By Chris Ndibe
Permit me to start this feature by saying, certainly, that the growth and success of any free trade zone (FTZ) lies in the cooperation and understanding of the customs of the host country.
I write as a trainer and guide; I will try to make the abstract concrete and provide useful suggestions. In my personal experience, magic is situated as one who knows, explores, interacts, and makes inquiries.
For close to two decades now, discussions with customs at free trade zone international conferences; from WEPZA, WFZC, and lately WFZO, Customs provided pointers for better customs control, however, this, perhaps, may be difficult to achieve in many countries due to the already established free trade zone regimes: – “The extraterritoriality of free trade zones.’’
The extraterritoriality of FTZ outlines customs’ limited involvement and insufficient authority in the operation of free trade zones which has been the bane of the good working relationship between customs and free trade zones’ operators.
There is, however, a meeting point that will allow the free zone scheme to roll smoothly and grow while customs achieve their civic responsibility in growing and facilitating trade within the country.
The contrast has always been with the way the customs perceive and apply their procedure on the scheme which is often at variant with the World Customs Organization definition which positions the free trade zones to offer a variety of non-customs related economic incentives that relax customs procedure and control in the zones.
This according to them, should, however, not be a key advantage at the expense of the safety and security of trade.
Customs can play a significant role in growing the FTZs exponentially by participating not only as a law enforcement agency but also as a trade facilitator.
The recommendation of the council on countering illicit trade, “enhancing transparency in FTZs” in October 2019, acknowledges that some economic operators may take advantage of inadequate oversights and alleged lack of transparency in FTZs to commit illegal activities.
The OECD recommendation highlights the need to empower competent authorities, including customs administrations to enforce the necessary supervision of goods and activities in FTZs.
This I know we have achieved in Nigeria. There is no free trade zone in Nigeria without customs’ presence.
Furthermore, it is maintained that controlling illegal trade in FTZs’ contributes to improving the business environment and competitiveness of the scheme and to meeting the United Nations Sustainable Development Goals, such as Goal 3: (Good health and well-being). Goal 8:(Decent work and economic growth), and Goal 16: (Peace, justice, and strong institutions).
These focal areas are in no small measure helping to enhance the social responsibility of companies and governments towards the citizens. In underlining customs’ general procedures within the free trade zone value chain, as well as in the surveillance of cargo movements, it maintained that customs should be deeply involved in the scheme with a view to planning and implementing adequate customs procedures/control and thus contributing to the competitiveness and sustainability of the FTZs.
The territorial definition of FTZs is the core issue of customs to customs in Africa. Chapter 2 (“Free zones”) of Annex D of the revised Kyoto Convention provides a definition of FTZ Which indicates that an FTZ itself falls within the customs territory.
However, many countries, including Nigeria, regard the FTZ itself as “being outside the customs territory” leading to the concept of an “extraterritorial free area” which is free from customs control and which has relaxed customs procedures.
Customs is concerned that they maintain that further facilitation benefits within the FTZs could be provided to tenant companies meeting the globally established Authorized Economic Operator (AEO) Criteria provided by the World Customs Organization (WCO – SAFE) framework of standards, with the necessary adjustments to reflect FTZ characteristics.
In a few African countries that I was invited to their meetings of customs and FTZs Authorities, one can summarize the cost of the war as the myth, psyche of “Me, other-than-me syndrome.” The variants interpretations given by the organizations (FTZ authorities and customs) expose their understanding of the workings of the FTZs underscoring the need for deliberate inclusive engagement and learning of the ABC of the scheme.
This shallow understanding of each other’s role in the proper development of the scheme to the benefit of the host nation exposes the importance of training of FTZs staff and operators, customs and other allied organizations to understand what FTZs are and what it is not. In some countries, lack of knowledge makes it difficult to mediate because both parties will be approaching their discussion from stand-points of extremely polarised knowledge gaps.
Like in Nigeria, customs are rather more concerned with duty collection of imported raw materials.
Experience has shown that the workings of FTZs and customs can be seamless to the advantage of the host nation.
Periodic engagement between operators and customs which gives room for dialogue and reporting, and the provision of adequate training could serve as a cure against the adoption of the palpable incoherent and individualistic approaches.
For the umpteenth time, in developing robust customs regimes in FTZ, coordination among relevant government agencies, including policy-makers and key stakeholders is essential.
This will help in guiding the operations along with the national economic plan, and also as a means of leveraging world-class actions to enhance the competitiveness of the scheme.
As a matter of fact, free zone operational guidelines, as agreed, should serve as a practical guide for customs, as well as other stakeholders.
Many papers, such as those produced by the FATF (2010), the ICC (2013), Interpol (2013), Viski et al (2016), The Economist (2018), and McKinsey & company (2019), have called for high levels of customs control over goods and activities inside free zones. Some have also stressed the need for customs to be involved to be empowered to control goods and activities inside free zones, not collection of duties on raw materials.
Since 2008, a series of discussions have been conducted at the World Customs Organization (WCO).
Those discussions have raised awareness of illegal activities conducted in free Zones; However, it has not been possible to reach a concrete conclusion, due to the difficulties involved in influencing policymakers to change already established free zone regimes. Nevertheless, through such discussions, more and more customs administrations have expressed the need for better customs procedures/control in free trade zones, while effectively contributing to the competitiveness of zones.
In December 2016, the WCO consequently included FTZs as an important topic in the WCO economic competitiveness package (ECP) Action plan, to develop possible guidance to ensure adequate customs control in free zones while supporting the latter’s healthy expansion.
In 2018, the Permanent Technical Committee (PTC) (219th/ 220th sessions), The Enforcement Committee (EC) (37th session), and the Policy Commission (December 2018 session) held intensive discussions on free trade zones and agreed to produce a study report to guide based on analysis of the current situation (Including the economic benefits of free trade zones), and possible solutions through an online survey, field studies, and workshops.
It is of note that the characteristics of free trade zones that provide economic incentives are often not directly related to customs procedures/controls.
These include; Corporate income tax reductions; Tax holidays; Unrestricted repatriation of capital and profits; unrestricted management of foreign exchange earnings; relaxed requirements on foreign ownership, labour, environment, foreign exchange, and lease/purchase of land as well as enhanced physical infrastructure, including enhanced access to the logistical network, telecommunication networks and utility services, residential housing, and service institutions.
These are provided to attract investors into the zones for the overall benefits such as job opportunities; backward linkages; foreign exchange earnings; export growth; diversification; technology transfer and attraction of FDIs, etc.
It, therefore, becomes a puzzle when customs of some countries start crippling businesses inside a zone with the excuse that the host country is losing a lot of revenue from the economic activities inside the zone when they should be the promoters of trade.
This all shows a great deal of the knowledge gap I mentioned earlier.
The FTZ authorities should consistently work toward improving the knowledge level of all other allied government agencies whose activities are linked to the smooth running of the scheme.
*Chris Okwy Ndibe*
Freezone Consultant & Trainer
