OECD’s Code of Conduct
The only set of international standards in relation to crime prevention in FTZs is the OECD’s Code of Conduct for Clean Free Trade Zones, which forms part of the Recommendation of the Council on Countering Illicit Trade: Enhancing Transparency in Free Trade Zones.
The Code of Conduct contains multiple requirements, including those relating to:
- The right of competent authorities to inspect goods and documents in FTZs;
- Digital record keeping and cooperation with competent authorities by FTZ administrators;
- Incentivisation of electronic payments in FTZs to ensure traceability of transactions.
The OECD is currently developing arrangements for monitoring FTZs’ compliance with the Code of Conduct.
For more information refer to: OECD, ‘OECD Recommendation on Countering Illicit Trade: Enhancing Transparency in Free Trade Zones’, 21 October 2019.
WFZO’s Safe Zone Programme
Separate to the OECD, the World Free Zone Organization (WFZO) launched its Safe Zone Certification Program in July 2020, which certifies FTZs that are compliant with the programme’s requirements.
The WFZO is an industry association of over 600 FTZs. The Safe Zone certification requirements are intended to be consistent with those under the OECD Code of Conduct but are separate from and not endorsed by the OECD.
The WFZO’s certification process involves the following stages:
- The FTZ must complete a self-assessment questionnaire including 50 questions across seven areas, namely general information; due diligence and risk hazards; trade compliance; transparency and code of conduct; record keeping; supply chain and security requirements; and financial viability.
- Once the questionnaire responses are found satisfactory by the WFZO, the FTZ signs the FTZ of the Code of Conduct and Security Declaration, which outline the requirements by which a Safe Zone must abide.
- An onsite inspection by a WFZO-vetted independent third-party evaluator to certify compliance with the requirements in the Code of Conduct and Security Declaration.
By February 2020, five pilot participants in the programme had obtained Safe Zone certification:
- Le Freeport Luxembourg (Luxembourg)
- Bogota Free Zone (Colombia)
- Dubai Airport Free Zone DAFZA (United Arab Emirates)
- JSC Klaipeda Free Economic Zone Management Company (Lithuania)
- El Consorci Zona Franca Barcelona (Catalonia, Spain)
No further Safe Zone certificates have been granted as of the publication of this tool in March 2020.
For more information refer to: World Free Zones Organization, ‘Safe Zone’.
Revised Kyoto Convention
The International Convention on the Simplification and Harmonization of Customs Procedures (‘Revised Kyoto Convention’) contains a widely cited definition of a ‘free zone’:
“[F]ree zone” means 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.
This definition is contained in Chapter 2 of Special Annex D of the Convention.
According to the World Customs Organization, some countries have weak customs controls in FTZs partly because they consider FTZs to be outside the customs territory for all purposes, including crime prevention and customs controls.
The Revised Kyoto Convention does not contain any requirements as to preventing crime in FTZs – although it allows state parties to impose restrictions and requirements for that purpose. This is because, as is evident from its preamble, the objective of the Revised Kyoto Convention is to facilitate trade by simplifying and harmonising customs procedures.
Protocol to Eliminate Illicit Trade in Tobacco Products
Article 12 of the Protocol to Eliminate Illicit Trade in Tobacco Products contains specific requirements on crime prevention in FTZs:
- Each Party shall, within three years of the entry into force of this Protocol for that Party, implement effective controls on all manufacturing of, and transactions in, tobacco and tobacco products, in free zones, by use of all relevant measures as provided in this Protocol.
- In addition, the intermingling of tobacco products with non-tobacco products in a single container or any other such similar transportation unit at the time of removal from free zones shall be prohibited.
- Each Party shall, in accordance with national law, adopt and apply control and verification measures to the international transit or transhipment, within its territory, of tobacco products and manufacturing equipment in conformity with the provisions of this Protocol in order to prevent illicit trade in such products.
General Crime Prevention Requirements
There are various international standards in relation to preventing and counteracting illicit trade and financial crime. They apply to activities taking place in FTZs on the same basis as to activities taking place elsewhere in the country concerned. These include trade in endangered wildlife species, narcotic drugs and psychotropic substances and weapons.