A Free Trade Warehousing Zone (FTWZ) or export processing zone (EPZ), also called a foreign-trade zone, formerly a free port is an area within a country in which goods may be landed, handled, manufactured, or reconfigured, and re-exported without the intervention of the customs authorities. Only when the goods are moved to consumers within the country in which the zone is located do they become subject to the prevailing customs duties.
Free Trade Warehousing Zone (FTWZs) are a special category of Special Economic Zone, offer services such as speedy delivery of cargo, one-stop for Customs clearance capability; integrated solutions, such as packing management, sorting, inspection, re-invoicing, strapping and kitting, assembly of complete and semi-knocked down kits, and taxation benefits. Basically, the Free Trade & Warehousing Zones (FTWZ) is a special category of Special Economic Zones with a focus on trading and warehousing.
Free trade warehousing zones (FTWZs) have been a phenomenal success in Jebel Ali, Singapore, and Rotterdam. One has to visit these zones to see their sheer size and contribution to the regions they are located in becoming major logistic hubs.
As per The Hindu (March 6, 2011), The Jebel Ali Free Zone (Jafza) accounts for 25 percent of all container throughput at Jebel Ali port and 12 percent of all air freight at Dubai International Airport. Established in 1985, it covers a 48 sq km area and is home to over 6,400 companies from across the world. It sustains over 160,000 jobs in the UAE through its companies and accounts for over 50 percent of Dubai’s exports
In India, Free Trade and Warehousing Zone was introduced in the Exim Policy with the objective to facilitate the import and export of goods and services. Each Zone was considered to have Rs. 100 crores outlay and 5 lakh sq. its built-up area. The government of India introduced the FTWZ Policy as a part of Foreign Trade Policy (FTP) 2004-2009 governed by the SEZ ACT, 2005 and SEZ Rules, 2006 to leverage India’s strategic geographical location and cost and skill arbitrage.
For the development and establishment of FTWZ, the government has permitted 100% Foreign Direct Investment.
Concept of Free Trade Warehousing Zone:
FTWZ is a ‘Sanitized Zone’ designated as Foreign Territory for carrying on a business. FTWZ’s are envisaged to be Integrated Zones & to be used as ‘International Trading Hubs’. Each Zone would provide ‘World Class’ Infrastructure for:
- Warehousing for various kinds of products
- Handling and Transportation Equipment
- Commercial office space
- All related utilities – telecom, power, water, etc
- One-stop clearance of Import and Export of goods
- FTWZ would be a key Link in Logistics and Global Supply chains – servicing both India and the Globe.
The objective of FTWZ is to create trade-related infrastructure to facilitate the import and export of goods and services with the freedom to carry out trade transactions in free currency. The scheme envisages the creation of world-class infrastructure for warehousing of various products, state-of-the-art equipment, transportation, and handling facilities, commercial office-space, water, power, communications, and connectivity, with one-stop clearance of import and export formality, to support the integrated Zones as ‘international trading hubs’. These Zones are planned to be established in areas proximate to seaports, airports, or dry ports so as to offer easy access by rail and road.
Free Trade and Warehousing Zones (FTWZs) are envisaged to be essential logistics infrastructure to facilitate EXIM trade and to root out inefficiencies associated with the movement and valued addition of EXIM cargo in India.
Envisaged Benefits of Free Trade Warehousing Zone :
Envisaged benefits for Imports in India
Flexibility to clear cargo in part consignments (unlike in the case in other Container Freight Station (CFS)/ International Container Depot (ICDs) thus allowing flexibility towards consumption/end distribution duty deferment benefits (freeing up working capital and reduction in costs) de-stuffing and stuffing of cargo from shipping line containers into other containers for avoiding Shipping Line detention charges and customized delivery. The same product could also be stored in the warehouses within the FTWZ at much lower costs as compared to detention charges that plague users. A few of the envisaged benefits for imports into India are listed as below:
- Quality control prior to duty payment, hence no duty to be paid on rejected products
- Exemption of SAD, VAT & CST on imports through FTWZ Service
- Tax exemption for Handling & Transportation of containers from Port to FTWZ
- Availability of state-of-the-art Container Storage Yard with World Class Safety, Hazardous Storage and Maintenance and Repair Facilities within the FTWZ with Service Tax Exemption
- Free foreign exchange transaction capability for the services rendered including CY/Container Freight Station services.
- Value addition services can be provided like labeling, packing, kitting, bar-coding, palletization, and other authorized services.
All such activities are exempted from service tax as well as any purchases of packaging material, labels, and the like from DTA into the FTWZ would be treated as exports from such suppliers
Envisaged Benefits for Exports from India
A few of the envisaged benefits for exports from India are listed below
- Factory stuffed containers entering the FTWZ are treated as deemed export providing immediate export benefits
- Local Tax Exemption (e.g. CST, Sales Tax, Excise & VAT) on all activities conducted inside the FTWZ
- Increased efficiency through lowered reverse logistics activities through quality control before dispatch from India
- Lowering ‘back to town’ costs with better aggregation and consolidation
- Facilitating consolidation of cargo with other users of the FTWZ for cost optimization through last-mile distribution
- Value addition services can be provided like labeling, packing, kitting, bar-coding, palletization, and other authorized services with all fiscal and regulatory benefits
- Availability of state-of-the-art Container Storage Yard with world-class safety, hazardous storage, maintenance, and repair facilities within the FTWZ with service tax exemption
- Free foreign exchange transaction capability for the services rendered including ICD/CFS services
Envisaged Benefits for Re-Exports from India
A few of the envisaged benefits for re-exports using FTWZ are listed below
- Income tax exemption on all profits generated through re-exports activity through the FTWZ
- Hassle-free re-export process by routing cargo through FTWZ integrated with ICD/CFS services
- Ability to leverage India’s cost, skill, and geographic positioning advantage as a hub for regional/global distribution post value addition activities
- Service tax exemption on services availed by routing containers through FTWZ integrated with ICD/CFS services
- Permission of 100% FDI for the set-up of units by the unitholder of the FTWZ
- Value addition services as described below can be provided with all fiscal and regulatory benefits
- The value-added services that can be performed in the FTWZ are packaging, re-packaging, labeling, re-labeling, strapping, refurbishment, crating, carbonization, fumigation, choking, lashing, tagging, shrink/stretch / bubble wrapping, palletization, bagging, re-bagging, quality assurance, kitting, de-kitting, sorting assorting, making combination pack, consolidation, agglomeration, washing, cleaning, processing, repairs & maintenance, CKD/SKD assembly, bottling, blending, cutting, polishing, painting, coating, filming, re-sizing, splitting, threading, coupling and the like.
Thus, FTWZs is a comprehensive infrastructure required for improving India’s container volumes and enabling Importers-Exporters to efficiently and cost-effectively carry warehousing, trading, and value addition activities.