Future-Proofing Our Free Trade Zones – Speech by Jamus Lim on the Free Trade Zones Amendment Bill

Mr Speaker, the amendments proposed to the Free Trade Zones (FTZ) Act are meant to provide better oversight to the flow of goods through our nation’s FTZs, essentially by devolving a number of functions away from authorities appointed by the Minister for Finance, to licensed FTZ operators and cargo handlers. It may be seen as a devolution of operational responsibilities to a more decentralized regime, which could have the benefit of being more efficient. These changes are also, according to the Ministry’s public consultation documents, meant to enable the better “detection, deterrence, and prevention of money laundering,” and associated terrorist financing.1 To this end, the objectives—to improve efficiency and safety—are sound, and should be supported.

My comments will briefly touch on some aspects of the Bill, before moving on to discuss broader concerns about how FTZs operate in Singapore. I will then close with reflections on the evolving nature of FTZs in the global economy.

Questionable aspects of the Bill

Section 10 confers powers to the Director-General (DG) to prohibit a person from entering or residing in the FTZ. This vests significant discretionary power to the DG, but there is ambiguity and uncertainty in terms of its scope and application.

What conditions does the Ministry expect such prohibitions to be exercised? One could imagine cases when a fugitive (or would-be fugitive) seeks refuge in the zone, in which case certainly national laws and regulations would naturally apply? Would the Ministry consider requiring the DG to publish the underlying rationale for prohibitions, when exercised? By doing so, the Director-General can provide greater transparency on when it uses its discretionary powers.

The new Section 14N compels FTZ operators and cargo handlers to submit reports on suspicious goods. This is reasonable, but the process of submitting such reports appears to place the onus on the agents—there does not appear to be routine reporting, unless specifically asked to do so by the DG. This provides incentives for operators and handlers that hope to avoid taking on additional regulatory burdens to remain conservative in their assessment of when goods justify reporting. As far as I can gather, the Bill does not provide guidance on “red flags” or other thresholds associated with potentially suspicious goods.

It may be useful to include, in a schedule in the annex, pre-determined frameworks on what the Ministry believes to be appropriate thresholds and red flags. A sufficiently clear and comprehensive set of guidelines will allow operators to continue applying flexibility in determining what falls within (or without) the threshold, but ensure that all appropriate cases are flagged for possible investigation. Such also removes the possibility of excess discretion that the Ministry might not wish to confer.

Section 14P(6) stipulates that a decision by the DG to suspend or revoke an operational license—or impose regulatory action—will take effect from the date on which that notice is served, or any other date as specified in the notice. While I appreciate that such snap suspensions may serve a purpose when seeking to arrest illegal or illicit activity without triggering suspicion, such actions could have detrimental effects on regular business operations. I have had residents meet with me (in other contexts2) where their operational licenses were suspended with limited buffer for them to rectify violations, or when good-faith negotiations over addressing the highlighted problem appeared to be ongoing.

Would the Ministry confirm that, as a matter of course, that FTZ operator(s) would be offered a brief but essential window of opportunity for compliance to written notices under Section 14P(3)? For instance, the DG can specify the time for a notice under Section 14P(6) to take effect 14 days after the date of service of notice on the licensee, which would be consistent with Section 14P(3)(c). Of course, this should only apply to Section 14P(1)(a) through (c)—since national security interests should supercede business disruptions. Nevertheless, this modification would provide some grace period for otherwise legitimate business operations.

More generally, apart from the DG having the legal power to take measures or engage in necessary actions to ensure compliance by operators, it remains unclear how compliance may be ascertained. Similarly, at the licensee level, the systems and procedures that licensees are required to implement to monitor the security of and the movement of goods within FTZ are also not spelled out.

Will the Bill attain its stated goals?

Sir, while I understand that legislation cannot be expected to detail all possible monitoring and enforcement procedures to ensure compliance with regulation and law, it is worth noting that one major impetus for the proposed revisions is precisely to address possible moneylaundering and terrorist financing. But how will the Bill advance this goal? This is my second point.

After all, the proof of the pudding is in the eating, and as we have seen in recent times in the context of real estate, a surfeit of laws will remain ineffectual so long as compliance is insufficiently observed.3 Even in the context of free zones, multiple reports swirling around alleged illicit activities within Le Freeport raises questions of how rigorous the process of due diligence and compliance with regulation truly is. Some of these activities include tax evasion,4 storage of looted goods,5 besides money laundering and terrorist financing.6

One is left to wonder, then, how the Ministry believes that this devolution to licensed FTZ operators and cargo handlers will improve the practice of due diligence and regulatory compliance. For instance, in the past, how many contraventions of the Act have been raised to Customs over the past 5 years, and have these instances been flagged by the operators themselves, or tipoffs received by the authorities? How many FTZ operators and agents operate within our FTZs, and if this is a large number, will this dilute the quality of monitoring and reporting, since small operators in particular can hardly be expected to sustain the same sort of compliance regime as larger ones? Relatedly, how many FTZ operators and handlers currently operate in our FTZs, and how many are expected to be licensed by the government under the new legislation?

Free trade zones of the future

My third point considers the role of free trade zones in a 21st century economy.

In principle, traditional free trade zones offer a host of benefits.7 By exempting tariffs, they facilitate the unfettered flow of goods and services, which are especially critical for transshipment activities. They also attract cross-border finance—since many typically also offer an initial tax holiday—which can embed technological knowhow and encourage the establishment of an infant industry.8 And their concentration of industries in one region promotes the exchange of information and ideas, which can promote economies of scale and scope.9 Historically, our economic model—which has relied on entrepôt trade and foreign direct investment—has relied significantly on the presence of such FTZs.

This is all well and good, but it is important for us to understand how the economic landscape is also shifting beneath us. International trade in goods never quite recovered after its collapse in the aftermath of the global financial crisis,10 prompting some to declare that globalization has reached its peak, and we are now in a new phase of “deglobalization.” While I do not share the unvarnished pessimistic view, it is undeniably true that world merchandise trade has essentially gone sideways since the mid-2000s, and may even have declined as a share of output. Staking our future on a trend of continued international integration strikes me as risky, at best (and foolhardy, at worst).

Similarly, agreements on an international minimum corporate tax—while progressing at a slow pace—nevertheless remain on track for rollout in a few years,11 which will similarly weaken the advantages that Singapore has enjoyed in terms of attracting global capital through crude tax competition. In any case, modern Singapore—as a major global wealth center—is now seldom starved of investment financing, making the benefits of tax-free FTZs less compelling.

This essentially leaves the main advantage of FTZs being that of enhancing the benefits of agglomeration. But the exchange of knowledge and information occurs largely digitally these days, and even if we continue to believe in the merits of in-person exchanges, such spillovers are not bound by the artificial boundaries of an FTZ. Indeed, we would want the entire nation to be a free-trade zone of ideas and inquiry.

To this end, one may wonder whether a continued focus on FTZs as key engines of the economy—while unobjectionable on its face—may be missing the bigger picture, which would require our entire nation to be open to flows of data, information, knowledge, and ideas (within the bounds of the law). Importantly, it is insufficient to cater to such flows only from the perspective of quantitative metrics—ensuring that we have rapid and reliable digital infrastructure, a supportive environment for technology adoption and diffusion, and adequate exposure for our companies and workers to modern innovations12—but also, from a qualitative perspective. This means fostering and welcoming open debate over ideas, even uncomfortable ones. This means encouraging out-of-the-box thinking, and training our workforce to be adaptable and flexible. I understand that these all fall truly outside the scope of the FTZ Bill, but we should not forget the ultimate purpose of legislative efforts of this nature.


Allow me to conclude. While I believe that the changes proposed in the Bill—meant to promote safety and efficiency—remain important ones to pursue, it remains unclear how the provisions in the Bill will meet them. Moreover, the changing nature of FTZs in the global economy may yet relegate our work here to a back seat, at least from the perspective of long-term economic performance. Hence, while I support the Bill, nagging questions—over whether it will truly make substantial headway in fulfilling the objectives it purports to achieve—remain.


[1]  MOF (2023), “Public Consultation on Proposed Free Trade Zones (Amendment) Bill,” Public Consultation, Mar 20, Singapore: Ministry of Finance.

[2] One such case (AV 20230605_10) was about the termination of a private educational institution’s EduTrust certification. The resident had believed that they had made good-faith progress on addressing the highlighted issues, but the termination proceeded anyway.

[3] Tang, L. & D. Tham (2023), “S$1 Billion Money Laundering Probe: Real Estate Agents Guard Against Suspicious Deals with Due Diligence,” CNA, Aug 21.

[4] Economist (2013), “Über-Warehouses for the Ultra-Rich,” The Economist, Nov 23.

[5] Offshoreart.co, K. Ditzig & R. Lynch (2020), “Art On/Offshore: The Singapore Freeport and Narrative Economics that Frame the Southeast Asian Art Market,” Southeast of Now: Directions in Contemporary and Modern Art in Asia 4(2): 161–201. 

[6] FATF and APG (2016), “Anti-Money Laundering and Counter-Terrorist Financing Measures: Singapore,” Fourth Round Mutual Evaluation Report, Paris and Sydney: Financial Action Task Force and Asia/Pacific Group on Money Laundering.

[7] There are also drawbacks, if implemented more according to political economy pressures rather than economic efficiency considerations. But the net benefits are generally positive. See Grubel, H.S. (1982), “Towards a Theory of Free Economic Zones,” Weltwirtschaftliches Archiv 118: 39–61.

[8] Chang, L.K. & Y.K. Kwan (2000), “What Are the Determinants of the Location of Foreign Direct Investment? The Chinese Experience,” Journal of International Economics 51(2): 379–400.

[9] Fujita, M., P. Krugman & A.J. Venables (1999), The Spatial Economy: Cities, Regions, and International Trade, Cambridge: MIT Press; Lu, Y., J. Wang & L. Zhu (2019), “Place-Based Policies, Creation, and Agglomeration Economies: Evidence from China’s Economic Zone Program,” American Economic Journal: Economic Policy 11(3): 325–60.

[10] Baldwin, R. (2009), The Great Trade Collapse: Causes, Consequences, and Prospects, London: CEPR Press.

[11] OECD (2023), Outcome Statement on the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalization of the Economy, Paris: OECD/G20 Base Erosion and Profit Shifting Project.

[12] On this front, Singapore does well; in an index of digital readiness, Singapore ranks first. See Cisco (2023), Digital Readiness Index, San Jose: Cisco Systems.