2020 UPDATE Controlling the Zone: Balancing Facilitation and Control to Combat Illicit Trade in Free Trade Zones SEMINAL REPORT Key messages: In 2013, ICC BASCAP published a seminal report, “Controlling the zone: Balancing facilitation and control to combat illicit trade in the world’s Free Trade Zones”. This 2020 update aims to build on that report by assessing the current environment as well as to shed light on the trends of counterfeiting and other forms of illicit trade facilitated within free trade zones (FTZs). This 2020 update: • Looks deeper into the role of FTZs in the context of their unplanned contribution to the global trade in counterfeiting and piracy. In the last few years, this issue has garnered much attention among policy makers and law enforcement. Increasingly, national governments are also recognising the key role that Customs play in FTZs and have strengthened enforcement—however, there is a lot more left to be done. • Recognises the impact of the recent outbreak of the novel coronavirus (2019-nCoV or COVID-19) on companies’ supply chains, trade, and vulnerabilities that allow opportunities for illicit traders to move contraband in FTZs. • Addresses the impact that counterfeiting in FTZs has on SMEs, their supply chains and business operations. • Provides specific case examples of enforcement actions including Customs seizures within or having transited FTZs and other examples where FTZs have been exploited by criminal groups. • Presents current solutions developed by national governments, private entities and intergovernmental organisations to mitigate abuse in FTZs. • Offers new recommendations for governments, Customs and FTZ operators and the World Customs Organisation. Copyright © 2020 International Chamber of Commerce (ICC) ICC holds all copyright and other intellectual property rights in this collective work, and encourages its reproduction and dissemination subject to the following: • ICC must be cited as the source and copyright holder mentioning the title of the document, © International Chamber of Commerce (ICC), and the publication year. • Express written permission must be obtained for any modification, adaptation or translation, for any commercial use, and for use in any manner that implies that another organization or person is the source of, or is associated with, the work. • The work may not be reproduced or made available on websites except through a link to the relevant ICC web page (not to the document itself). Permission can be requested from ICC through [email protected] TABLE OF CONTENTS Executive Summary .......................................................................................................................................4 1. Introduction ................................................................................................................................................5 2. Vulnerabilities to counterfeiting and piracy .......................................................................................6 2.1. SMEs and FTZs ...............................................................................................................................................................................8 2.2. Findings from the OECD-EUIPO study on FTZs............................................................................................................9 2.3. IPR abuses facilitated in FTZs .................................................................................................................................................9 2.4. Associated crimes facilitated by FTZs ..............................................................................................................................10 2.4.1. Money laundering .................................................................................................................................................................................. 10 2.4.2. Corruption ...................................................................................................................................................................................................11 2.4.3. Illicit trade in tobacco ...........................................................................................................................................................................12 2.5. Specific vulnerabilities: how traffickers exploit free trade zones ......................................................................... 13 2.5.1. Illustrations of abuse and supply chain routes ............................................................................................................................15 3. The important role of Customs in free trade zones ....................................................................... 19 3.1. Case Studies: Customs' Enforcement Action ...............................................................................................................20 4. International framework .......................................................................................................................22 4.1. Agreements and conventions ............................................................................................................................................... 22 4.1.1. WCO conventions and instruments .............................................................................................................................................22 4.1.2. TRIPS and other WTO obligations ................................................................................................................................................24 4.2. International standards ............................................................................................................................................................ 25 4.2.1. OECD recommendations ...................................................................................................................................................................25 4.2.2. WCO Practical Guidance on Free Zones ...................................................................................................................................26 4.3. Trade agreements ...................................................................................................................................................................... 26 5. Current approaches, best practices and standards ........................................................................28 5.1. National-level cases or legislation ...................................................................................................................................... 28 5.1.1. Malaysia ......................................................................................................................................................................................................28 5.1.2. Thailand ......................................................................................................................................................................................................28 5.1.3. Singapore ..................................................................................................................................................................................................28 5.1.4. Colombia ...................................................................................................................................................................................................29 5.1.5. China ............................................................................................................................................................................................................29 5.2. Private sector initiatives and efforts ................................................................................................................................. 29 5.2.1. ICC World Chambers Federation (WCF) International CO Accreditation Chain ...................................................29 5.2.2. World Free Zone Organization Safe Zone program ........................................................................................................... 30 5.2.3. International Trademark Association Guidelines and Recommendations ..................................................................31 5.2.4. Global Illicit Trade Environment Index: Free Trade Zones—Five Case Studies ........................................................31 6. Recommendations ..................................................................................................................................33 6.1. General recommendations..................................................................................................................................................... 33 6.1.1. Strengthen relationship between Customs and FTZs .........................................................................................................33 6.1.2. Empower national Customs authorities .................................................................................................................................... 34 6.1.3. Ensure government allow targeted data sharing between Customs and the private sector ........................................................................................................................................................................ 34 6.1.4. Strengthen national government adherence to international conventions