Free Trade Warehousing Zone (FTWZs) : A Game Changer for India
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 percent of all container throughput at Jebel Ali port and 12 percent 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 percent of Dubai’s exports
Genesis of FTWZ:
In India, Free Trade and Warehousing Zone was introduced in the Exim Policy with the objective to facilitate the import and export of goods and services. Each Zone was considered to have Rs. 100 crores outlay and 5 lakh sq. its built-up area. The 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 the development and establishment of FTWZ, the government has permitted 100% Foreign Direct Investment.
Concept of Free Trade Warehousing Zone:
FTWZ is a ‘Sanitized Zone’ designated as Foreign Territory for carrying on a 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 Logistics and Global Supply chains – servicing both India and the Globe.
Objective:
The objective of FTWZ is to create trade-related infrastructure to facilitate the import and export of goods and services with the freedom to carry out trade transactions in free currency. The scheme envisages the 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 the movement and valued addition of EXIM cargo in India.
Envisaged Benefits of Free Trade Warehousing Zone :
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 customized 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.
A 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
A few of the envisaged benefits for exports from India are listed 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 optimization through last-mile distribution
- Value addition services can be provided like labeling, packing, kitting, bar-coding, palletization, and other authorized 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
A few of the envisaged benefits for re-exports using FTWZ are listed 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 unitholder 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, labeling, re-labeling, strapping, refurbishment, crating, carbonization, 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 is a comprehensive infrastructure required for improving India’s container volumes and enabling Importers-Exporters to efficiently and cost-effectively carry warehousing, trading, and value addition activities.
Details Free Trade and Warehousing Zones (FTWZs) SEZs in India | ||||
S. No. | Name of the developer | Location | Area (hectares) | SEZ status |
1 | Arshiya International Limited | Taluka Panvel, District Raigad, Maharashtra | 57.898 | Notified/Operational |
2 | J. Matadee Free Trade Zone Private Limited | Sriperumbudur Taluk, Kancheepuram District, Tamil Nadu | 40 | Notified/Operational |
3 | Arshiya Northern FTWZ Limited | Moujpur, Bulandshar, Uttar Pradesh | 51.4394 | Notified/Operational |
4 | Arshiya International Ltd. | Taluka & District Nagpur, Maharashtra | 43.26 | Notified |
5 | Lepakshi Knowledge Hub Private Limited | Chillamaturu Mandal, Ananthapur District, Andhra Pradesh | 40 | Formal approval |
6 | ISPRL FTWZ Padur (Indian Strategic Petroleum Reserves Ltd.) | Padur, Karnataka | 41.20 | Formal approval |
7 | Cochin Port Trust | ThoppumpadyRamesaram Village, Cochin, Kerala | 40.85 | Formal approval |
8 | Venkatesh Coke & Power Ltd. | Ponneri Taluk, Thiruvalur District, Tamil Nadu | 46.71 | Formal approval |
Source: Ministry of Commerce, Parliament Q&A, 2019.
Examples of FTWZ
1. ARSHIYA INTERNATIONAL
Arshiya currently operates two FTWZs — Panvel near Mumbai spread over 165acre, catering to western India; and Khurja near Delhi spread over 135acre, catering to north India.
Free trade warehousing zones are a category of special economic zones set up to improve logistics infrastructure and facilitate and promote cross-border and international trade. Arshiya’s FTWZs serve as mega trading hubs with integrated logistics infrastructure such as special storage areas, world-class material handling equipment, container yards, inland container depot, customs office and commercial complex.
Panvel FTWZ (Mumbai): Located at Sai village in Panvel on the outskirts of Mumbai, the free trade warehousing zone is located 24km from Jawaharlal Nehru Port Trust, India’s main commercial port. Spread over 165acre, the Mumbai FTWZ provides easy access to western freight corridors.
Khurja FTWZ (near Delhi): Located about 80km from India’s capital, Khurja FTWZ is strategically located close to the eastern and western dedicated freight corridor (DFC). The free trade warehousing zone is a part of the 315acre mega logistics hub which also includes a 50acre rail siding and 130acre distribution hub and 60acre ICD set up by the company.
2. Sriperumbudur FTWZ or JMFTZ is a prominent multi-sector Special Economic Zone. It boasts top-tier Grade-A warehousing facilities and state-of-the-art industrial infrastructure, catering perfectly to the requirements of global operators and manufacturers. This makes it a top destination of choice and the zone’s occupiers include industry leaders DHL, DB Schenker, Kerry Indev, TVS Supply Chain, and Seaways Supply Chain.
Singapore-based Xander Investment Management acquired an additional one million square feet of premium warehousing space within the confines of Sriperumbudur FTWZ in 2021.
Sriperumbudur FTWZ enjoys a strategic location along the Chennai-Bengaluru Industrial Corridor (CBIC), boasting exceptional connectivity to key maritime hubs—Chennai, Ennore, and Kamrajar Ports. Collectively, these ports handle roughly 20 percent of India’s container traffic. Additionally, the FTWZ is conveniently situated in close proximity to significant industrial clusters, including Oragadam, Maraimalai Nagar, Tiruvallur, and Kanchipuram. These areas are renowned for hosting a substantial concentration of electronics, automotive, and auto ancillary companies.
What are the advantages of doing business in an FTWZ?
FTWZ units are permitted to maintain inventory on behalf of both foreign suppliers and domestic buyers. Further, FTWZ rules allow multiple ownership transfers—but only within the zone and without movement of goods outside the FTWZ. This strategic approach aims to maintain the trading chain as closely connected as necessary, preventing the accumulation of indirect taxes and compliance burdens while also avoiding an increase in transaction costs.
Units within the FTWZ have the ability to import goods into the zone without incurring duty charges. They can store these goods in the FTWZ and subsequently re-export them without any duty obligations. Furthermore, they are allowed to procure goods from the Indian market exempt from excise duties. This exemption applies not only to the goods that the unit deals with but also extends to items necessary for the growth, functioning, and upkeep of the zone.
Activities allowed in an FTWZ
An FTWZ is a distinct area designated for activities, such as warehousing and trade. Within FTWZs, the following activities are permitted:
- Storing goods on behalf of foreign suppliers for dispatch according to the owner’s instructions.
- Trading, whether with or without labeling, packing, or repacking, without the need for processing.
- Employing refrigeration for storage purposes.
- Assembling completely knocked-down or semi-knocked-down kits.
- Reselling, re-invoicing, or re-exporting imported goods.
- Trade transactions in foreign currencies are permitted.
- FTWZ units also reap the benefits of indirect tax advantages when engaged in non-Domestic Tariff Area (DTA) sales.
Customs Authority for Advanced Ruling (CAAR)
When goods are placed in the Free Trade Warehousing Zone, they are not acquired by a unit or developer. Consequently, the transfer of goods between the Domestic Tariff Area and FTWZ, or vice versa, does not fall within the definitions of ‘procure’ or ‘import,’ per the CAAR. As a result, such transfers or supplies of goods cannot be considered as ‘re-import’ in the context of the procedures and conditions that typically apply to the re-importation of goods from outside India. Therefore, the act of transferring goods from FTWZ to DTA cannot be categorized as ‘import/re-import,’ and it is thus not covered under Section 7 of the SEZ Act. Consequently, no exemption from duties or taxes is granted.
Utilizing the FTWZ market entry model in international trade
According to analysis from Flanders Investment & Trade, FTWZs provide various advantages for businesses, such as retail chains, manufacturers, and international traders. These zones eliminate regulatory constraints, offering cost-effective solutions for consolidating products from multiple suppliers in Asia. Companies can store and distribute products with lower costs and quicker payment to suppliers.
For example, for industries such as automobile manufacturing and IT hardware production, FTWZ permits the duty-free storage of spares for seamless, low lead time supply to the Indian market. It also offers the flexibility to test spares before actual supply and duty payment. Surplus or defective spares can be re-exported without financial loss.
Foreign rubber suppliers can take advantage of FTWZ by procuring and storing materials from countries like Indonesia, Thailand, or Malaysia during production seasons, aligning with the requirements of Indian tire manufacturers.
Additionally, utilizing forward trading for foreign exchange hedging and cost equalization enhances the cost-effectiveness of FTWZ operations.
How can companies operate through an FTWZ in India?
Companies interested in operating through FTWZs have two options:
Trading Unit: This option allows companies to engage in authorized activities within the FTWZ, which may include trading, warehousing, labeling, consolidation, and more.
Service Unit: Alternatively, companies can opt to utilize the services provided by an authorized Trading Unit.
Companies registered as Trading Units must be Indian entities involved in activities such as import-export, trading, shipping, and other related fields. The specific authorized operations are outlined in the Letter of Approval (LOA), which is granted by the Unit Approval Committee. These LOAs have a standard validity of five years, with the possibility of extending them for an additional five years.
Advantages of FTWZ for Importers
FTWZ imports offer a range of advantageous benefits. Firstly, they provide a high degree of flexibility when it comes to the final distribution of goods within India. This flexibility enables businesses to adapt to changing market demands and streamline their supply chains.
Moreover, FTWZ imports come with duty deferment benefits, which can significantly benefit businesses. This means that working capital is freed up, allowing companies to invest in other aspects of their operations, ultimately leading to increased sales and growth.
Quality control is another advantage offered by FTWZ imports. Companies can ensure the quality of their products before paying duties, minimizing financial risks and maintaining high standards.
Furthermore, FTWZ operations enjoy an exemption from the Goods and Services Tax (GST) on both purchases and services. This exemption extends to various areas, including transportation, reducing the financial burden on businesses.
For businesses dealing with temperature-sensitive products, such as medicines and other human consumption items, FTWZ provides access to temperature-controlled storage facilities. This capability ensures the integrity of these products during storage and transportation.
Another significant benefit is the reduced need for maintaining buffer stocks. With FTWZ imports, businesses can optimize their inventory management, leading to lower product costs.
FAQs about Free Trade Warehousing Zone (FTWZ)
Q: What is a Free Trade Warehousing Zone (FTWZ)?
A: FTWZ is a designated area within a country that provides infrastructure and facilities for storing, handling, and distributing goods with ease of customs clearance. It aims to promote international trade and facilitate export-import operations.
Q: What is the genesis of FTWZ in India?
A: The concept of FTWZ in India was introduced as part of the Foreign Trade Policy (FTP) to enhance trade competitiveness and attract foreign investment. It is a strategic initiative to boost export-oriented industries and improve India’s position in the global supply chain.
Q: What is the primary concept behind FTWZ?
A: The main concept behind FTWZ is to create an integrated facility that offers value-added services, efficient logistics, and customs-related benefits to businesses engaged in international trade. It aims to provide a one-stop solution for trading activities, thereby reducing transaction costs and improving supply chain efficiencies.
Q: What are the objectives of establishing FTWZ in India?
A: The key objectives of FTWZ in India include:
- Promoting and facilitating global trade
- Attracting foreign direct investment (FDI)
- Simplifying customs procedures and reducing bureaucratic hurdles
- Enhancing the ease of doing business
- Encouraging export-oriented industries and manufacturing activities
Q: What are the envisaged benefits of FTWZ for trade in India?
A: FTWZ offers several benefits, including:
- Duty deferment and exemption on re-exported goods, promoting export-led growth
- Consolidation and deconsolidation of cargo, optimizing logistics and reducing costs
- Efficient customs clearance and reduced documentation requirements
- Centralized storage and distribution facilities, improving inventory management
- Integration with global supply chains, increasing India’s competitiveness
- Attracting foreign investment and boosting economic growth
Q: Are there any eligibility criteria for businesses to operate within FTWZ?
A: Yes, businesses must meet certain criteria to operate within FTWZ. These may include being engaged in export-import activities, complying with customs regulations, and adhering to the guidelines specified by the relevant authorities.
Q: How does FTWZ contribute to India’s economic growth?
A: FTWZ plays a crucial role in India’s economic growth by attracting foreign investment, encouraging export-oriented industries, and improving the overall efficiency of international trade. It enhances India’s competitiveness in the global market and strengthens its position in the supply chain.
Q: Can domestic businesses also benefit from FTWZ facilities?
A: Yes, domestic businesses can also benefit from FTWZ facilities. They can use FTWZ for storing and processing goods meant for export or import, taking advantage of the customs-related benefits and improved logistics services.
Q: How does FTWZ contribute to the ease of doing business in India?
A: FTWZ simplifies customs procedures, reduces paperwork, and offers a single-window clearance system, making it easier for businesses to engage in international trade. This streamlined process contributes to the ease of doing business in India.
Q: Are there any specific industries that benefit the most from FTWZ?
A: Various industries can benefit from FTWZ, including manufacturing, pharmaceuticals, textiles, automotive, electronics, and consumer goods. Export-oriented industries that require efficient logistics and customs facilitation can particularly benefit from FTWZ services.
Q: What role does FTWZ play in promoting India’s exports?
A: FTWZ plays a significant role in promoting India’s exports by offering duty deferment and exemption on re-exported goods. It enables businesses to optimize their supply chain, reduce costs, and access international markets more effectively.
Q: How does FTWZ contribute to foreign investment in India?
A: FTWZ attracts foreign investment by providing a favorable business environment, efficient logistics, and customs facilitation. The seamless integration with global supply chains makes India an attractive destination for foreign companies looking to expand their operations in the region.
