merging challenges of free trade zones to the export control
TRANSCRIPT
Free Zones is “a part of the territory of a Contracting
Party where any goods introduced are generally
regarded, insofar as import duties and taxes are
concerned, as being outside the Customs territory"
(Kyoto Convention revised, 1999)
Free Trade Zone (FTZ) is an area or regime within a
country with a special status with respect to customs
and/or tax controls, in which enterprises are licensed
to conduct business or provide services for export
and/or import purposes.
Free Trade Zones
Export Processing Zones(EPZ)
Enterprise Zones
Freeports
Single Factory EPZ
Foreign Trade Zones
Special Economic
Zones
Bounded warehouses
At least 8 categories
of FTZs.
There are many titles for these specially designated trade -promotion areas.
TFZs are fenced in duty-free areas
offering warehousing, storage and
distribution facilities for trade,
transshipment and re-exportation
of products.
These are located in most ports
around the world.
Colon Free Zone, Panama, and
Singapore are good examples.
Export Processing Zones (EPZs) are
industrial areas, focusing on assembly
and manufacturing of intermediate
imports, aimed primarily but not
exclusively at foreign markets.
Particular sectors include labor-
intensive, light manufacturing, such as
garment production and the assembly of
electronics.
EPZs also promote linkages with the
domestic economy by encouraging
technology transfer and innovative
industrial strategies.
Hybrid Export Processing Zones
Certain types of EPZs are
sometimes called Hybrid Export
Processing Zones, because they
combine the traditional export
focus of an EPZ with a sub-
divided area, in which non-export
oriented activities can take place.
Karachi in Pakistan are examples.
Single Factory EPZ schemes
provide incentives similar to EPZs
but are not a zone at all, rather a
single factory located anywhere in
a country which receives the special
duty free privileges of zones.
In the United States they are also
called sub-zones.
Mauritius and Madagascar are
examples of where Single Factory
EPZs exist.
Foreign Trade Zone is
specially designated zone in
the United States.
They are established in or
adjacent to a port of entry, in
which all types of merchandise
may be held without being
subject to U.S. Customs duties
and other taxes.
Enterprise zones are economic development areas intended to revitalize specific urban or rural areas where they are located through tax incentives and financial grants.
These are most often found in the developed world.
The London Docklands is such an example.
Freeports typically the largest of the zones, accommodate all types of activities including tourism, retail sales, and on-site residences, and accompany a broader set of incentives and benefits.
Freeports are different from traditional FTZs as they are not seen as export drivers but areas promoting overall economic growth linking the zones with the overall economy of the nation.
This has also resulted in greater expansion and liberalization of the core set of policies present in most free zone programs.
The European Union allows inward
processing relief and other customs
schemes that produce some of the
benefits of free zones without
requiring formal zone definition.
In the UK, for example, freeports do
not offer significant benefits beyond
inbound processing relief schemes.
As a consequence, ports like
Rotterdam have marketed themselves
as “freer than a Freeport”.
Hong Kong, is a freeport.
SEZs extend the relaxed tax and administration characteristics of FTZs to investment arrangements, labor laws, management practices, and wage rate policies in specific areas of the country.
Originally this structure applied only to China but versions now exist in India and elsewhere.
China has proposed applying special treatment within SEZs for the promotion of real estate, tourism, infrastructure development and banking.
There are approximately 3000 FTZs in 135 countries around the world with a total turnover in the billions of U.S. dollars.
(Akinci and Crittle, 2008: 7)
In recent years, the FTZs have proliferated in East Asia.
In Asia, there is Singapore FTZs, and there would be 5 FTZs in Taiwan.
According to Chinese authorities, in the Shanghai Free Trade Zone, goods can be imported, processed and re-exported without the intervention of customs authorities; hence the free flow of commodities and capital (Xinhua, 2013).
FTZs are designated areas within jurisdictions in which incentives are offered to support the development of exports, foreign direct investment (FDI), and local employment. These incentives include exemptions from duty and taxes, simplified administrative procedures, and the duty free importation of raw materials, machinery, parts and equipment, and most importantly the easing of customs procedures. Taking advantage of relaxed vigilance, softened customs controls and the lack of transparency in FTZs, these zones may become increasing vulnerable to a wide range of abuses by criminal elements.
FTZ
Domestic Tariff Area (DTA)
Traders could use transit or transshipment of goods, through multiple, geographically diverse FTZs to disguise the illicit nature of the products.
Once introduced into an FTZ, goods may undergo a series of economic operations, including assembly, manufacturing, processing, warehousing, re-packaging, and re-labeling.
Once completed, the goods can be imported directly to the national territory of the hosting state or re-exported to another FTZ, where the process is repeated.
Lack of control has made the free-trade areas attractive locations for parties engaging in the illicite trade . (The Financial Action Task Force, 2010).
Transit and transshipment operations present opportunities in FTZs to mask the illicit origin of goods.
This lack of surveillance is all too common in many FTZs.
Goods may enter a national customs territory under a variety of customs regimes.
That regime status may change, dependant on the goods, from temporary storage to transit, or to customs free zones, or to import for consumption.
However, the state may not always be aware of all the safeguards relevant to the activities within its free trade zones, where trade controls may be minimal at best.
Laundering begins when fakes are unloaded into FTZs.
The goods may be stored for long periods, partly or fully assembled, and then re-labeled but without customs supervision.
They are then loaded into new containers for subsequent shipment to the final country for importation or to another port, or FTZs where the process is repeated.
The movement, reassembled, storage, re-labeling and re-shipping process serves to disguise illegal origins.
For the procurer of illicit goods seeking to avoid detection, the FTZs have less stringent export controls applied to goods being transshipped or routed through FTZs than to goods entering their territory through other means.
As goods do not officially enter the economy in question, they may be beyond effective customs and police control.
Inside the FTZ, illegal
activities, countermanding
the export control
regulations, are subject to
national enforcement by
the corresponding
government authorities.
Exempting goods from taxes and
duties creates problems.
Such exemption strips away the
ability of customs to enforce non-
tariff measures,
By limiting the scope of cargo that
custom inspects and;
By limiting customs’ incentives to
perform its standard inspection
procedures, such as raising
revenues through duties and taxes.
While there are wide differences in national regulatory measures concerning a country’s FTZs.
Some countries empower customs to control goods and activities in FTZs, others have denied customs jurisdiction over goods in FTZs. (International Chamber of Commerce, 2013:20).
Without precise provisions relating to FTZs and no requirement to add the non-obligatory provisions, countries may enact a wide variety of laws affecting the enforcement of the export control regulations.
Do states have to be encouraged to empower customs authorities in their day-to-day FTZ operations?
Should national customs authorities have unrestricted rights to enter and observe operations, audit the books and records of companies in the FTZs, and to validate the status of goods under a national customs mandate?
Should countries review and implement national export control legislation, including a language that makes legislation applicable to all goods in the national territory, in all customs jurisdictions including transit, in-transit, and free-zone jurisdictions?
Should there be cooperation between national customs authorities and the special authorities within FTZs?
If without such cooperation, regulations would be weak, creating loopholes or fostering opportunities for abuse in FTZs?