Trends in illicit tobacco trade require us to pay attention to illicit manufacturing, and particularly to “cheap or illicit whites” over counterfeit and contraband of major cigarette brands. This will require us to improve oversight and control of Free Zones.
WHAT ARE FREE ZONES?
Free zones (FZ), also known as free trade zones (FTZ) or Special Economic Zones (SEZ), are areas where regulations and controls are relaxed in an attempt to foster international investment, trade, and employment. This relaxation includes exemptions from import duties and taxation, as FZs are considered to be outside the applicable customs union for the country in which they are located. There are more than 4,000 such zones worldwide.
WHY ARE THEY PROBLEMATIC?
Because FZs are created to improve business and investment opportunities, these incentives often result in reduced financial and trade controls. Some countries totally disregard business in their FZs and often do not treat them as part of the customs territory, providing minimal or no oversight.
FZs facilitate the transit of illicit manufacturing (counterfeit or “illicit whites”) and their untaxed leakage into the customs areas of neighboring countries. Cigarettes may also be re-stuffed (repackaged) into new untraceable containers that are falsely presented as containing other products and leave the FZ to be sold illegally in other markets.
WHAT DOES THE ITP SAY ABOUT THEM?
Article 12 of the ITP requires Parties to implement “effective controls” on manufacturing of and transactions in tobacco and tobacco products in FZs. It also requires Parties to prevent the intermingling of tobacco products with non-tobacco products (where tobacco products and other products are mixed in a single container or other transportation unit in FZs, with the intention of facilitating smuggling). Article 12 also states that Parties should adopt and apply control and verification measures on the transit and transshipment of both tobacco products and manufacturing equipment. These controls need to be in place within 3 years of the ITP coming into force.
HOW DO WE MOVE FORWARD ON ARTICLE 12?
There are real challenges to the effective implementation of Article 12, particularly for low and middle-income countries, where many FZs are located, and which face financial constraints to effective enforcement.
Since many Parties remain committed to FZs on the grounds of their claimed economic benefits, the Protocol’s required controls will need to be implemented with considerable care. Detailed guidance and technical assistance will be needed. Implementation of Article 12 also requires effective engagement with international enforcement agencies such as the World Customs Organisation, Interpol, Europol, and the Financial Action Task Force on Money Laundering (FATF/OECD). FCA is calling for:
- The establishment of a working group on free zones to provide detailed guidance to Parties on implementing Article 12 of the Illicit Trade Protocol.
- This working group should develop a set of criteria outlining what legislative options are available for effective controls in free zones, as well as;
- Clarifying the level of oversight that customs authorities are expected to perform within free zones, and;
- Recommending models for effective interagency cooperation (e.g. customs, law enforcement) to address illicit trade within FZs.