Free economic zones (FEZ), free economic territories (FETs) or free zones (FZ) are a class of

special economic zone A special economic zone (SEZ) is an area in which the business and trade laws are different from the rest of the country. SEZs are located within a country's national borders, and their aims include increasing trade balance, employment, increas ...

(SEZ) designated by the

trade Trade involves the transfer of goods and services from one person or entity to another, often in exchange for money. Economists refer to a system or network that allows trade as a market. An early form of trade, barter, saw the direct excha ...

and

commerce Commerce is the large-scale organized system of activities, functions, procedures and institutions directly and indirectly related to the exchange (buying and selling) of goods and services among two or more parties within local, regional, nation ...

administrations of various

countries A country is a distinct part of the world, such as a state (polity), state, nation, or other polity, political entity. It may be a sovereign state or make up one part of a larger state. For example, the country of Japan is an independent, so ...

. The term is used to designate areas in which companies are

taxed A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or n ...

very lightly or not at all to encourage

economic activity Economics () is the social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behaviour and intera ...

. The

tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or n ...

ation rules and

duties A duty (from "due" meaning "that which is owing"; fro, deu, did, past participle of ''devoir''; la, debere, debitum, whence "debt") is a commitment or expectation to perform some action in general or if certain circumstances arise. A duty may ...

are determined by each country. The

World Trade Organization The World Trade Organization (WTO) is an intergovernmental organization that regulates and facilitates international trade. With effective cooperation in the United Nations System, governments use the organization to establish, revise, and e ...

(WTO) Agreement on Subsidies and Countervailing Measures (SCM) has content on the conditions and benefits of free zones. Some special economic zones are called free ports. Sometimes they have historically been endowed with favorable customs regulations, such as the free

port of Trieste The Free Port of Trieste is a port in the Adriatic Sea in Trieste, Italy. It's the most important commercial port of Italy with a trade volume of 62 million tonnes. It is subdivided into 5 different Free Areas, 3 of which have been allotted to ...

. As the

United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and North ...

was proposing the creation of ten free ports after leaving the European Union in early 2020, the EU was clamping down on 82 free zones after finding that their special status had aided the financing of

terrorism Terrorism, in its broadest sense, is the use of criminal violence to provoke a state of terror or fear, mostly with the intention to achieve political or religious aims. The term is used in this regard primarily to refer to intentional violen ...

money laundering Money laundering is the process of concealing the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source. It is a crime in many jurisdictions ...

and

organised crime Organized crime (or organised crime) is a category of transnational, national, or local groupings of highly centralized enterprises run by criminals to engage in illegal activity, most commonly for profit. While organized crime is generally th ...

Definition

The

definition A definition is a statement of the meaning of a term (a word, phrase, or other set of symbols). Definitions can be classified into two large categories: intensional definitions (which try to give the sense of a term), and extensional definitio ...

should be understood in meanin
The International Convention on the Simplification and Harmonization of Customs Procedures
(Revised Kyoto Convention) uses the term “free zones” which the revised convention describes as “a part of the territory of a Contracting Party where any goods introduced are generally regarded, insofar as import

and

es are concerned, as being outside the

customs territory A customs territory is a geographic territory with uniform customs regulations and there are no internal customs or similar taxes within the territory. Customs territories may fall into several types: * A sovereign state, including a federation * A ...

”.

History

An early type of special economic zone was ''free ports'', these historically were endowed with favorable customs regulations. In modern times, ''free port'' has come to mean a specific type of special economic zone, for example

LADOL Lagos Deep Offshore Logistics Base (LADOL), officially LADOL Free Zone, also known as LADOL Base or the initials LFZ, is an industrial Free Zone privately owned logistics and engineering facility located on an island in the Port of Apapa, Lagos ...

. All "free ports" in the world were permitted by the respective states, save the Free Port of Trieste that with the signing of the 16th

Resolution Resolution(s) may refer to: Common meanings * Resolution (debate), the statement which is debated in policy debate * Resolution (law), a written motion adopted by a deliberative body * New Year's resolution, a commitment that an individual mak ...

of the

Security Council of the United Nations The United Nations Security Council (UNSC) is one of the six principal organs of the United Nations (UN) and is charged with ensuring international peace and security, recommending the admission of new UN members to the General Assembly, an ...

(10 January 1947) and the signing of the Treaty of Peace with Italy (10 February 1947, ratified 15 September 1947) was put territorially under the

sovereignty Sovereignty is the defining authority within individual consciousness, social construct, or territory. Sovereignty entails hierarchy within the state, as well as external autonomy for states. In any state, sovereignty is assigned to the perso ...

of the

United Nations The United Nations (UN) is an intergovernmental organization whose stated purposes are to maintain international peace and international security, security, develop friendly relations among nations, achieve international cooperation, and be ...

itself. As cited on Annex VIII, Article 3, paragraph 2: ''"The establishment of special zones in the Free Port under the exclusive jurisdiction of any State is incompatible with the status of the Free Territory and of the Free Port"''. For example, it was not possible to apply the "Italian Law on Ports" in the extraterritorial free zones of the UN Free Port of Trieste with the effect that all actual territorial concessions were null and void. In 1954 the Free Territory of Trieste was dissolved and given to its neighbours, Italy and Yugoslavia.

Criminal use

The European Union in 2020 introduced new stricter rules to identify and report suspicious activities at free ports and zones in response to the "high incidence of corruption, tax evasion, and criminal activity", with a further review to take place in the following year, The

European Parliament The European Parliament (EP) is one of the legislative bodies of the European Union and one of its seven institutions. Together with the Council of the European Union (known as the Council and informally as the Council of Ministers), it adopts ...

suggested that increasing demand for free ports could be partly a response to global crackdowns on tax evasion. The

European Commission The European Commission (EC) is the executive of the European Union (EU). It operates as a cabinet government, with 27 members of the Commission (informally known as "Commissioners") headed by a President. It includes an administrative body o ...

in a report said that free ports were popular for the storage of art, precious stones, antiques, gold and wine as alternative assets to cash, and posed an emerging threat in multiple ways: allowing counterfeiters to land consignments and tamper with loads and paperwork, then re-export the products without customs formalities, disguising the actual origin and nature of the goods and their supplier. The commission said they were also used for narcotics trafficking, the illegal ivory trade, people smuggling, VAT fraud, corruption and money laundering. "Legal businesses owned by criminals remain key to

money-laundering Money laundering is the process of concealing the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source. It is a crime in many jurisdictions ...

activities ... Free ports are perceived as facilities that protect their clients' identity and financial dealings, much as private banks used to." As an example the commission cited Swiss authorities' 2016 seizure of cultural relics looted from the Middle East being stored in Geneva's free ports. The free port system has been accused of facilitating international art crime, allowing stolen artworks to remain undetected in storage for decades. Freeports' lax regulation enables criminals to operate in secrecy. Freeports may facilitate money laundering and tax evasion by obscuring the real beneficial owners of criminal assets, which hinders authorities' efforts to trace criminal profits and recover taxes.

Definition

History

Criminal use

List of free economic zones by country

See also

References

Bibliography

External links