SPECIAL CUSTOMS ZONES

COVID-19 recovery measures mainly in the sphere of trade, tariff and industry are poised to stay and are expected to gather the characteristics of protectionism and economic independence for self-sufficiency almost in every part of the world, not only in the supply chains of medical or personal protective equipment (most of which were restricted from exports from manufacturing countries for ensuring availability for local use during pandemic) but also in food and many other goods.

Signs of this new world order is apparent in the Japanese economic recovery plan with a US$ 2.2 billion package for moving production facilities back home from China, US calling off job offshoring and many similar actions taken in other countries including Sri Lanka.

This sudden change in the world economic landscape challenges developing economies by many folds. They not only loose raw materials for manufacture but also loose export markets, added with loss of earning from service sector such as tourism, decline in worker remittance, and potential withdrawal of foreign investments etc.

Therefore, it’s time for Sri Lanka to adjust itself at the earliest in order to avoid possible detrimental effects and explore all options available for substantial self-sufficiency in every possible front.

Lining up of micro, small and medium industries (MSME) for a national goal is a timely need sure to deliver results, and their contribution under such arrangement would be far beyond their current input to the national economy.

The MSME sector needs agility and resilience to survive international market shocks and to be competitive. Strong local market stability is an important character every MSME should acquire for comfortable and confident international market outreach.

At the same time this re-aligned MSME sector can also be driven for self-sufficiency not only in health and food, but also in the areas of technology, know-how and research and development, learning from lessons during COVID-19 pandemic.

Special Customs Zones (SCZ) as an extension of Customs Economic Procedures founded on the principles of Bonded Manufacturing (Manufacture or processing under Customs control) with necessary character and flexibility to support and drive MSME for National Economic Revival.

Advantages

1. Minimize costs of Customs formalities through economies of scale by managing multiple bonded operations with minimum resources and efforts,

2. Facilitation of new industrial models (research and development, component manufacturing),

3. Provide employment opportunities taking the influx of returning overseas workers also into consideration,

4. Easier management and support for manufacture and import substitutes,

5. Eliminate import tariff disproportions of raw materials (inputs) vs finished products,

6. Further facilitation of identified industries, beyond existing concessions and exemption schemes, aiming inevitable national goals such as health and food security etc.,

7. Rapid response to national needs without having to wait till trade and tariff policies are made,

8. Development and local retention of technology and know-how,

9. Comparatively easier protection of environment from industrial activity,

10. Gradual elevation of local industries to international status,

11. Equal recognition to local industries and innovators, just as the foreign direct investors,

12. Minimize likelihood of revenue leakages compared to other schemes,

13. Ability of implementing within existing legal framework.

Disadvantages

1. Limitation of number of industries that can be accommodated in a CSZ,

2. Cost of establishment of infrastructure (could be mitigated by using already existing facilities, or through Public Private Partnership)

Policy and Procedures

- A policy has to be framed, approved and published,

• Zero tolerance of frauds,

• Maximizing space utilization,

• No occupation of land without operations,

• Type of industries according to the national industrial strategy taking into health and food security etc.,

- Selection Criteria of industries into zones developed and published,

• Involvement of imports or exports or both,

• Process and the product are in accordance to the scope of the zone allocated according to a national industrial strategy,

• Difficulty/risk in facilitating the industry under schemes such as TIEP/INFAC,

• Merits of the industry,

• Investment,

- Standard Operating Procedure has to be developed and published,

Establishment

1. Conduct a survey to assess the demand, potential industries and needs,

2. Transform one of the close to 200 industrial zones/estates under the Ministry of Industry and the Industrial Development Board, as a trial, provided existing infrastructure, type of industries and the availability of land,

3. Failing finding an existing zone/estate, consider establishing in an area currently identified for such purposes (If there is no conflict in policy, industrial areas identified under the Colombo-Trincomalee Economic Corridor project could also be a possibility), 

4. Secure perimeter preventing illegal entry and exit and establish gates under Customs guard and control in addition to security,

5. Establish electronic surveillance covering all the areas as necessary.