I.   Text and Commentary

     -    Introduction     5
     -    Definitions      6
     -    Principle (provision 1)    7
     -    Establishment of free zones (provisions 2-4)   8
     -    Goods admitted (provisions 5-11)     9
     -    Introduction into a free zone (provisions 12-15)  11
     -    Authorised operations (provisions 16-17)     13
     -    Goods consumed within the free zone (provision 18)     14
     -    Transfer of ownership (provision 19)    14
     -    Destruction (provision 20)    15
     -    Duration of stay in free zone (provision 21) 15
     -    Removal from free zone (provisions 22-26)    15
     -    Abolition of a free zone (provision 27) 17
     -    Information concerning free zones (provision 28)  17

II.  Entry into force

     -    Contracting Parties having accepted the Annex     19

III. Reservations

     -    Contracting Parties having entered reservations   21
     -    Reservations entered (in alphabetical order of Contracting
            Parties)

IV.  Alphabetical Index


I.-TEXT AND COMMENTARY *


* Annex F.1. was adopted by the Permanent Technical Committee at its
89th/90th Sessions in December 1975. The Annex has been incorporated
in the Kyoto Convention by decision of the Council, taken on 15 June
1976, at its 47th/48th Sessions held in Brussels. It entered into
force on 19 March 1979.


Introduction

Certain States have long considered it necessary to encourage
development of their external trade, and of international commerce in
general, by granting indefinite relief from import duties and taxes in
respect of goods introduced into a part of their territory where they
are generally regarded as being outside the Customs territory. Goods
so introduced are not subject to the usual Customs control.

In the present Annex this part of the territory is referred to as a "
free zone " although in some countries it is also known under various
other names, such as " free port ", " free warehouse ".

A distinction may be made between commercial and industrial free
zones. In commercial free zones, the permitted operations are
generally limited to those necessary for the preservation of the goods
and the usual forms of handling to improve their packaging or
marketable quality or to prepare them for shipment. In industrial free
zones, processing operations are authorised.

Although goods introduced into free zones are generally regarded,
insofar as import duties and taxes are concerned, as being outside the
Customs territory, certain provisions laid down by the State concerned
may remain applicable, e.g. prohibitions and restrictions deriving
from national legislation. The Customs also carry out certain controls
within the free zone to ensure that the operations carried out are in
accordance with the requirements laid down.

Goods introduced into a free zone from the Customs territory normally
qualify for the exemption from or repayment of import duties and taxes
or internal duties and taxes granted at exportation.

Where goods which have not been processed in a free zone are allowed
to be introduced into the Customs territory for home use,
they become liable to import duties and taxes, as if they had been
imported direct from abroad. However, special assessment rules, laid
down in national legislation, are applicable in the case of foreign
goods which have been processed in the free zone or where the goods
utilised were of national origin or had been imported against payment
of import duties and taxes and had been granted exemption from or
repayment of duties and taxes when they were introduced into the free
zone.

In some countries Customs facilities comparable to those
characteristic of free zones are granted throughout the territory, in
the context of other Customs procedures such as Customs warehousing,
drawback, temporary admission for inward processing or Customs
transit.


Definitions

For the purposes of this Annex:

(a)  the term " free zone " means a part of the territory of a State
where any goods introduced are generally regarded, insofar as import
duties and taxes are concerned, as being outside the Customs territory
and are not subject to the usual Customs control (1)(2)(3);

Note A distinction may be made between commercial and industrial free
zones. In commercial free zones, goods are admitted pending subsequent
disposal and processing or manufacture is normally prohibited. Goods
admitted to industrial free zones may be subjected to authorised
processing operations (4);

(b)  the term " Customs territory " means the territory in which the
Custom law of a State applies in full;

(c)  the term " import duties and taxes " means Customs duties and all
other duties, taxes, fees or other charges which are collected on or
in connection with the importation of goods, but not including fees
and charges which are limited in amount to the approximate cost of
services rendered (5);

(d)  the term " Customs control " means the measures applied to ensure
compliance with the laws and regulations which the Customs are
responsible for enforcing;

(e)  the term " person " means both natural and legal persons, unless
the context otherwise requires.

COMMENTARY

(1)  The establishment of a free zone depends upon the insertion of a
formal provision in the national legislation. Hence it is not
sufficient that part of the national territory be located outside the
Customs territory for it to be automatically regarded as forming a
free zone.

(2)  By specifying that the goods are not subject to the usual Customs
control, the definition draws attention to the fact that the Customs
control exercised over goods placed in free zones is more flexible
than that applicable to goods stored in Customs warehouses, for
example, or admitted under the temporary admission for inward
processing procedure. Whereas in exercising the usual Customs control
the Customs authorities have at their disposal a whole series of
specific measures designed to ensure compliance with the laws and
regulations which they are responsible for enforcing, in the case of
free zones they normally have recourse to general surveillance
measures only. Thus, premises situated in free zones are not usually
subject to permanent Customs surveillance. The control measures
applied to goods during their stay in the free zone are generally
reduced to an absolute minimum and are principally concerned with the
relevant documentation, although Standard 4 recognises the right of
the Customs authorities to carry out checks of the goods at any time.

(3)  There are also free zones in which Customs law applies in full.
These free zones are not excluded from the field of application of the
definition provided that the goods introduced into them are exempt
from import duties and taxes and are not subject to the usual Customs
control.

(4)  In some countries both industrial and commercial operations may
be carried out in the same free zone.

(5)  The definition of the term " import duties and taxes " also
covers Value Added Tax collected in connection with the importation of
the goods.


Principle


1.   Standard

The Customs regulations applicable in free zones shall be governed by
the provisions of this Annex (1).

COMMENTARY

(1)  There is no obligation on States to accept all the provisions of
the Annex, and reservations in respect of any Standards and
Recommended Practices that they are not in a position to apply may be
entered (see Article 5 of the Convention).

     Customs authorities are free to enact rules on aspects of free
zones not covered by specific provisions of this Annex.

     Customs authorities may grant greater facilities than those
provided for in the Annex. The granting of such greater facilities is
recommended in Article 2 of the Convention.

Establishment of free zones


2.   Standard

National legislation (1) shall specify the requirements relating to
the establishment of free zones, the kinds of goods admissible to such
zones and the nature of the operations to which goods may be subjected
in them (2).

Notes     1.   Free zones are generally established at seaports,
rivet ports, airports, and places with similar geographical advantages
(3).

     2.   In accordance with the provisions of national legislation,
free zones may be managed by the Customs authorities, by other
authorities or by natural or legal persons (4).

COMMENTARY

(1)  See commentary on Article 3 of the Convention.

(2)  Inasmuch as national legislation specifies the kinds of goods
admissible and the nature of the operations authorised, the Customs
authorities should be in a position to issue general authorisations
rather than have to apply a system of prior authorisation to each
consignment of goods introduced into the free zone.

(3)  Free zones may be quite extensive (for example all or part of a
port) or relatively small (a simple site adjacent to an airport).

(4)  Independently of the conditions which may be laid down by the
Customs authorities to permit control of the goods held in a free
zone, the manager may impose special conditions as regards, in
particular, safety and security measures to be observed in connection
with the storage of goods, fees payable for the use of the
installations, rental charges for the premises and the approval and
control of personnel allowed access to the free zone.


3.   Standard

The requirements as regards the construction and layout of free zones
and the arrangements for Customs control shall be laid down by the
Customs authorities (1).

Notes     1.   The Customs authorities may require that free zones be
enclosed; they may also impose restrictions on means of access and
establish the hours of business.

     2.   For the purpose of control, the Customs authorities may, in
particular:

     -    keep the means of access to the free zone under permanent or
intermittent supervision;

     -    require persons introducing goods into free zones to keep
accounts so that the circulation of the goods can be controlled;

     -    make spot checks on the goods admitted to ensure that they
have been subjected to authorised operations only and that no
unauthorised goods have been introduced.

COMMENTARY

(1)  Requirements as regards the construction and layout of free zones
are laid down by the Customs authorities with a view to ensuring
adequate Customs security.


4.   Standard

Customs authorities shall have the right to carry out checks at any
time of the goods stored on the premises of any person introducing
goods into a free zone.


Goods admitted


5.   Recommended Practice

Admission to a free zone should not be subject to the condition that
the goods are introduced into or stored in the zone in specified
quantities (1).

COMMENTARY

(1)  Standard 2 allows the Customs authorities to specify the kinds of
goods that can be admitted into a free zone. However, for the Customs
authorities to require that goods be introduced into or stored in the
free zone in specified quantities could be regarded as a hindrance to
international trade.


6.   Standard

Admission to a free zone shall be authorised not only for goods
imported direct from abroad but also for goods brought from the
Customs territory of the State concerned (1).

Note Goods brought from the Customs territory of the State concerned
may be goods in free circulation or goods placed under a procedure
affording conditional relief from import duties and taxes or a
processing procedure.

COMMENTARY

(1)  To prevent free zones from becoming congested with goods placed
there principally for the purpose of qualifying for exemption from or
repayment of internal duties and taxes, the Customs authorities may
make such exemption or repayment subject to the exportation of the
goods from the national territory (see Note to Standard 8).


7.   Standard

Goods admissible to a free zone which are entitled to exemption from
or repayment of import duties and taxes when exported (1) shall
qualify for such exemption or repayment immediately after they have
been introduced into the free zone (2).

COMMENTARY

(1)  These are, in particular, goods on which drawback is claimed,
goods temporarily admitted for inward processing and goods in respect
of which the repayment of import duties and taxes is granted for
reasons of equity recognized by national legislation, as is normally
the case with, in particular, goods re-exported as not in accordance
with contract.

(2)  The reintroduction of these goods into the Customs territory
entails payment of the appropriate import duties and taxes.


8.   Standard

Goods admissible to a free zone which are entitled to exemption from
or repayment of internal duties and taxes when exported (1), shall
qualify for such exemption or repayment after they have been
introduced into the free zone (2)(3).

Note Exemption or repayment is generally granted immediately after
introduction of the goods into the free zone. In special cases,
exemption or repayment may be made subject to the exportation of the
goods from the national territory. Exceptionally, evidence of arrival
of the goods in the country of destination may also be required.

COMMENTARY

(1)  Amounts which, as the case may be, are either collected or
allocated when agricultural products are exported, in particular with
a view to offsetting price differences in international markets, are
not regarded as " internal duties and taxes " within the meaning of
this Standard.

(2)  The Standard does no more than establish the time at which
entitlement to exemption from or repayment of internal duties and
taxes becomes effective, and does no lay down the procedures for
granting such exemption or repayment; these are left to the discretion
of the Contracting Parties.

(3)  The reintroduction of these goods into the Customs territory
entails payment of the appropriate internal duties or taxes.


9.   Standard

Admission to a free zone shall not be refused solely on the grounds of
the country of origin of the goods, the country whence they arrived or
their country of destination (1).

COMMENTARY

(1)  Where prohibitions or restrictions are applicable under decisions
taken by competent bodies of the United Nations, these prohibitions or
restrictions can be applied without the need for Contracting Parties
to enter a reservation in respect of this Standard.


10.  Standard

Admission to a free zone of goods brought from abroad shall not be
refused solely on the grounds that the goods are liable to
restrictions or prohibitions other than those imposed on grounds of
public morality or order, public security, public hygiene or health,
or for veterinary or phytopathological considerations, or relating to
the protection of patents, trade marks and copyrights (1)(2).

COMMENTARY

(1)  In principle, goods which are subject to economic prohibitions or
restrictions should be admitted into free zones. Therefore,
Contracting Parties which do not enter a reservation in respect of
this provision will no longer be able to apply such prohibitions or
restrictions on the basis of Article 3 of the Convention.

(2)  Export restrictions and prohibitions are fully applicable to
goods brought from the Customs territory.


11.  Recommended Practice

Goods which constitute a hazard, which are likely to affect other
goods or which require special installations should be admitted only
to free zones specially designed to receive them.

Top of this page

Return to Standards & Recommendations