Free Trade Zones (Amendment) Bill

Order for Second Reading read.

2.01 pm

The Senior Minister of State for Finance and Transport (Mr Chee Hong Tat) (for the Deputy Prime Minister and Minister for Finance): Mr Speaker, on behalf of the Deputy Prime Minister and Minister for Finance, I beg to move, "That the Bill be now read a Second time."

Sir, this Bill seeks to amend the Free Trade Zones Act to enhance the regulation and control of goods that flow through our Free Trade Zones (FTZs). Specifically, the Bill introduces three key areas of amendments to the FTZ Act.

The first is a new licensing regime on the operators of our FTZs. The second relates to new regulations on cargo handlers and other cargo agents. And the third involves amendments to the enforcement powers of the Director-General (DG) and officers of customs under the revised Act. Before I go into the specifics of each amendment, let me explain why we are making these changes.

Sir, trade is the lifeblood of Singapore's economy. We have thrived economically as a nation by situating ourselves as a trading hub and crucial node in global supply chains. Today, Singapore is the second busiest container port in the world and the largest transshipment hub, handling about a fifth of the world's container transshipment traffic.

In 2022, our port handled a container throughput of over 37 million 20-foot equivalent units (TEUs), mostly for transshipment. Our airport handled another two million tonnes of air cargo, a significant proportion of which is also transshipment cargo.

Our geographical location and connectivity give us a natural advantage as a trading hub. But what helps to further strengthen our attractiveness as a hub is our FTZs which facilitate transshipment activities and support more efficient and resilient global supply chains through a hub-and-spoke model.

There are, currently, 10 FTZs in Singapore, located mainly at our sea and air terminals. Businesses that operate within the FTZs enjoy exemption from customs duties and taxes on re-exports, simplified customs procedures, access to streamlined logistics and transportation services, as well as other services to facilitate their trade operations. These are pro-business elements we want to preserve when we amend the legislation.

There has been growing concerns of FTZs around the world being misused for illicit activities, such as weapons proliferation, environmental crimes and trade-based money laundering. Illegal actors will try to disguise their actions as legitimate trade, for example, by falsely declaring cargo manifest data, or by swapping out legitimate goods with contraband before re-exporting.

Singapore Customs has been taking proactive measures to combat and deter illicit activities within our FTZs.

For instance, Customs regularly conducts surprise inspections on businesses operating within the FTZs. Enforcement actions are taken against those found to be engaging in illicit trade.

To better target suspicious firms, Customs also works closely with our FTZ authorities, as well as local and international partners, to share actionable intelligence and operational support to strengthen our ability to detect illicit activities and enforce against illegal actors.

The aim of the legislative amendments is to update and strengthen our FTZ regime to keep pace with evolving threats and the increasing sophistication of illegal actors. We are proposing changes in this Bill to further enhance the regulation and control of goods that flow through our FTZs.

Mr Speaker, the first key amendment introduces a licensing regime for FTZ operators.

In the past, our FTZs were operated by public bodies that were appointed by the Minister for Finance. As these entities have since been privatised, a licensing regime is more fit-for-purpose. Through the licensing regime, we will be able to specify and enforce the necessary requirements to ensure the overall security of our FTZs and improve our regulation of the flow of goods and persons within the FTZ.

For example, FTZ operators will be required to put in place necessary security structures like CCTVs and fences and provide assistance to officers of customs in the performance of their official duties. Our FTZ authorities have already put many of these measures in place today and the proposed amendments will formalise these requirements in legislation. FTZ operators will also need to screen persons who intend to operate in the FTZ and manage the sub-leasing of premises in the FTZ. They will also need to report and disclose relevant information on suspicious or dangerous goods or persons within the FTZs to the DG of Customs.

The second key amendment of the Bill seeks to regulate the cargo handlers and cargo agents operating within the FTZ. While cargo handlers and agents will not be subject to a licensing regime, the proposed amendments seek to clearly lay out their responsibilities in terms of securing the goods under their charge and data provision.

Specifically, cargo handlers will be responsible for monitoring and managing the movement of goods handled at their premises within the FTZs and ensuring their premises are secure. They will need to report goods that may have contravened our laws. Cargo handlers and cargo agents will also need to provide specified information contained in a bill of lading or airway bill in advance of their entry or transshipment of their goods through Singapore.

Currently, only information relating to goods that are imported, exported or controlled goods that are transshipped, is required to be submitted as part of the permit application process. With this amendment, information on all transshipment goods will need to be submitted.

These amendments will give us better visibility of goods that are being transshipped through Singapore before arriving at their final destination. Customs can monitor the flows of goods for signs of illicit activity and take the necessary action, in close partnership with other international authorities.

The third set of amendments sets out the enforcement powers of the DG and officers of Customs and the regulatory actions they may undertake.

The DG of Customs will be allowed to grant, renew, suspend or revoke licences. He or she will also be empowered to impose or modify licensing conditions and order the removal of dangerous goods, as well as the detainment of goods for Customs' inspection.

The Bill will also introduce powers for officers of Customs to enter any area within the FTZ and inspect or remove goods within the FTZ. They will also be empowered to request for information for the purposes of investigation, witness examination, arrest of any person without warrant and search of any arrested person. These powers are necessary to allow Customs, as the FTZ regulator, to ensure the compliance of FTZ operators, cargo handlers, cargo agents and other entities and persons operating within the FTZs.

The remaining amendments to the Bill are operational and administrative in nature, such as amendments to the penalty framework to address non-compliance with the licensing framework and to allow for compoundable offences in lieu of prosecution.

The proposed amendments in this Bill have been carefully calibrated, in consultation with industry and relevant stakeholders, to improve Customs' ability to detect illicit activities, while keeping our regime efficient and pro-business for companies. They are also in line with international best practices, including those established by the World Customs Organization.

Sir, our status as a transshipment hub puts Singapore firmly on the world map. Our connectivity brings goods and people through Singapore, strengthens global supply chains, boosts our economy and creates good jobs for Singaporeans.

As the busiest transshipment hub in the world, a significant amount of cargo comes through us daily. The vast majority is legitimate, but there will be a small minority who seek to flout the rules. We will facilitate trade, but we do not want to be misused by bad actors for their illegal means.

The amendments in this Bill are targeted at these players, while keeping a business-friendly operating environment for genuine users.

Companies that do legitimate trade through Singapore will benefit from a sound, reputable and pro-business regime.

In turn, Singapore continues to remain competitive as the top port-of-call for transshipments and a trusted global trading hub. Mr Speaker, I beg to move.

Question proposed.

Mr Speaker: Mr Saktiandi Supaat.

2.12 pm

Mr Saktiandi Supaat (Bishan-Toa Payoh): Mr Speaker, Sir, our 10 FTZs in Singapore are the lesser-known ingredients to our continued economic prosperity. They are governed by the Free Trade Zones Act 1966, which we enacted shortly after our Independence in order to facilitate the entrepot trade which we had become known for.

Since Singapore's early days as a British colony, its geographical location at the centre of major trade routes attracted traders to ship their goods here with the aim of re-exporting them elsewhere.

I note that the FTZs Act has not been substantially amended many times since it was first enacted in 1966. May I ask the Minister to provide further details on why we are suddenly looking at amending it now rather than doing it much earlier?

I note the Senior Minister of State's speech highlighting that it is meant to update and strengthen the FTZ regime. But could the Senior Minister of State provide further details as to why it was not done much earlier?

One of the main changes appears to be that the FTZs will no longer be managed by authorities that are answerable to the Minister but, instead, by FTZ operators who will be licensed by the DG of Customs.

However, I understand that the same three authorities – Jurong Port, PSA Corporation and Changi Airport Group – will continue to manage the 10 FTZs as FTZ operators. Is this amendment more of form than substance, or is it the case that, with this change, the Ministry will look to license other FTZ operators?

It is also unclear if this seemingly unnecessary change will bring about an increase in regulatory or compliance costs. For example, will the existing operators have to pay more to apply for and maintain their licence as FTZ operators? My concern is that they could seek to pass these cost increases on to the businesses and companies which operate in the FTZs, which may erode the more business-friendly conditions within these FTZs.

More importantly, how do our FTZs measure up in terms of competitiveness against the "free zones" operated by other major trading countries, especially those in the region? Based on a study by the World Customs Organization, it appears to be getting harder to differentiate between the regulation and operation of the "free zones" in various countries. What can we do to maintain our advantage as the transshipment hub of choice for traders and shippers?

The amended Act will also require FTZ cargo handlers to disclose certain cargo information to the licensed FTZ operator in a prescribed form, manner and timeline. In turn, the FTZ operator owes a duty to disclose the same information to the DG of Customs in order to facilitate enforcement of the Act.

While I understand that the form and manner of such reporting are to be prescribed in subsidiary legislation, will we be adopting the harmonised digital solutions and data standards which the Maritime and Port Authority of Singapore (MPA) has been working with other foreign ports to develop?

May I also ask what is the expected timeline for the enactment of such subsidiary legislation? Have any exercises been undertaken to consult the current industry practice on such data submissions and have they been completed? When will these reporting obligations be expected to come into force?

Finally, I note that the Bill introduces new sections 14Q to 14Z setting out the powers of enforcement of customs officers, among other things. For example, a customs officer may enter an FTZ to monitor compliance with the Act, search the FTZ, detain goods for inspection, require persons to provide information and documents, just to name a few.

Does this mean that the customs officers did not have these powers before this? How then have we ensured that our FTZs are free of money laundering, terrorist financing or any other illicit activities over the years? Mr Speaker, Sir, notwithstanding the clarifications sought, I support the Bill.

Mr Speaker: Assoc Prof Jamus Lim.

2.17 pm

Assoc Prof Jamus Jerome Lim (Sengkang): Mr Speaker, the amendments proposed to the FTZs Act are meant to provide better oversight for the flow of goods through our nation's FTZs, essentially, by devolving a number of functions away from authorities appointed by the Minister to licensed FTZ operators and cargo handlers may be seen as a devolution of operational responsibilities to a more decentralised regime, which could have the benefit of also simultaneously being more efficient.

These changes are also, according to the Ministry's public consultation documents, meant to enable better "detection, deterrence and prevention of money laundering" and associated terrorist financing.

To this end, these objectives to improve efficiency as well as safety are sound and should be supported.

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

Section 10 confers powers to the DG to prohibit a person from entering or residing in an FTZ. This vests significant discretionary power to the DG and there is some 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 where 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 any prohibitions imposed when exercised? By doing so, the DG 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 any routine reporting, for instance, unless specifically asked to do so by the DG. This provides incentive for operators and handlers that hope to avoid taking on additional regulatory burdens to remain somewhat conservative in their assessment of when goods may justify reporting.

As far as I can gather, the Bill does not provide guidance on, say, red flags or other thresholds associated with potentially suspicious goods. It may be, therefore, useful to include in a Schedule, in an annex, for instance, predetermined frameworks on what the Ministry believes to be appropriate thresholds or 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 an action 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 licence or to impose a regulatory action takes effect from the date on which the notice is served, or any other date as specified in the notice. While I appreciate that such snap suspensions can 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, to be fair, in other contexts, where their operational licences were suspended with relatively limited buffer for them to rectify violations, or even while good faith negotiations over addressing highlighted problems appeared to be ongoing.

Will the Ministry confirm that, as a matter of course, the FTZ operators will 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, say, 14 days after the date of service of notice on the licensee, which would be consistent with section 14P(3)(c). Of course, this will only apply to section 14P1(a) through (c), since national security should supersede business disruptions. Nevertheless, this modification, I believe, 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 such compliance may be ascertained. Similarly, at the licensee level, the systems and procedures that licensees are required to implement to monitor the security and movement of goods within the FTZ are also not spelt out.

Sir, while I understand that legislation cannot be expected to detail all possible monitoring and enforcement procedures to ensure compliance with regulation as well as the law, it is worth noting that one major impetus for the proposed revisions is precisely to address the possibility of money laundering and terrorist financing. But it remains to be asked how will the Bill truly 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, for instance, a surfeit of laws will remain ineffectual so long as compliance is insufficiently observed. Even in the context of free zones, multiple reports have swirled around alleged illicit activities within "Le Freeport", which raises questions of how rigorous the process of due diligence and compliance with regulation truly is.

Some of these activities have included tax evasion, storage of looted goods, besides money laundering and terrorist financing.

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 as well as regulatory compliance. For instance, in the past, how many contraventions of the Act have been raised to Customs over the past five years and have these instances been flagged by the operators themselves or was it because of tip-offs that were 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 sort of compliance regime that larger ones are able to muster?

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?

Sir, my third point considers the role of FTZs in a 21st century economy. In principle, traditional FTZs offer a host of benefits. 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 offer an initial tax holiday, which can embed technological know-how and encourage the development of an otherwise infant industry. And their concentration of industries in one region often promotes the exchange of information and ideas which can promote economies of both scale and scope. Historically, our economic model has relied on entrepôt trade and foreign direct investment. And so, we have benefited as a country significantly from the presence of 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 the collapse in the aftermath of the Global Financial Crisis, at least as a share of global Gross Domestic Product (GDP), prompting some to declare that globalisation has reached its peak and others to even pronounce that we are now in the new phase of "deglobalisation".

While I do not, to be clear, share this unvarnished, pessimistic view, it is undeniably true that world merchandise trade has essentially gone sideways since the mid-2000s and may have even declined as a share of output in some cases. Staking our future on the trend of continued international integration strikes me as risky at best, and foolhardy at worst.

Similarly, agreements on an international minimum corporate tax, base erosion profit shifting (BEPS), while progressing at a slower pace, nevertheless remain on track for roll-out over the next few years, which will similarly weaken some of 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 centre, is now seldom starved of investment financing, making the benefits of tax-free FTZs somewhat less compelling.

This, essentially, leaves the main advantage of FTZs, going forward, as 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 by no means bound by the artificial boundaries that constitute an FTZ. Indeed, we would surely want the entire nation to be a free-trade zone for ideas as well as active inquiry.

To this end, one may wonder whether the 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 – of course, within the boundaries of the law.

Importantly, it is insufficient to cater to such flows only from the perspective of quantitative metrics – ensuring that we have, for instance, a rapid and reliable digital infrastructure, a supportive environment for technology adoption, and adequate exposure for our companies and workers to modern innovations, all of which we do well, but also from a more subtle but just as important 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.

Mr Speaker, allow me to conclude. While I believe that the changes proposed in the Bill – meant to provide for safety and efficiency – remain important ones to pursue, it remains unclear how the provisions in the Bill will truly succeed in meeting 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, nevertheless remain.

Mr Speaker: Mr Yip Hon Weng.

2.30 pm

Mr Yip Hon Weng (Yio Chu Kang): Mr Speaker, Sir, as we all know, trade is the lifeblood of Singapore. As a critical trading hub, it is incumbent upon us to meet the highest international standards, whilst simultaneously reduce the impediments to trade. The amendments in this Bill are designed to fortify our FTZ regime, allowing for enhanced oversight of goods within these zones, while preserving the efficiency that characterises our trade networks. Notwithstanding, I would like to seek a few clarifications.

First, Mr Speaker, Sir, with regard to the various entities designated to oversee the 10 FTZs, as they are private entities, what are the stipulated conditions and criteria for their appointment? What mechanisms are in place for potential revocation? Are there plans to establish more FTZs in the future?

Second, Mr Speaker, Sir, the delegation of greater powers to the DG by the Minister is a point of concern. In cases where the DG had acted ultra vires or unreasonably, will cases of appeal be reviewed by the Minister?

Third, the accuracy of data submission within the FTZs is of paramount importance. Can we get insights into the mechanisms that will be employed to ensure the accuracy of this data? Equally crucial is how this data will be safeguarded by customs authorities. Can the Ministry of Finance (MOF) share more information about this issue?

Fourth, will there be a provision allowing for appeals against penalties imposed in cases where licensing conditions are breached or where actions conflict with the Act?

Lastly, Mr Speaker, Sir, the matter of data confidentiality merits attention. Will data collected within FTZs be disclosed to foreign law enforcement agencies, such as INTERPOL, without the explicit consent of the individuals or entities involved? Notwithstanding, I support the Bill.

Mr Speaker: Neil Parekh Nimil Rajnikant.

2.32 pm

Mr Neil Parekh Nimil Rajnikant (Nominated Member): Mr Speaker, Sir, thank you for allowing me to join this debate on the Free Trade Zones (Amendment) Bill.

Singapore's FTZs at our ports and airport are an important node of business and trade for the Singapore economy to thrive and prosper safely without any hindrance and threat. Singapore's Free Trade Agreements (FTAs), Investment Guarantee Agreements and the Double Tax Avoidance Agreements also allow for smooth trade with many countries in the world.

In particular, this piece of legislation is of utmost importance for both small and medium enterprises (SMEs) as well as larger companies, as it is all about the ease of doing business in Singapore. It also gives a very clear and loud message to the investor community that Singapore means business in the proper operation of its ports of entry for goods and services.

In my speech, I would like to highlight three key items: importance of this legislation to global trade, the benefits that our businesses get from the legislative changes and, lastly, some concerns from an SME standpoint in their participation after the changes in these amendments are accepted.

FTZs in Singapore were first established in the 1960s to facilitate trade in dutiable goods. The FTZs Bill was last amended in Parliament in 2014. According to the Financial Action Task Force, or FATF, FTZs are vulnerable to trade-based money laundering through the misrepresentation of the price, quantity or quality of imports and exports, phantom shipments and falsification of invoices. Much has happened in the last nine years and it is timely to update this legislation, keeping in line with recent developments in global trade.

Sir, let me now turn to the key thrusts of the Bill.

In my view, this amendment removes legal uncertainty by creating security measures that ensure that goods passing through Singapore follow very stringent checks enforced by FTZ authorities. I believe this amendment also provides a stronger framework for preventing money laundering and financing for terrorism.

Three specific points.

First, licensing of FTZ operators. The amendment allows many administrative responsibilities to shift to licensed FTZ operators for more efficient movement of goods. The new tenets that allow operators and cargo holders to delegate authority are reflective of current industry practices. The amendment seeks to strike a balance, enabling both better oversight of goods flow and ensuring efficient movement of goods.

Second, the proposed amendment provides more powers to the officers of the Customs and Excise Department to investigate and arrest any parties suspected of illegal activity. In providing clear definition of criminal offences, it allows the DG and staff to enforce the law with increased penalties for offences.

Lastly, this amendment also allows for a smoother transmission of information and documents, while providing greater flexibility to staff.

I also want to highlight that the staff working in FTZs play a key role in the detection, deterrence and prevention of money laundering and financial crime. To help the staff to better appreciate the magnitude of the risks, we will need to, on a continuous basis, develop training roadmaps and programmes which would be conducted by the private operators for the staff performing various functions in the FTZs.

On to some concerns regarding the SME community.

SMEs will require a longer period to adjust to the main tenets of the new amendments. SMEs simply lack the capabilities and resources to take a more active role in enforcement and administration, which would make it difficult for them to take advantage of the new powers for FTZ licensed operators and cargo handlers.

SMEs will also need to understand the legal powers vested in FTZ authorities and their needs-based information-gathering procedures. As a vibrant trading hub, much of the work being done at the FTZs is round the clock, and SMEs may not have the scale to manage their lean workforce while balancing additional training needs.

Perhaps the Senior Minister of State can elaborate on the plans in place to assist our SMEs to help implement these changes.

The revised legislation also stands to benefit many businesses. The new amendment allows more delegation of authority by FTZ operators and cargo holders. This may benefit the SMEs as well as large businesses, as they can outsource certain tasks.

There is also a very clear list of what constitutes an offence under the Free Trade Zones (Amendment) Bill – what is permitted and prohibited, the gravity of each offence and also sentencing considerations.

The legislative changes also create a safer environment for new market players, as goods passing through Singapore’s FTZs will require stringent checks done by FTZ authorities.

Also, for SMEs aiming for a global presence, the free trade principles of this amendment will safeguard their operations and increase their brand presence internationally. This may also push them to adopt more digital technologies faster.

In conclusion, Sir, strong, well-managed FTZs are important to allow our country to remain competitive regionally and internationally. These amendments will reinforce the high standards of compliance that will not only maintain Singapore’s strong standing as a trade hub but also attract foreign investments that have confidence in our due diligence.

Sir, it is evident to me that these amendments will facilitate further development of our FTZs and, hence, I support this Bill.

Mr Speaker: Ms Mariam Jaafar.

2.39 pm

Ms Mariam Jaafar (Sembawang): Sir, FTZs are a core part of Singapore’s trade strategy, facilitating entrepot trade and transshipment and building on and reinforcing our international air and sea hub positioning.

FTZs have proliferated with speed in the past few decades and become an integral part of the global supply and value chains. Depending on your sources, there are now over 3,500 to over 5,000 FTZs in more than 135 countries around the world, boosting economic opportunities, foreign direct investments and job creation, in particular, by offering exemptions from duty and taxes and simplified administrative procedures and less regulations.

But the same characteristics that make FTZs attractive to legitimate businesses also attract abuse by illicit actors and there has been, for some time now, heightened concerns of FTZs being exploited for illicit trade, including weapons proliferation, as well as trade-based money laundering operations, tax evasion and terrorist financing.

Customs and the private sector have expressed the need for better Customs procedures and controls in FTZs, leading to the development of best practices, such as the Practical Guidance on Free Zones released by the World Customs Organization in 2020/2021.

As such, the update to the FTZ Act is timely. The proposed amendments have sought to align with international best practices, taking into account industry practices here and provide good clarity regarding regulations covering the control of the FTZs and the division of responsibilities of the various players, including Customs, the FTZ operators who will now be licensed, the FTZ cargo handlers and shipping agents.

This is key as the multiple actors involved in operating and governing the FTZ requires clarity about responsibilities and effective coordination, including information sharing. For instance, the requirement for advanced data submission by shipping agents to cargo handlers and, in turn, by cargo handlers and FTZ operators to Customs, will provide greater oversight of goods, persons and operations within the FTZs.

Licensed FTZ operators and cargo handlers are also obligated to report to Customs suspicious activities and goods in their possession, custody, charge or control that are brought or intended to be brought into Singapore or are manufactured in an FTZ and brought or intended to be brought into Singapore, in contravention of the Act or any other written law, akin to how the financial sector – as we spoke about a lot yesterday – is obligated to report suspicious transactions.

The amendments also establish the jurisdiction that the Government and Customs have to enforce controls and the penalty framework.

Lastly, better cooperation among all actors in and around the FTZ and internationally, including the provision for data sharing, will be a great help in combatting illicit activity. So, the amendments are all sound and I support them.

But I do have a few clarifications for the Senior Minister of State.

First, while there is a need to increase oversight and controls, there needs to be balance in ensuring that the controls do not create an overly onerous burden that affects the efficiency of our FTZs, which remain vital to our entrepot hub strategy.

Further, the best controls, if poorly implemented, will also affect the competitiveness of FTZs. This is especially true, given the diversity and volume of activities in our FTZs.

It is, therefore, important to take a risk-based approach and to leverage data, technology and IT integration.

I will say with conviction that FTZs will remain core to our overall trade and economic strategy, which will, for sure, change as globalisation changes – but trade is not going away.

I would like to ask the Senior Minister of State whether and how the revised FTZ regime increases our business costs and whether it will reduce the competitiveness of our FTZs, especially in the context of other countries raising their game. For example, China has recently moved to open its FTZs.

My second clarification has to do with the need for proportionate penalties and sanctions for anyone contravening the provisions of the Act. Is there an intent to review the provisions to see if the financial penalties, currently capped at $10,000, are adequate? Equally, it is important that any illicit actors caught are prosecuted to the fullest to deter others from exploiting our FTZs.

Thirdly, the root cause of poorly implemented controls and oversight is often the lack of awareness and understanding of FTZ-related risks and vulnerabilities at all levels, including on topics, such as trade-based money laundering. From the businesses in the FTZs to the relevant authorities and operators to financial institutions and banking regulators, this lack of understanding not only renders the zone vulnerable to illicit activity, but also impedes the ability to take a risk-based approach to management, enforcement and supervision efforts.

There is a need for a strong focus on adequate training programmes to ensure better understanding and identification of risks and an understanding of the requirements and processes under the new regime. What are the steps being taken to step up such training?

Finally, I would be also interested to hear the Senior Minister of State’s view on whether the proposed revisions to the FTZ regime will be sufficient to deal with the threats and vulnerabilities that we have identified. I am sure there are other measures being looked at that did not factor in these acts. What other preventive measures are being put in place to counter these threats? Notwithstanding the clarifications above, I support the Bill.

Mr Speaker: Mr Shawn Huang.

2.45 pm

Mr Shawn Huang Wei Zhong (Jurong): Mr Speaker, many countries have set up FTZs to boost business activity and reap the benefits of free trade. These zones have been instrumental in the evolution of trade for the integrated supply chains of the global economy.

According to an FIAS report, FTZs continue to benefit the country's economy. It has been proven that it is effective in generating employment, increasing the volume and diversity of exports, serving as an essential tool for attracting foreign direct investments and enhancing commercial linkages for export.

However, FTZs may also facilitate illegal and criminal activities, such as trade in counterfeit and pirated products.

FTZ is not a new concept. For centuries, governments have sought different ways to facilitate trade in their ports. One of the earliest was called free ports. These are designated areas open to commercial vessels where their cargo destined for re-export is exempt from customs duties.

Today, many FTZs are managed by private operators and regulated by Government authorities. A study concluded that the growth in private involvement in the FTZs has been beneficial, as privately-owned zones tend to offer better facilities and amenities and are more responsive to tenants' needs and provide a more comprehensive range of property management services.

However, we must be cognisant that lightly regulated zones are attractive to parties engaged in illegal and criminal activities. It is known that FTZs have facilitated trade in counterfeit and pirated products, as well as smuggling and money laundering. These areas have often provided bad actors with a relatively safe environment to carry out illicit activities.

As such, governments will need to control these zones adequately, especially those operated by private entities, as they are focused on expanding zone occupancy and providing profitable services to these businesses. There is also a need to establish a more direct interest, enhance law enforcement oversight and increase the capacity and authority in monitoring zone operations.

As most zones are operated via a hybrid and collaborative model between government and private parties, we need to further enhance and tighten the processes to ensure that it is strengthened against such exploitation.

FTZ cargo handlers play a critical role in the supply chain and FTZs. By regulating the FTZ cargo handlers to comply with the FTZ Act, we can further strengthen service standards, security and assist authorities in detaining goods for inspection and reporting goods that have contravened any written law. It is reasonable to screen any person who intends to operate in the FTZ, enhance the management of FTZ tenants and better manage sub-leasing premises in the FTZ.

As the volume of cargo that FTZ operators handle is immense, the authorities must be given accurate and timely cargo information. This is standard industry practice and will provide greater oversight of goods, persons and operations within the FTZ.

I have a few questions for the Senior Minister of State.

First, given the new FTZ requirements, how will this affect the overall business costs and competitiveness of our FTZs? What are the other areas that can be further improved to enhance the competitiveness of our FTZs?

Second, with the new data submission regime, what are the measures taken to ensure that the FTZ operators meet proper data management and cybersecurity requirements?

Third, given the evolving operating environment, how are the authorities updated on the latest threats?

In addition, given the collateral consequences of specific threats, what steps are taken to ensure that these threats do not enter Singapore in the first place? Mr Speaker, I support the Bill.

Mr Speaker: Mr Edward Chia.

2.50 pm

Mr Edward Chia Bing Hui (Holland-Bukit Timah): Mr Speaker, Sir, the Free Trade Zones (Amendment) Bill seeks to refine and strengthen the operations and oversight of our FTZs. Our FTZs are the lifeblood of our entrepot trade.

The Bill's primary goal to enhance the security, transparency and efficiency of our FTZs resonates deeply. By striving to remain up-to-date with international best practices and increasing the level of oversight in our FTZs, this Bill reflects Singapore's unwavering commitment to trade with integrity and enhance global cooperation. This Bill proactively addresses potential vulnerabilities.

Having said that, I would like to highlight four concerns.

The first is regarding the potential economic implications. Singapore has always been renowned for its competitive edge in global trade, with our FTZs being a testament to our strategic prowess. While the enhanced regulations for FTZ operators may streamline processes in the long term, the immediate implication for businesses is a possible rise in costs.

Specifically, the need to construct and maintain dedicated structures, ensure heightened security measures and provide a steady stream of data to Customs can be daunting, both logistically and financially.

The new regime also emphasises the importance of FTZ operators disseminating information on the FTZ Bill's requirements. While essential, it demands a significant administrative apparatus. This is an operational dimension where efficiency is paramount. There is a potential risk that businesses might grapple with not just costs, but also operational delays. This could result in significant opportunity costs.

Additionally, the introduction of the advanced data submission requirement is undoubtedly poised to offer greater oversight. But the pertinent question is: how will it impact the velocity of trade? Efficient trade necessitates swift decisions and rapid movements. Any delays could render our FTZs less attractive, especially when time-sensitive goods are involved. It is crucial that as we endeavour to make our trade zones more secure and compliant with international standards, we must ensure that these changes do not place an undue burden on our businesses, which could inadvertently stymie our growth.

Hence, how do we anticipate businesses absorbing these costs? Will the revised FTZ regime inadvertently increase business and operational time costs and, by doing so, diminish the competitiveness of our FTZs? Will the Government introduce fiscal support measures to enable businesses to adhere to this amendment Bill and improve competitiveness?

Secondly, I acknowledge the highlighted threats and risks, such as illicit trade and potential money laundering, that this Bill aims to mitigate. However, these threats are not novel. They have loomed over international trade for quite some time. So, what are the considerations for amending the FTZ Act only now?

Thirdly, a point I would like to delve deeper into is the proposed penalty framework within the Bill. A robust and effective regulatory system is defined not just by its preventive measures, but also by its punitive ones. Will this penalty framework employ a structured, tiered approach, with penalties corresponding to the severity of non-compliance? It is crucial for our businesses to have a clear understanding of the repercussions, ensuring they can operate with certainty. The clarity, fairness and consistency of this framework will be paramount in securing the trust and cooperation of businesses within the FTZs, also aiming to guide entities towards compliant behaviour.

Lastly, while the proposed revisions are a commendable step towards bolstering the security and efficiency of our FTZs, are these revisions comprehensive and robust enough to truly thwart the threats cited? And beyond these amendments, what are other preventive measures that we, as a nation, are putting in place to counter such threats? It is not just about reactive measures, but about building a proactive shield that safeguards our trade reputation, ensuring that Singapore remains a beacon of trade integrity.

To conclude, the Free Trade Zones (Amendment) Bill stands as a testament to Singapore's approach to trade. These queries hope to strike the right balance between safeguarding our trade zones from potential challenges and ensuring a thriving, business-friendly environment. Mr Speaker, Sir, I support this Bill.

Mr Speaker: Senior Minister of State Chee Hong Tat.

2.55 pm

Mr Chee Hong Tat: Mr Speaker, I would like to thank Members for their support of the Bill and for their suggestions.

Indeed, as hon Members have pointed out, facilitating trade is critical to Singapore's survival as a small and open economy and our FTZs play an important role in supporting this. It is why we are making the amendments in this Bill. They will keep our regime updated and responsive to the evolving threats, so that we remain a trusted and competitive trading hub.

Members raised questions around four themes: one, whether the proposed amendments are necessary and adequate to deal with evolving threats faced by our FTZs; two, whether the revised FTZ regime will affect business costs, lead to operational delays in cargo flows and affect our overall competitiveness; three, the accuracy of and safeguards around the data collected; and four, how FTZ operators are licensed and regulated.

Sir, I will address them in turn.

First, on the adequacy of the legislative amendments to combat and prevent illegitimate trade, as raised by Mr Shawn Huang, Mr Edward Chia, Ms Mariam Jaafar and Assoc Prof Jamus Lim.

Enhancing our FTZ regime is a constant endeavour. Even as we enhance the regulatory regime with this Bill, we must expect criminals to find new ways to circumvent the rules. We have to remain vigilant and continuously strengthen our regulatory framework to detect and deter illicit trade.

Customs will continue to review the adequacy of its regulations, take action to address gaps and ensure that we have a robust regime in place.

Not every enhancement to our regulatory regime requires legislative amendments. Some can be operational in nature, for instance, improving sense-making and detection capabilities and stepping up enforcement efforts, which are what Singapore Customs has been doing over the years.

For example, Singapore Customs develops and refines risk profiles and indicators on an ongoing basis to more accurately identify suspicious goods before they enter Singapore. Red flags are already made known to industry partners today, both through Singapore Customs' website and through direct engagements. We will continue to do this.

In recent years, Singapore Customs has also started using data analytics and artificial intelligence to improve its targeting and enforcement efforts.

In addition, Singapore Customs maintains strong partnerships with our other enforcement agencies and international counterparts and organisations, including the World Customs Organization, to share intelligence and best practices. Such capability-building and international partnerships supplement our legislation and enforcement framework, forming a multi-pronged approach to detecting and deterring illicit activities within our FTZs.

Mr Saktiandi Supaat and Mr Edward Chia asked why we are amending the Act now.

Sir, we need to keep our regulatory regime updated, as the risk of illicit trade grows and criminals become more sophisticated. Stronger levers will supplement Customs' broader efforts that I have just described, to build a trusted and competitive trade facilitation regime.

Let me now address the second theme that Members have raised: the impact of the revised regime on business costs, operational efficiency and our overall competitiveness.

The proposed amendments seek to strike the right balance between better governance and preserving our pro-business environment.

Most of the new requirements introduced in the Bill are practices currently performed by the FTZ authorities, such as ensuring the security of the FTZ and reporting any goods that contravene the law. The proposed amendments seek to consolidate, standardise and codify these requirements under the FTZ Act, to ensure consistent implementation across FTZs and a more robust regulatory regime.

We do not expect the new data submission requirements to be disruptive to trade. This is because the additional data that we are requesting from cargo agents are existing fields in the bill of lading and airway bill. They are standard information already provided today for the voyage and transport of goods. The submission timelines under the FTZ regime are also aligned with current industry norms. We will facilitate transmission of the data collected by the cargo agents to Customs via existing systems where possible.

In proposing these amendments, we have consulted key industry stakeholders to ensure that these changes are designed and implemented in such a way to minimise the cost and compliance burden for companies, including our SMEs. Implementation of the provisions under the revised Act will be phased in from early 2024. As part of this, clauses 25 and 27 of the Bill provide for a six-month transitional period to allow companies time to adjust.

Let me now move on to the third theme, which relates to the collection and safeguarding of cargo data.

The proposed amendments will empower Singapore Customs to collect specified cargo data in advance of vessel arrival in Singapore. This will strengthen the ability of Customs to detect suspicious goods prior to their entry into Singapore and facilitate the conduct of timely interventions by our public agencies.

Mr Yip Hon Weng asked how we can ensure that the data provided is accurate. Indeed, criminals will not declare accurate data about their illegal goods. This is where Singapore Customs’ sense-making and intelligence capabilities come into play – to detect discrepancies in the data submitted to pick out suspicious shipments and perform additional checks.

Mr Yip and Mr Huang also asked how the data collected would be treated and managed, including cybersecurity requirements and other safeguards. The transmission of cargo data to Singapore Customs will need to abide by the data management and cybersecurity standards set by the Government, such as those under the Cybersecurity Act. All cargo data collected by Customs will be subject to the data confidentiality provisions in the new section 16A of the FTZ Act, which are consistent with our other laws pertaining to data protection and secrecy.

In short, data collected cannot be disclosed without prior written consent of the related parties. This also applies to requests by foreign law enforcement authorities. Exceptions pertain only for specific circumstances, for example, to enable officers of Customs to investigate suspected offences, or to enable our public agencies to collect, compile and analyse such data for the purposes of national security.

The fourth and final theme relates to the proposed licensing regime for the FTZ operators, the new powers granted to the DG and officers of Customs, and the Government’s approach to enforcement.

Mr Saktiandi asked if the powers granted to the officers of Customs are new and, if so, how Customs officers are empowered to carry out enforcement in the past. Currently, officers of Customs carry out inspections and enforcement within our FTZs by drawing on the powers granted to them under the Customs Act (CA) and the Regulation of Imports and Exports Act (RIEA). The proposed amendments will help to set out and clarify powers that relate specifically to FTZs and consolidate these under the FTZ Act.

Mr Yip and Mr Saktiandi sought clarifications about the proposed licensing regime and provisions for revocation or appeals where necessary. To qualify for an FTZ operator licence, the entity will need to demonstrate its ability to effectively operate an FTZ. Singapore Customs will also take other relevant considerations into account, such as whether the entity has obtained the necessary approvals from other Government agencies, for example, from the Civil Aviation Authority of Singapore or the Maritime and Port Authority.

The FTZ operator licence will be valid for five years, after which, it can be renewed. This is a key lever for Singapore Customs, the FTZ regulator, to ensure that licence holders meet the required standards for the proper and efficient functioning of the FTZ. I wish to assure Mr Saktiandi that licence fees will be reasonable and will not impose a significant cost burden on the FTZ operators.

Licensees who wilfully and repeatedly fail to comply with the licensing conditions or provisions of the FTZ Act may have their licence suspended or revoked. Other instances of non-compliance may attract penalties, such as fines, imprisonment, or both. The penalty imposed will depend on the specific offence and will be tiered according to the severity of the offence.

To Mr Yip’s question on whether there will be an avenue of appeal, the short answer is yes. Appeals against any penalties imposed are provided for in section 18 of the FTZ Act. The appellant could appeal to the DG. If the appellant is aggrieved by the DG’s decision, he or she may appeal to the Minister.

Mr Speaker, I wish to address one point that Assoc Prof Jamus Lim raised during his speech, where he gave an academic description of globalisation and the impact on supply chains. Sir, I do not agree with the way he has characterised how global trade will change. We recognise that there is a change in global supply chains, the reconfiguration of the global supply chains and trade flows. That part is obvious and that part we agree. But what I do not fully agree with Assoc Prof Lim is that because of these changes, trade flows will no longer be important, global trade will no longer be important and, therefore, FTZs will no longer be important.

I think that is not quite in line with what we have seen, based on industry feedback, and also if we hear the speeches from the other Members in this House, including those with practical business experience, that is not what they are saying. They believe that FTZs continue to play an important role in supporting our position as a trade hub. And when we look at PSA's container volumes this year compared to last year, it is not going down. In fact, this year, our container volumes for PSA continues to grow.

That is why we need to invest for the future. We are putting in resources, building Tuas Port and expanding our container handling capacity. We are building T5 at Changi Airport and getting ready to be able to handle more passengers and more cargo.

All this is because we know that even though globalisation may affect global supply chains, the world still needs trade. If we position ourselves as a trusted competitive trade hub, we can still capture a slice of the pie.

I also wish to clarify one example that Assoc Prof Jamus Lim mentioned in his speech – Le Freeport. He gave this as an example of how lack of compliance would affect its status as an FTZ. Sir, I wish to clarify that Le Freeport, despite its name, is not an FTZ. It is a high-security warehouse facility located near Changi Airport that is modelled after similar institutions in Geneva and Luxembourg. Le Freeport Singapore offers climate-controlled storage solutions for both businesses and individuals, enabling storage of valuable assets, such as art, wine and precious metals. But it is not an FTZ.

Mr Speaker, let me conclude. Our trade facilitation regime today is highly competitive. The World Bank’s Logistics Performance Index (2023), which ranks countries’ performance on trade logistics, placed Singapore first in almost all categories, including customs and border management, trade-related infrastructure and timeliness of shipments. This is not a given. Maintaining our status as a trusted hub for global trade takes constant, proactive effort by our agencies, with support from our tripartite partners. Our industry, our unions, our workers, everyone has been working very hard to contribute to this outcome.

This Bill is part of that effort. The proposed amendments seek to enhance the regulation and control of goods that flow through our FTZs. They will strengthen Customs’ ability to detect and deter illegal actors from misusing our FTZs, while maintaining a business-friendly operating environment that minimises compliance cost and facilitates efficient transshipment of goods.

Today, we seek to formalise these amendments into law and, in doing so, put Singapore on a stronger footing to combat illicit trade and remain a critical node in global trade flows. This will help Singapore to safeguard our position as a global trade hub in the years ahead. Mr Speaker, I beg to move.

Mr Speaker: Clarifications for the Senior Minister of State? Assoc Prof Jamus Lim.

3.11 pm

Assoc Prof Jamus Jerome Lim: Thank you, Speaker. Sir, let me clarify two points. One has to do with Le Freeport. Just to be clear, and I am willing to stand corrected, but based on what I have checked, Le Freeport is located within a duty-free zone that is in the Changi Airport Logistics Hub. And I believe that the Changi Airport Logistics Hub is one of the nine free trade zones that are within Singapore. Again, I am willing to stand corrected on this.

On the second matter, the Senior Minister of State has stated that free trade remains an important part of our future economy and he cited a number that is based on the fact that our ports have, in fact, had a record volume of flows. This is heartening and I do not wish to convey the impression that I think that trade is unimportant. The point that I was trying to make was, firstly, unless the Senior Minister of State wishes to correct this point, unless he challenges the fact that trade, merchandise trade, as a share of global GDP has stagnated for about 15 years, the reality is that we have reached a kind of a peak in terms of the amount of trade relative to GDP. This does not mean that trade will not continue to grow as GDP grows. Trade will continue to grow.

But I think the point I was trying to make is that the future of free trade zones is not a growth industry, but rather one that is a mature industry and where we should focus on is much more on other areas, such as information flows.

Mr Chee Hong Tat: Mr Speaker, I think, first, we have to get our facts correct. Le Freeport is not a free trade zone. It is not a free trade zone. I hope that clears up what is factually true and what is factually not true.

Second, this point about whether FTZs are going to be an area of growth or a mature sector, I think that is perhaps an area where we could agree to disagree. Assoc Prof Lim may have his opinion, I would have my opinion. We may not agree, but I respect that he has a different view.

I do not agree, Sir, with the characterisation that we no longer need FTZs or that trade is no longer going to be important to Singapore, for two reasons. First, as I explained in my earlier response, the world is going through a reconfiguration of supply chains. That part we agree. Globalisation is not going to proceed in the same way as what it has been in the past few decades.

However, the world still needs to trade. Cargo still needs to flow. There will still be supply chains. It is just that the supply chains will be configured differently.

The key for us is not whether trade is important or not important. The key for us is, if this is going to continue, how do we then adjust our strategy and prepare ourselves to be ready to tap on this new landscape so that if the trade flows reconfigure, can Singapore still remain a key node in global supply chains? This would then have an impact on whether in Singapore, this would be a growth area or this would be a stagnant area. That is how I view it.

So, how do we prepare ourselves, Sir? By investing for the future. I think the hardware part is clear: we need the capacity, T5, Tuas Port. I mentioned this. But even more important than the hardware, we need the operating systems, we need the workers to be ready, we need the workers to be trained. This is the part where Singapore is also able to, because of our strong tripartite partnership, build a strong, competitive ecosystem that will allow us to differentiate ourselves from the competitors.

So, if you look at COVID-19, where many airports and ports were disrupted, we kept our airport and ports open. We allowed supply chains to continue, we supported global supply chains to continue. In fact, Singapore was used as a catch-up port by many of the shipping lines. Now that COVID-19 is behind us, this trusted reputation that we have built up during the crisis is now paying some dividends. People are now looking at Singapore and saying that "this is a place that we can rely on, this is a trusted hub".

So, I see what we are doing here – the FTZ Bill – as an enhancement of that strategy because we are cautiously optimistic about the future of trade in Singapore and the importance of connectivity to our economy.

3.16 pm

Mr Speaker: Any other clarifications for the Senior Minister of State? None.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. – [Mr Chee Hong Tat].

Bill considered in Committee; reported without amendment; read a Third time and passed.