by the bonded warehouse is confined to the latter alleviation exclusively; in fact, the condition of relief from the immediate payment of duty is the submission to an increased degree of control by the customsa submission which is marked by the necessity of giving bond to the customs for the due observance of the regulations imposed by the law. The essential factor to the lay mind about bonded warehouses is the facility they afford for storage. Goods only pay duty as and when they are withdrawn for home consumption. This is an important feature, but it is only side of a much wider advantage. Since goods only pay if they are withdrawn for home consumption, it follows that if they are withdrawn for re-export, the bonds entered into are simply cancelled. Hence, the bonded warehouse represents a method of attaining security from the standpoint of the customs authorities, and yet allowing the growth of a transit trade. It is this feature which should be emphasised in the bonded warehouse system. How, then, does the free port stand in relation to the bonded warehouse? The answer has already been given. In so far as the free port frees the goods from all customs control, the degree of disposability is raised to a maxi mum. From storing dutiable goods to manufacturing goods out of dutiable materials is a short step in theory, but a somewhat longer step in fact. The main fact about manufacturing in bond is that the removal of the goods without the cognisance of the customs authorities constitutes a breach of the bond:. but a bonded warehouse is not necessarily the seat of bonded manufacturing. One of the difficulties of the subject, as wel shall see in detail below, is the delimitation of the processes which are not considered as manufacturing, and which are, therefore, to be allowed in an ordinary bonded warehouse, from those which are regarded as manufacture, and which, as involving special risks, have to take place under special conditions. The distinction between manufacturing and warehousing is the difference between static and dynamic processes the feature of customs supervision is the same. Just as warehousing in a free port is distinguished from warehousing in a bonded area by the absence in the former case of customs supervision, so manufacturing in a free port area takes place without the presence of customs officials. Let us now turn to the detail of the subject. § 4. A free port or free zone is defined by the American Tariff Commission 1 as "an isolated, enclosed and policed area, in or adjacent to a port of entry, without resident population, furnished with the necessary facilities for lading and unlading, for supplying fuel and ships' stores, for storing goods and reshipping them by land and water; an area within which goods may be landed, stored, mixed, blended, repacked, manufactured, and reshipped without the intervention of customs officials. It is subject equally with adjacent regions. to all the laws relating to public health, vessel inspection, postal service, labour conditions, immigration, and, indeed, everything except customs.' Such a definition is substantially accurate, in so far as it details the functions and characteristics of actually existing free ports, as they are known on the Continent of Europe. It suffers, however, in the two following respects 1. There are cases in which a free port does support a resident" population, and, historically, this case is very 1" Free Ports and the Re-export Trade," in B.T.J., 1/5/19, p. 565, et seq. This article represents a summary of a report of the Commission. important. Nor are such cases unknown at the present timethe free ports of the East, such as Singapore, Aden, Hong Kong, are of this type, in which the exclusion from the customs area affects the whole site as well as the technical "port." 1 แ 2. The definition does not cope with the technical details surrounding the administrative conception of the free port areas. There are, e.g., in the German Customs Law of 1869 two sections dealing with free port areas. Under § 16 of the Act, certain areas can be excluded from the customs line, where circumstances require it." This covers the case of the free port proper, which is definitely excluded from the customs area. But, in Chapter XIII. of the same Act, which deals with warehousing, there occurs a further clause, Article 107, which allows of the creation of "free warehouses" (Freie Niederlagen), which are expressly declared to be treated as foreign territory. The confusion is made still worse by the terminology of $97 of the Act, which includes the free port among the examples of "general warehouses," whilst the general warehouse class is not excluded from the customs area at all. When Bremen entered the customs system by the Act of 31st March, 1885, the port of Bremen was not constituted a full free port but only a "free district" in the sense of Art. 107 of Customs Act. Through federal decision of 17th April, 1902, the Freibezirk (free district) of Bremen was constituted an exclave in the sense of § 16 of the Federal Customs Law, with the limitation that industrial works, apart from the equipment and the repair of ships, should not be allowed. The legal difference between a free port and a free district now consists in this: "whereas in a free district only the lading and unlading of ships, as well as the warehousing, repacking, and mixing of dutiable goods takes place without customs control, in a free port a working up may also take place; 66 97 66 77 66 1 Cf. Ehrenberg, article Freihafen," in H.S.W., vol. iv., pp. 449-451, who divides free ports into three groups, free-port towns," free-port areas, 'free districts." The only remaining free-port town in Europe is Gibraltar. The earliest of this type of free port was Livorno (1547), followed by Genoa (1575), Naples (1633), Venice (1661), Marseilles, Gibraltar, Port Mahon, Treiste and Fiume, Ancona, and Messina. The Hanseatic towns only became free ports contemporaneously with the development of the German Zollverein. The growth of national sentiment on the one hand, the development of administrative technique on the other, are responsible for the gradual replacement of the first by the second type of free port. The free town will only remain, as Ehrenberg says, "in small States without a Hinterland, in isolated places serving transit trade, and especially in half or wholly uncultivated countries." residence is, however, in both areas confined to the supervisory staff and is not general. " 1 We can now see the rationale of § 107 of the Customs Act a little more clearly. The "free warehouse" is so-called because it represents only a warehousing port, and not a warehousing and manufacturing port free from all customs control: whilst a free port combines both qualifications, in the technical German conception. Hence, if we decide to treat of manufacturing as an essential feature of the free port, we must follow Ehrenberg in distinguishing a third type of free port, whilst, if we use the free port as a general term, we must exclude manufacturing as a necessary attribute of all free ports. The question of whether free port facilities ought to include the right to manufacture is, of course, another matter and brings us directly to the advantage of the system of free ports as such. The great attraction is the absence of restrictions, and this is a matter the importance of which naturally varies with the character of the restrictions actually in force. But it will, on reflection, be obvious that the trader and shipowner are usually more interested in economy of time than the manufacturer. Accordingly, the American report tends to stress the mercantile rather than the manufacturing advantages: the greatest advantage it sees in the free port area would be in "freeing the transhipment trade from the unsettling effects of tariff changes." The advantages to the manufacturer depend on the facilities it offers for the use without restriction of dutiable foreign raw material in articles intended for export when completed, and the degree to which manufacture in bond and drawbacks are inadequate to allow him to compete successfully. The advantages in this respect are described as "less important, but not altogether insignificant." It may be mentioned, as a commentary on this attitude, that Wiedenfeld, in his study of the European ports, describes the free port industries of Hamburg in somewhat disparaging terms, . . only a few industrial works have grown up in the Hamburg free port, which do not constitute an essential feature in Hamburg's economic structure." 2 66 America is not the only country in which a vigorous 1 Wiedenfeld, "Die Nordwesteuropaischen Welthäfen," p. 158. agitation for free port facilities is being conducted. For the French agitation, see "Les Zones Franches," by the Marseilles Chamber of Commerce, which represents the point of view of the local interests. That the absence of free port facilities is not an absolute barrier to the growth of an enormous transit trade, the history of the United Kingdom before the days of free trade testifies. § 5. When we turn to warehousing, a preliminary point arises. We must distinguish between warehousing and storing, for the former has acquired a technical meaning. Free goods as a rule cannot be warehoused, but, of course, they can be stored. The point simply is that warehousing from the customs point of view is the storage of goods under customs supervision, which is intended to subserve the convenience of the person warehousing, and so devised as to safeguard at the same time the right of the customs to revenue should the goods eventually pass into the customs area for consumption. The first point which strikes one in investigating the warehousing system of Europe and the U.S.A. is the variety of types of warehouses with which we have to deal. This variety arises from two main points (1) The authority responsible for providing the warehouse or entrusted with the operation of the system. (2) The functions which the several types are intended to carry out. These two aspects go together: it is usually found that the competence of the warehouse varies with the nature of the authority responsible for it. By competence is to be understood a complex of conditions-length of time for which warehousing is permitted, the nature of the articles which may be warehoused, the security which may be asked for in the interests of the revenue, the nature of the operations which may be carried on in the warehouse, the degree of supervision over these operations which the customs may deem necessary, the number of times that the contents of the warehouse must be inspected to check the books kept-these all form possible instances of differentiation. Before we describe the systems adopted by different countries, a few words of general explanation may not be out of place. § 6. Warehousing Period.-In contradistinction to the United Kingdom, the period of time during which warehousing |