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A new report from ICC’s Business Action to Stop Counterfeiting and Piracy calls for increased regulation and better management of Free Trade Zones to stop the alarming trend of the use of FTZs to facilitate the manufacture, distribution, and sale of counterfeit products.

Free Trade Zones can make it easier for criminals to set up illicit operations

Free Trade Zones can make it easier for criminals to set up illicit operations

The report, Controlling the Zone: Balancing facilitation and control to combat illicit trade in the world’s Free Trade Zones, looks at the increasing vulnerability of FTZs to criminal activities that are facilitating the global trade of counterfeit and pirated products. It summarizes the circumstances that have enabled the exploitation of FTZs, including an examination of weaknesses in international agreements, national legislation and judicial enforcement.

National governments encourage the creation of FTZs to increase trade and attract investment by removing or reducing duties and tariffs, softening customs controls and largely decreasing oversight in FTZs. These incentives have simultaneously made it easier for criminals to set up illicit operations, with increasing evidence showing that FTZs are being exploited to facilitate the international trade in counterfeit and pirated goods.

“FTZs are intended to improve free movement of goods to facilitate legitimate international trade and development, but this does not mean that effective Intellectual Property Rights (IPR) enforcement in FTZs must be compromised to achieve these goals,” said Jeffrey Hardy, Director of BASCAP. “Establishing voluntary standards and improving current practices, along with the implementation of specific FTZ legislative and regulatory measures, can help address the global threat of counterfeiting and piracy in FTZs, without impeding their effectiveness.”

The new report, presented this week at the 2013 World Customs Organization IT Conference and Exhibition in Dubai, aims to encourage governments to retake control of FTZs and ensure that national laws and customs procedures are effectively applied. It also aims to kick start a wider dialogue on how to address the abuse of and illicit activities within FTZs because of the impact these activities have on all sectors of society.

The report emphasizes the need to strengthen national government adherence to international conventions, empower national customs authorities and strike a balance between economic benefits and controls. It features a set of specific policy and legislative recommendations on preserving and expanding the benefits of FTZs for legitimate traders while also protecting the public and legitimate businesses from predatory practices. The recommendations are drawn from international agreements, lessons learned from both effective and ineffective national legislation, the experiences of IP rights holders, and international best practice. The report also suggests key actions for the WCO, WTO, national governments, and free zone operators.

“Free trade zones are increasingly important to global trade and international supply chain networks,” said Mr Hardy. “However, the growing list of abuses, from narcotics trafficking, smuggling, fraud, counterfeiting and piracy puts the value of zones at risk. It’s no longer acceptable for governments to look the other way or to permit illegal activity because it is of a certain type or because it is conducted within the boundaries of a Free Trade Zone.”

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