The public consultation is now closed
The OECD Task Force on Countering Illicit Trade works to step up efforts to reduce illicit trade, while maintaining the benefits that accrue from the facilitation of legal trade. As part of this initiative, the Task Force, together with the OECD’s High Level Risk Forum, is developing guidance to counter illicit trade by enhancing transparency in free trade zones (FTZ).
The draft OECD Guidance to Counter Illicit Trade: Enhancing Transparency in Free Trade Zones was open for public consultation until 3 September 2018. The aim of this public consultation is to ensure that the final text of the guidance benefits from the experience and expertise of all stakeholders concerned by its provisions. The target audience for this consultation includes government officials, free trade zone authorities, industries that have established firms in free trade zones (and firms that have a B2B relationship with them), civil society organizations, international organisations and interested citizens from all over the world. The draft guidance is still a work in progress at the OECD and the content may be subject to modifications, including in order to take account of comments received through the public consultation.
The draft OECD guidance seeks to provide an international standard of reference. The intention is that if and when the general guidance is embodied in an OECD legal instrument, an implementation toolkit will be developed. This could include a more technical reference point for the verification firms that will undertake certification of compliance by FTZ with the Code of Conduct. In addition, it could include a FTZ risk assessment model for companies to gauge the integrity and adequacy of good governance in various FTZ's against a range of benchmarks.
Read the draft OECD Guidance to Counter Illicit Trade: Enhancing Transparency in FTZs
In the past decades Free Trade Zones (FTZ) have been established at a record rate to attract new business and foreign investment. The aim is to facilitate trade and economic growth by eliminating tariffs, quotas and other taxes and minimizing bureaucratic requirements such as customs procedures and disclosure requirements. The scope and nature of FTZ vary across countries and jurisdictions, depending on the regime and type of activities allowed to take place inside, and can be described under a variety of names such as Free Zones, Export Processing Zones, Special Economic Zones, etc. As a result of FTZ proliferation in the dynamic context of globalisation, they have come to play a central role in business for many countries and leading manufacturers.
In some countries FTZ are treated for all purposes as outside the nation’s customs territory with the result that goods enter or exit these areas with minimal customs controls. Criminal networks have found ways to abuse lax oversight in FTZ to smuggle or divert illicit products to the domestic market, set up production facilities for counterfeit and contraband goods, and facilitate the transit of illegal goods. Seizures of containers inside FTZ often reveal contraband mislabelled as legitimate goods.
The World Customs Organization operations have found that FTZ play an important role in smuggling tobacco products, while the NGO TRAFFIC has reported on seizures of illegal wildlife products and timber in FTZ. The Financial Action Task Force has also drawn attention to FTZ, highlighting their money laundering vulnerabilities and identifying no less than nineteen forms of predicate offenses, including such crimes as smuggling narcotics, arms, stolen goods and even humans. Recent analysis by the OECD Task Force on Countering Illicit Trade finds a positive correlation between the number of firms and employees in Free Trade Zones and the value of illicit trade in counterfeits.
To address these challenges, the OECD, through its Task Force on Countering Illicit Trade, and High Level Risk Forum, has developed draft guidance on measures to enhance the transparency of FTZs, which would promote clean and fair trade in FTZ and make them unattractive to the criminal organisations. The draft guidance consists of measures for governments to take to reduce the abuse of FTZ as conduits for illicit trade. These include actions to ensure that FTZ adopt and implement measures contained in a voluntary Code of Conduct. The Code of Conduct is intended for implementation by free trade zone authorities to increase the availability of information useful to law enforcement, bring accountability and reduce illicit trade.
This public consultation was open to the participation of all members of the public, including members of the private sector as well as civil society, and in particular stakeholders such as FTZ operators, their associations, intermediaries (including shippers and various operators) and the industries that are established in FTZ or use them in course of their supply chains.
Fake trade increases with more FTZs