A free trade zone (FTZ) or export processing zone (EPZ), also called foreign-trade zone, formerly 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 per cent of all container throughput at Jebel Ali port and 12 per cent 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 per cent of Dubai’s exports
In India, Free Trade and Warehousing Zone was introduced in the Exim Policy with the objective to facilitate import and export of goods and services. Each Zone was considered to have Rs. 100 crores outlay and 5 lakh sq.mts built up area. 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 development and establishment of FTWZ the government has permitted 100% Foreign Direct Investment.
FTWZ is a ‘Sanitized Zone’ designated as Foreign Territory for carrying on 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 Logistic 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 freedom to carry out trade transactions in free currency. The scheme envisages 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 movement and valued addition of EXIM cargo in India.
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 customised 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. 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
Few of the envisaged benefits for exports from India are listed as 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 optimisation through last mile distribution
- Value addition services can be provided like labeling, packing, kitting, bar-coding , palletization and other authorised 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
Few of the envisaged benefits for re-exports using FTWZ are listed as 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 unit holder 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, labelling, re-labelling, strapping, refurbishment, crating, carbonisation, 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 are comprehensive infrastructure required for improving India’s container volumes and enabling Importers-Exporters efficiently and cost effectively carry warehousing, trading and value addition activities.