Source: EURLEX
Language: en
Format: md

**Council of the**
**European Union**

**Interinstitutional File:**

**2019/0140(NLE)**

**PROPOSAL**

**Brussels, 1 July 2019**
**(OR. en)**

**10831/19**
**ADD 1**

**UD 193**
**OCDE 7**
**PI 105**

From: Secretary-General of the European Commission,
signed by Mr Jordi AYET PUIGARNAU, Director

date of receipt: 1 July 2019

To: Mr Jeppe TRANHOLM-MIKKELSEN, Secretary-General of the Council of
the European Union

No. Cion doc.: COM(2019) 294 final

Subject: ANNEX to the Proposal for a Council Decision on the position to be taken
on behalf of the European Union in the OECD Public Governance
Committee and the OECD Council on the draft Recommendation on
Countering Illicit Trade: Enhancing Transparency in Free Trade Zones

Delegations will find attached document COM(2019) 294 final.

Encl.: COM(2019) 294 final

10831/19 ADD 1 AF/ea

## ECOMP 2 B EN

EUROPEAN

COMMISSION

**ANNEX**

**to the**

Brussels, 1.7.2019
COM(2019) 294 final

ANNEX

**Proposal for a Council Decision**

**on the position to be taken on behalf of the European Union in the OECD Public**
**Governance Committee and the OECD Council on the draft Recommendation on**

**Countering Illicit Trade: Enhancing Transparency in Free Trade Zones**

# **EN EN**

**ATTACHMENT**

**Recommendation on Countering Illicit Trade: Enhancing Transparency in Free Trade**

**Zones**

1. This document presents a draft Recommendation on Countering Illicit Trade:
Enhancing Transparency in Free Trade Zones (hereafter the “draft
Recommendation”), as reproduced in Annex, developed through the Task Force on

                                      Countering Illicit Trade [1] (hereafter the “TF CIT”), a subsidiary body of the High
Level Risk Forum (hereafter the “HLRF”) of the OECD Public Governance
Committee (hereafter the “PGC”). It is designed to assist governments and policy
makers to reduce and deter illicit trade conducted through and inside Free Trade
Zones (FTZ).

2. The OECD has developed extensive research on illicit trade in the form of thematic
studies and cross country data comparisons to further the understanding and mapping
of illicit markets. Its findings provide an evidence base to inform risk management
policies that cut across different sectors.

3. As foreseen in the PGC Programme of Work and Budget 2017-2018

[GOV/PGC(2016)9/FINAL], the OECD in collaboration with the European Union
Intellectual Property Office (EUIPO), conducted work analysing trade routes for
illicit trade in counterfeits across borders, and different types of illicit goods. The
analysis has identified a number of policy gaps, and Free Trade Zones is one of them,
where there is scope to strengthen oversight and enhance risk informed law
enforcement practices. The 2017 Ministerial Council Statement welcomed further
work of the OECD Task Force on Countering Illicit Trade, and recognised the need
for international cooperation and partnerships to fight international corruption and
illicit trade. [2]

**Rationale for developing the draft Recommendation**

4. In the past decades FTZ have been established at a record rate to attract new business
and foreign investment. The aim is to facilitate trade and economic growth by
eliminating tariffs, quotas and other taxes and minimizing bureaucratic requirements
including certain customs procedures and disclosure requirements. The scope and
nature of FTZ vary across countries, depending on the regime and type of activities
allowed to take place inside, and can be described under a variety of names such as
Free Zones, Enterprise Zones, Export Processing Zones, Special Economic Zones,
Foreign Trade Zones, etc. As a result of FTZ proliferation in the dynamic context of
globalisation, they have come to play a central role in business for many countries
and leading manufacturers.

5. These developments, however, have outpaced the adoption of standards and
regulations governing effective oversight of the activities in FTZ in some countries.
As a result, criminal networks have found ways to abuse the supervisory gaps in
some FTZ to smuggle or divert illicit products to the domestic market, set up
production facilities for counterfeit and contraband goods, transit illicit goods and
facilitate the conduct of illicit services. In some countries FTZ are treated for all
purposes as outside the nation’s customs territory with the result that goods enter or

1 The Task Force on Countering Illicit Trade maps and measures the economic impacts of transboundary
trafficking in such sectors as counterfeit goods, wildlife and persons.
2 2017 Ministerial Council Statement

# EN 1 EN

exit these areas with minimal customs controls. Although the conditions for
establishment of FTZ are regulated, the extent of customs controls or interventions is
often insufficient or absent. Even where legislation specifically provides jurisdiction
for customs authorities to exercise controls in FTZ, enforcement can be weak.

6. Many FTZ produce economic benefits to their local economies, but there is strong
evidence to show that illicit trade flows through them e.g. in counterfeits, wildlife,
arms, etc. OECD analysis finds a positive correlation between the size of FTZ, in
terms of employment and firms established therein, and the value of illicit trade in
counterfeits. Some FTZ are found to be key trans-shipment points for illicit goods
that have been repackaged or relabelled to conceal their point of origin and to
penetrate the legitimate supply chain.

7. At the 2017 meeting of the Council at Ministerial level, Ministers “recognised the
need for international cooperation and partnerships to fight international corruption
and illicit trade, including by strengthening the implementation of existing standards”
and “welcomed further OECD work on illicit trade, including through the Task Force
on Countering Illicit Trade”.

8. To address these challenges and respond to the Ministers’ call, the TF-CIT has
worked on a draft OECD Council Recommendation proposing measures to enhance
the transparency of FTZ in order to reduce their misuse and make them less attractive
to the criminal organisations that currently take advantage of them.

9. The draft Recommendation is grounded on six years of analysis and expert
consultation at the OECD, notably through:

10. Meetings of the TF-CIT on the law enforcement challenges that FTZ present across
different illicit markets, and two joint workshops with different intergovernmental
organisations. The first workshop was organized with the World Customs
Organisation (WCO) in Brussels in November 2016, and the second with the EUIPO
in Alicante in September 2017;

11. An OECD report on ‘Governance Frameworks to Counter Illicit Trade’ that, inter
alia, reflects the broad lines of these discussions [3 ] as well as a joint OECD and EUIPO
report on ‘Trade in Counterfeit Goods and Free Trade Zones’ published in March
2018 [4], which established statistical correlations between the size of a FTZ (in terms
of firms established therein, employees, and contribution to overall export value) and
the value of fake goods arriving from a particular jurisdiction.

12. The analysis identifies key challenges that make FTZ susceptible to illicit trade:

        - The FTZ operating environment may lack adequate oversight by law
enforcement authorities due to the frequent misconception that companies
established inside are effectively operating outside the jurisdiction of a national
territory. This leads to the mistaken view that national law enforcement and
customs lack authority to access the physical premises and information on the
economic operators conducting business inside.

        - Even in economies where the correct understanding of the authority of local
customs and other law enforcement to access a FTZ is in place, incentive is
low to monitor its activities and transhipments, unless there is sufficient
leakage to the domestic market.

3 Governance Frameworks to Counter Illicit Trade (OECD, 2018)
4 _Trade in Counterfeit Goods and Free Trade Zones: Evidence from recent trends_ (OECD-EUIPO,2018).

# EN 2 EN

13. Bulk cash is easily introduced into FTZ by declaring that it is for retail transactions
inside, but there is no official verification process to confirm its end use for lawful
business. Furthermore, the lack of integration of electronic cargo tracking systems
with competent authorities hinders timely risk analysis.

14. Even though anecdotal evidence of the misuse of FTZ to conduct illicit trade has put
some of them in the international spotlight, high-level awareness of the risks from
FTZ remains relatively low.

15. The expert meetings and reflections, together with recent OECD publications on free
trade zones and previous OECD reports, [5] substantiate the conclusion that a lack of
monitoring, oversight and transparency about activities conducted in numerous FTZ
enables the production, movement, storage and smuggling of illicit goods. The
weight of these findings supported the call by Ministers at the 2017 MCM for the
OECD to mobilise coordinated international action with the aim to increase
transparency in FTZ and thereby reduce their utility as conduits for illicit trade.

**Process for developing the draft Recommendation**

16. At its December 2017 meeting the HLRF agreed that the Task Force should develop
a draft set of guidance on countering illicit trade in furtherance of the OECD mission
to set global standards and level the playing field for globalisation. The aim of the
proposed measures is to reinforce the capacity of law enforcement to take effective
actions and to reduce the attractiveness of FTZ to criminal entrepreneurs.

17. A first draft guidance on countering illicit trade: enhancing transparency in free trade
zones was discussed and commented on at the March 2018 meeting of the TF-CIT

[GOV/PGC/HLRF/TFCIT(2018)1], with written inputs from consultations with the
Financial Action Task Force, WCO, and the World Trade Organisation secretariats.

18. The PGC was informed of the process at its 57th meeting on 12 April 2018 and was
invited to comment on policy options to strengthen governance frameworks to
counter illicit trade including an inclusive consultation process. The PGC also agreed
to open up the draft guidance to public consultation [GOV/PGC/A(2018)1].

19. Following the incorporation of further comments on the draft guidance from the
HLRF and TFCIT, the on-line public consultation was launched from 8 July 2018
and ran until 3 September 2018. The consultation was open to the participation of all
stakeholders and input was received from, among others, OECD Members and nonMembers, FTZ operators, their associations, intermediaries (including shippers,
freight forwarders and couriers) and the industries that are established in FTZ or use
them in course of their supply chains. Over 200 individual stakeholders participated
in the public consultation with nearly 100 pages of written comments received.

20. In addition, the draft guidance was presented for comments to the Working Party of
the Trade Committee on 18 June 2018 and internal consultations were held with the
secretariat of the Economics Policy Committee, the Trade Committee, the Working
Group on Bribery in International Business Transactions, and the Global Forum on
Transparency and Exchange of Information (GFTEI). Further, the secretariat of the
Financial Action Task Force on Money Laundering (FATF) was also consulted.
Valuable input was received and helped strengthen the consistency and coherence of
the draft guidance with already existing instruments.

5 W _hy Do Countries Export Fakes? The Role of Governance Frameworks, Enforcement and Socio-_
_economic Factors (OECD-EUIPO, 2018); Illicit Trade: Converging Criminal Networks (OECD, 2016)._

# EN 3 EN

21. Following the incorporation of all relevant and important comments from the public
consultation and consultation of other OECD bodies and secretariat, the revised draft
was circulated to the TF-CIT (and HLRF) again as a draft Recommendation. At this
point certain delegations raised several questions including how best to monitor
whether FTZ are in compliance with the Code of Conduct for Clean Free Trade
Zones. These questions were addressed and resulted in the draft text in the Annex,
which does not contain a specific provision on monitoring compliance, but includes a
statement of the intention to develop a clear means to monitor compliance within one
year after adoption of the Recommendation.

22. The revised draft Recommendation is hereby presented to the TF-CIT for approval
and transmission to the HLRF, after which it will be transmitted to the PGC for
approval and ultimately transmission to Council, via the Executive Committee for
adoption.

**Aim and scope of the draft Recommendation**

23. The draft Recommendation is designed to ensure transparency in FTZs and is framed
as part of the broader effort to counter illicit trade. Illicit trade has broad adverse
economic, social, environmental and even political impacts - it is holistically
destructive to sustainable development. It undermines good governance, erodes trust
in government and the rule of law, and potentially creates threats to political stability
as its economic actors deflect unwanted attention to protect their illegal market share.

24. The broader aim of the draft Recommendation is to establish over time clear
expectations with respect to effective policies to counter illicit trade. The goal of
shared standards for globalisation is to ensure its benefits can be fully shared, while
the harms are reduced to the extent feasible. This requires countries to further
collaborate and invest in the development of suitable institutional capacities [6] .

25. The draft Recommendation calls on Members and non-Members having adhered to it
(the Adherents) to encourage FTZ to adopt a voluntary Code of Conduct for Clean
Free Trade Zones (set out in the Appendix to the draft Recommendation), with the
understanding that compliance with its provisions will be assessed and monitored by
a mechanism (diagnostic tool) to be established within one year after the adoption of
the draft Recommendation. The goal is to ensure the impact of the draft
Recommendation and promote transparency in an effective manner, so that FTZ
conduct oversight of economic operators established in a zone and cooperate with
competent public authorities. The FTZ should foster the availability of information
useful to investigations, and bring accountability and a level playing field with the
positive net result of reducing illicit trade.

26. The draft Recommendation proposes a dual approach that addresses dimensions that
are relevant for all stakeholders of good governance in FTZ including customs
authorities and as needed the broader law enforcement community (which may
include environmental crime authorities, tax authorities and others), FTZ, economic
operators within a zone, and civil society.

27. The objective of the draft Recommendation is to support Adherents and provide
useful guidance to address the challenges and identify good practices related to the
reduction of illicit trade. A comprehensive approach to reducing illicit trade in FTZ
requires investment in actions on the part of Adherents, as well as in cooperation to
increase the monitoring and control of FTZ where they are being abused to conduct

6 _Governance Frameworks to Counter Illicit Trade_ (OECD, 2018)

# EN 4 EN

illicit trade. For these reasons the draft Recommendation addresses key needs
identified specifically by OECD research, including:

        - A coordinated international effort between national legislative and enforcement
authorities to ensure law enforcement and customs officials are expressly
empowered to conduct, in accordance with domestic law, effective on-site
investigations, examinations or inspections without prior notice or judicial
authorization, at any time, and at any place within any FTZ to facilitate
administration of applicable law, regulation or policy instruction.

        - International cooperation to set incentives for local authorities to exercise more
vigilance and control over FTZ as the negative externalities are not sufficient in
their domestic markets to motivate actions that mitigate the risks of illicit trade.

        - The generation of political will to advance a solution to the challenges.

**Monitoring the implementation, dissemination and non-Member adherence**

28. The draft Recommendation instructs the Public Governance Committee to:

        - _Use the Task Force on Countering Illicit Trade as a forum for the exchange of_
_information and the conduct of voluntary peer reviews with respect to the_
_implementation of this Recommendation._ This may take the form, for example,
of stakeholder engagement to raise awareness of the risk of illicit trade in
specific FTZ, to discuss compliance with the Code of Conduct of Clean Free
Trade Zones and to compare experiences and examine practice in the reduction
and deterrence of illicit trade risks.

        - _Establish a mechanism (diagnostic tool) for the assessment of the performance_
_and the compliance of FTZ with the Code of Conduct for Clean Free Trade_
_Zones_ . The mechanism would be established through a multi-stakeholder
process led by the TF-CIT under the aegis of the HLRF and PGC within one
year from the adoption of the Recommendation.

        - _Develop a toolkit to support Adherents in the implementation of the_
_Recommendation, including promotion and encouraging compliance of FTZ_
_with the Code of Conduct for Clean Free Trade Zones_ within one year from the
adoption of the Recommendation: through a multi-stakeholder process lead by
the TF-CIT, under the aegis of the HLRF and PGC, a toolkit would be
developed to support Adherents and FTZ in its practical implementation,
including with respect to compliance with the Code of Conduct of Clean Free
Trade Zones. This toolkit would include the development of a FTZ risk
assessment model for companies to gauge the integrity and adequacy of good
governance in various FTZ against a range of benchmarks. It would also
include a repository of good practices illustrated with concrete examples, and
platforms for multi-stakeholder cooperation may be developed incrementally to
close the policy, governance and enforcement gaps.

        - _Monitor the implementation of this Recommendation and report thereon to the_
_Council no later than five years following its adoption and at least every ten_
_years thereafter_ : this report will assess the relevance and impact of the draft
Recommendation with a view to ensure that it remains up-to-date, identifying
any necessity for revision as appropriate. The report will build on the
information concerning good practices gathered in the development of the
toolkit, discussions in the PGC and its relevant subsidiary bodies on the

# EN 5 EN

implementation of the draft Recommendation, and exchanges through multistakeholder platforms of co-operation formed to feed into the work of the PGC
and its subsidiary bodies on this matter.

29. The draft Recommendation invites the Secretary-General and Adherents to
disseminate it. Once adopted, the draft Recommendation will be available on the
[online Compendium of OECD Legal Instruments. A booklet containing the text of](https://legalinstruments.oecd.org/en/)
the draft Recommendation, together with relevant background information will be
accessible in PDF format to facilitate dissemination. The Secretariat will share the
draft Recommendation through meetings of relevant ministries, parliamentary
groups, industry associations, professional bodies and networks of relevant
academics and experts.

30. The draft Recommendation will be open to non-Member adherence. Such adherence
would represent a political commitment by the Adherents to the principles set out in
the draft Recommendation. Having interested non-Members adhere to the draft
Recommendation would send a message that they can play a pro-active part in the
effort to reduce illicit trade and help further level the playing field globally. Any nonMember Adherents would be included on the activities to support and monitor its
implementation.

# EN 6 EN

**APPENDIX**

**Draft Recommendation of the Council on**

**Enhancing Transparency in Free Trade Zones**

**THE COUNCIL,**

**HAVING REGARD** to Article 5 b) of the Convention on the Organisation for Economic Cooperation and Development of 14 December 1960;

**HAVING REGARD** to the [Recommendation of the Council to Facilitate Co-operation](https://legalinstruments.oecd.org/en/instruments/OECD-LEGAL-0384)
[between Tax and Other Law Enforcement Authorities to Combat Serious Crimes](https://legalinstruments.oecd.org/en/instruments/OECD-LEGAL-0384)

[OECD/LEGAL/0384];

**HAVING REGARD** to the Recommendation of the Council on Countering the Illegal Trade
[of Pesticides [OECD/LEGAL/0446];](https://legalinstruments.oecd.org/en/instruments/OECD-LEGAL-0446)

**HAVING REGARD** to the 2012 FATF Recommendations, the 1994 WTO Agreement on
Trade-Related Aspects of Intellectual Property Rights, and the 2017 WTO Trade Facilitation
Agreement;

**NOTING** the basic principles of Customs procedures and controls laid down in the WCO
Revised Kyoto Convention, Specific Annex D, Chapter 2 (Free Zones);

**RECOGNISING** that illicit trade operates in the shadow of the global economy, with
increasingly sophisticated traffickers dealing in a range of prohibited goods and services
including counterfeits;

**RECOGNISING** that illicit trade and criminal networks are a growing security concern
globally and that they present threats to communities and societies as a whole, enabling
lucrative criminal enterprise, terrorism financing, and greater instability and violence around
the world;

**RECOGNISING** that various international standards are in place to prohibit or regulate
different sectors of illicit trade, including the trafficking of humans, narcotics, counterfeits,
endangered and illegally harvested species of fauna and flora, antiquities and conventional
arms; and promote the implementation of legal, regulatory and operational measures to
combat the proceeds of illicit trade;

**CONSIDERING** the need for additional harmonised guidance that provides governments
with efficient tools to detect, deter and reduce illicit trade regardless the commodity, cutting
across different illicit markets;

**RECOGNISING** the need to enact proactive measures to reduce the supply and deter the
demand for illicit goods and services across a range of illicit markets;

**RECOGNISING** that Free Trade Zones (FTZ), can stimulate legitimate economic growth
and play a central role in business for many economies and leading manufacturers;

**RECOGNISING** that standards, oversight and other controls concerning FTZ, while having
proliferated, have not in all cases kept up with the growth in number of economic operators
and volume of illicit trade in goods and services;

**RECOGNISING** that in some FTZ competent public authorities may not have timely
physical access to the premises, and often face difficulty to obtain information on the
activities of economic operators established within the FTZ, as well as information pertaining
to the ownership of goods that transit through or are produced or assembled within the FTZ,
even where other relevant international standards require them to be able to;

# EN 7 EN

**ACKNOWLEDGING** that some economic operators may take advantage of inadequate
oversight, control and the lack of transparency in FTZ to commit trade fraud, intellectual
property rights (IPR) infringement, smuggle contraband, facilitate the proliferation of
weapons and launder the proceeds of crime;

**NOTING** the opportunity to hold to account competent authorities that are complicit with, or
negligent in the oversight of, economic operators that conduct or enable illicit trade that is
harmful to persons, businesses and the environment;

**On the proposal of the Public Governance Committee** :

**I. AGREES** that, for the purpose of this Recommendation, the following definitions are used:

–
'Free Trade Zone' refers to an area designated by a country or jurisdiction, where
goods that enter this area are not subject, or are subject to lower import or export
duties than those that would apply if such goods were declared for release for free
circulation, at the moment when they enter it. Facilities used for temporary storage or
for the customs warehousing procedure are not deemed to be Free Trade Zones.

–
'Competent authorities' include, but are not limited to, the following public
authorities: police, customs, fiscal, and market surveillance officials with jurisdiction
over the relevant persons, places, processes/procedures, or goods.

**II. RECOMMENDS** that Members and non-Members having adhered to the
Recommendation (hereafter the “Adherents”), **promote transparency in order to deter the**
**abuse of FTZ as conduits for illicit trade** .

To this effect, Adherents should, in a manner which is non-discriminatory and does not create
undue barriers to trade:

1. Ensure that the **legal framework for FTZ**, established in their territory or that are
otherwise under their administrative control,

        - Provides for the right of competent authorities to require relevant data,
documents, samples and other information related to the production and
movement of goods, and to carry out, in accordance with domestic law, ex
officio checks at any time on goods stored, manufactured or packaged and
services provided or activities conducted in FTZ.

        - Allows for competent authorities to take appropriate actions and measures in
accordance with their domestic law.

        - Empowers competent authorities to examine merchandise before or at the time
of admission to a FTZ, or at any time thereafter, if the examination is
considered necessary to facilitate the proper administration of any law,
regulation, or instruction which the competent authority is authorised to
enforce.

        - Empowers competent authorities to enforce applicable prohibitions and
restrictions on activities carried out within the FTZ, having regard to the nature
of the goods in question, the requirements of customs supervision, or security
and safety requirements.

        - Empowers competent authorities to prohibit persons who do not provide the
necessary assurance of compliance with customs provisions from carrying out
activities in a FTZ.

# EN 8 EN

        - Prohibits legal or natural persons convicted of illegal economic or financial
activities from operating within FTZ.

        - Ensures that the perimeter and entry and exit points of FTZ are subject to
competent authorities’ supervision.

        - Ensures that goods, persons and means of transport entering and leaving the
FTZ are subject to effective controls.

        - Ensures that the economic operators that are allowed to operate within FTZ are
physically located within the FTZ, and that they communicate to the competent
authorities the identity of the clients in their operations. Where the client acts
as an agent or representative, then the economic operator should also
communicate the identity of the principal, that is, the person(s) on whose
behalf the agent acts, to the competent authorities.

2. Ensure competent authorities have access to **aggregated statistical data on goods**
**entering and leaving FTZ** on the basis of their tariff classification, and information
that identifies the owner(s) of goods.

3. **Cooperate internationally in the exchange of law enforcement information**, and
consult with competent authorities and affected industries in investigations and other
legal or administrative proceedings concerning specific cases of misuse of FTZ
related to illicit trade. This includes means such as:

        - Sharing financial and administrative information spontaneously and upon
request, to support the provision of evidence in judicial proceedings, or to
ensure and further the effective supervision and control of FTZ and the
prevention of their misuse, in accordance with domestic law.

        - Making better use of and adherence to current arrangements for Customs to
Customs cooperation, as required through Customs Mutual Assistance
Agreements, and other law enforcement information sharing and disclosure
gateways and protocols.

        - Cooperating and assisting in the development and implementation of policies
and practices to counter illicit trade in FTZ, including technical assistance to
share and develop improved systems for record keeping by competent
authorities, FTZ and economic operators.

4. **Enhance domestic inter-agency co-operation**, including obligations to report
suspicions of illegal behaviour to the competent public authorities, information
sharing between agencies; and other co-operation mechanisms such as joint
investigations and joint intelligence centres.

5. **Promote awareness** amongst competent authorities and private sector stakeholders
(e.g. major intermediaries including shipping agents, freight forwarders, customs
brokers and logistics companies) to understand the roles and responsibilities of
operating in an FTZ, as well as risks related to FTZ operations.

6. **Foster partnerships** among stakeholders to counter illicit trade emanating from high
risk FTZ, such as those that have not implemented the Code of Conduct for Clean
Free Trade Zones, which is set out in the Annex to this Recommendation and forms
an integral part thereof. This includes efforts to encourage the business community
that makes use of FTZ, or that finances operators within FTZ, to conduct business in

# EN 9 EN

or engage with FTZ that are compliant with the Code of Conduct for Clean Free
Trade Zones.

7. **Monitor the activities of FTZ** and publish annual indicators that help contribute to
an evaluation of their risk of facilitating illicit trade.

8. **Develop relevant prior non-compliance or enforcement statistics**, including
customs detentions and seizures of illicit goods originating, or in provenance from
FTZ, and enforcement actions already taken regarding that FTZ.

9. **Conduct targeted operations** with respect to shipments originating from high risk
FTZ, such as those that do not implement the Code of Conduct for Clean Free Trade
Zones.

10. Make greater use of existing or new international agreements that include provisions
on mutual legal assistance or other forms of enforcement cooperation, in order to
combat illicit trade conducted through FTZ. When administering such agreements,
Adherents should designate the competent authorities and their points of contacts in
order to facilitate the communication between and among the competent authorities
of the parties to such agreements.

**III. RECOMMENDS** that Adherents take measures to encourage FTZ to implement the
Code of Conduct for Clean Free Trade Zones. Such measures include, but are not limited to
the conduct of strict control of consignments arriving from, or for which there is evidence of
having transited through, FTZ that do not implement the Code of Conduct for Clean Free
Trade Zones.

**IV. RECOMMENDS** that Adherents use trade agreements, as appropriate, to encourage
adherence to the principles for combatting illicit trade in FTZ contained in this
Recommendation.

**V. INVITES** the Secretary-General and Adherents to disseminate this Recommendation.

**VI. INVITES** non-Adherents to take account of and adhere to this Recommendation.

**VII. INSTRUCTS** the Public Governance Committee through the Task Force on Countering
Illicit Trade to:

    - Serve as a forum for the exchange of information and the conduct of voluntary peer
reviews with respect to the implementation of this Recommendation;

    - Establish a mechanism for the assessment of the performance and the compliance of
FTZ with the Code of Conduct for Clean Free Trade Zones within one year from the
adoption of the Recommendation and report to the Council thereon;

    - Develop a toolkit to support Adherents in the implementation of the
Recommendation, including promoting and encouraging compliance of FTZ with the
Code of Conduct for Clean Free Trade Zones, within one year from the adoption of
the Recommendation; and

    - Monitor the implementation of this Recommendation and report thereon to the
Council no later than five years following its adoption and at least every ten years
thereafter.

# EN 10 EN

**ANNEX**

**Code of Conduct for Clean Free Trade Zones**

**Clean Free Trade Zones are those that:**

1. Provide unconditional access to the competent authorities, in accordance with their
domestic law, to carry-out unobstructed, ex officio enforcement checks of operators
in support of investigations of violations of applicable laws and regulations.

2. Notify the competent authorities in advance of any industrial, commercial or service
activity taking place in the FTZ.

3. Prohibit operators and persons who do not provide the necessary assurance of
compliance with the applicable customs provisions from carrying out an activity in
the FTZ.

4. Ensure that economic operators active in the FTZ maintain detailed digital records of
all shipments of goods entering and leaving the zone, as well as all goods and
services produced within it, sufficient to know what is inside the zone at any given
time. The digital records should:

        - Document sales and purchase operations of all goods and services entering and
exiting the FTZ, and be provided to the competent authorities upon request.

        - Maintain a complete and accurate record in accordance with domestic law of
all commercial transactions to enable full accountability of materials used in
production and assembling processes that may be reconciled with the volume
and value of their commercial transactions. These records should be:

–
Maintained for a period of at least five years.

–
Made available in a timely manner to the competent authorities upon
request.

–
Maintained in a format as required by the competent authorities, such
that it can be used for risk profiling by the competent authority.

5. Transmit in a timely manner to the competent authorities the records and information
requested in accordance with domestic law and required to be maintained by
recordkeeping requirements.

6. Ensure that economic operators active in the FTZ are required to grant access to their
detailed digital records upon request of the competent authorities in the jurisdiction
where the zone is established.

7. Appoint a dedicated point of contact with the necessary skills and resources to
respond effectively to such requests for information from the competent authorities.

8. Incentivise electronic payment for any commercial or financial transaction of the
economic operators active in the FTZ occurring inside or originating from the FTZ,
and ensure the traceability of cash transactions.

9. Participate in peer learning and dialogues with Adherents to resolve compliance
challenges.

# EN 11 EN