ICC Recommendations on Illicit Trade in Free Trade Zones (FTZs)
Free Trade Zones (FTZs) can play an important role in fostering trade flows and attracting local and foreign investment. However, the lack of oversight in a large number of FTZs have allowed for organized criminals to facilitate illicit trade flows in narcotics and counterfeited, pirated or stolen goods. Due to high profits yielded, low risks of detection and relatively low penalties, without appropriate Customs supervision these zones are easy targets for organized crime and illicit trade.
The International Chamber of Commerce (ICC), as the world business organization speaking on behalf of companies from all sectors in every part of the world, acknowledges that Free Trade Zones (FTZs)1 can play an important role in fostering trade flows and attracting local and foreign investment. FTZs have the potential to boost the national economy, increase the productivity of supply chains and generate employment. In an attempt to simplify and reduce the cost of trade, national governments offer a range of benefits in these jurisdictions such as limited regulatory oversight and inspection of goods in transit, and reduced customs and tax regulations.
However, ICC is concerned about the lack of uniformity in national legislations, administration and monitoring of FTZs by national regulatory bodies – including Customs agencies. In recent years, along with the global proliferation of FTZs2, the lack of oversight in a large number of FTZs has allowed for organized criminals to facilitate illicit trade flows in narcotics and counterfeited, pirated or stolen goods.
ICC believes that a common approach towards the administration of FTZs is vital to ensure that FTZs foster legitimate trade flows and economic growth and do not become ‘hotspots’ for illicit trade and organized crime. The security of an international supply chain is only as strong as its weakest link. In this regard, ICC makes the following recommendations:
- ICC calls upon countries hosting FTZs to accede to the World Customs Organization (WCO)Revised Kyoto Convention (RKC), Specific Annex D, Chapter 2 on FTZs and to follow theguidelines addressed in the RKC on explicit Customs jurisdiction over FTZs, rules on origin ofgoods, and Customs transit and transhipment procedures.
- ICC calls upon countries hosting FTZs to specify in their rule of law that, in line with the RKC,FTZs are only outside of the Customs’ jurisdiction insofar as duties and taxes are concerned.Therefore, other national legislations and international obligations – including applicablelabour, health, intellectual property and environmental regulations – must be observed. Tothis end, Customs should have the right to carry out checks at any time on the goods stored ina free trade zone. It is essential to redress the balance between clear FTZ benefits (such asexemptions related to labelling, marketing and registration requirements) and protectingconsumer health and safety, intellectual property rights and environmental regulations.Furthermore, if goods are transferred from an FTZ to the territory of the host country, Customsformalities must be observed and applicable duties paid – ‘leakages’ are to be prevented.
- ICC calls upon Customs and FTZ-operators to work closely together: the absence of controlsover the economic operations carried out in FTZs poses a risk for international supply chainsecurity. ICC recommends that, to the greatest extent possible, the data systems of the FreeTrade Zone Operator tracking commercial activity and the national Customs automatedsystems should be linked to directly transfer data on the activities in the Zone. Withoutcoordination or access to data by Customs administrations, FTZs are easy targets for re-documenting shipments and hiding the origins, contents, and destinations of illicit goods. Opportunities for illicit trade are greatly reduced when the Customs administrations work inside the FTZ to observe and review operations.
- ICC calls upon governments to ensure that strict penalties are in place, including criminal sanctions where appropriate, against perpetrators of illegal activities in FTZs.
- ICC calls upon all member countries of the World Trade Organization (WTO) to implement the WTO Trade Facilitation Agreement (TFA). The TFA would enhance their national competiveness by making cross-border trade processes quicker, easier and less costly. Furthermore, Article 7 of the Agreement provides the opportunity to strengthen the capacity of Customs administrations – most notably in developing countries – to put in place effective risk assessment procedures that facilitate trade while ensuring compliance with Customs and other related laws and regulations.
ICC therefore calls upon the WCO and the World Free Zone Organization to further promote best practices for regulatory standards for FTZs that foster legitimate trade flows and foreign direct investment while safeguarding supply chain security