FORWORD

by

Dr. André E. A. M. Thomashausen

Professor of Law: University of South Africa (Unisa)
Director: Institute of Foreign and Comparative Law (Unisa)

It is with particular joy and pride that I am formulating this brief forword to INTERNATIONAL
TAX-FREE TRADE ZONES AND FREE PORTS by Dr. Christian Schulze. The book is proof
of academic excellence, and everything I could have wished for, as the mentor for seven years, of
Christian Schulze, and to complete my own 15 years of service at the Institute of Foreign and
Comparative Law of the University of South Africa.
The publication is dedicated to a particularly topical issue: what instruments and international legal
precedents can South Africa employ to achieve a much desired increase in trade, foreign investment
and development generally. Especially since South Africa’s liberation from its racist rule, the pursuit
of new answers to its developmental challenges has come to the fore.
For the past three years, since the first free and general elections in 1994, the media have not
ceased to report South Africa’s difficulties in achieving an improved standing as an emerging
industrial nation. Sadly, five negative world-wide records have been documented again and again:
South Africa today is the country with the relative highest rate of violent crimes in the World and
the relative highest levels of direct taxation, as well as the relative lowest indicators of productivity
(with only Russia doing even worse), the lowest average maths and science scores and the lowest
economic freedom ranking amongst 40 and 60 top industrial and semi-industrial nations,
respectively.
Common sense, confirmed by any unbiased analysis, confirms that this state of the nation took
a long time coming, and is in fact the inevitable result of decades of self-inflicted economic,
intellectual, academic and cultural incest and isolation. And honest observers concedes that the true
ground for the present explosion of crime in South Africa was laid by decades during which the legal
system and its institutions were degraded and allowed to degenerate into instruments of injustice and
Machiavellian politics of power, repression and the most ruthless forms of violence.
The new beginning is probably most difficult to achieve for the South Africa’s economy. Frank
Savage of the New York based Alliance Capital Management International described it not long ago

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as "an apartheid command economy which makes it difficult for foreign investors to operate". Just
like the legal system was subverted to the point where the country fell into lawlessness, once the
brutal regime of repression and government by force were removed, so was the economy thought
to disrespect good faith, common rules and good trade practices. To sustain the old apartheid
government, every kind of industrial espionage, theft of intellectual property, unfair competition,
extortion and subversion were not only condoned, but highly rewarded. As a result, the new South
Africa has inherited an excessively large number of managers and administrators of the “economic
sector” that are as ineffective as they are unsavoury and internationally unacceptable. Their lifeblood
are price controls imposed by private and public monopolies, customs barriers and import and
export controls to protect mismanaged and ineffective industries, restraints on local borrowing for
foreign investors, and, most importantly: foreign exchange controls.
The South African foreign exchange controls rely on a general prohibition for all nationals and
residents to own or hold or deal in any foreign currency, except whenever so permitted in the
individual case and on the basis of regulations which are kept secret and remain inaccessible to those
who become their victims. This of course is a formidable tool to enslave a national economy. Those
companies that do not suffer delays in obtaining the necessary foreign exchange for their trading will
prosper, and those who will mysteriously and in vain struggle for weeks on end to get foreign
exchange approval for whatsoever legitimate purpose, will eventually perish. As a result, probable
every single person in South Africa that is economically active beyond this country’s borders was
eventually forced to become a criminal in the eyes of the Reserve Bank, thus risking forever onwards
to have to succumb to extortion and to be unable to enforce legitimate claims in an open court of
law, where the foreign currency “crime” might be revealed by the opposing side.
Fair estimates place the total amount of South African capital that has left the country to seek
shelter from foreign exchange prosecutions as well as currency devaluation and tax, in the region
of 30 billion US dollar. This adds a particularly distressing sixth negative world record to the ones
named at the outset. South Africa has been for the past decade the relatively largest exporter of
capital in the world. This amount is equalled probably only by the enormous sums employed over
decades in the fighting of senseless wars of aggressions in Southern Africa, and in the development
of “autonomy industries”, such as Armscor, SASOL and Mossgas.
Whenever an entire body (in this case the South African economy) is infected by one or even
several eventually lethal infections, the cure must concentrate on isolating single areas or functions
first. It is impossible to reverse the decades and the many different negative developments all at
once. A selective and carefully dosed reform policy will have to concentrate on what is pragmatically
and realistically possible and attainable, without risking, for instance, the collapse of entire industries.

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 What then could be better indicated than to limit certain necessary reforms and liberalisations to
a specific and easily controlled physical area? Because this is exactly what a Free Port (FP) or a Free
Trade Zone (FPZ) or Free Industrial Zone (FIZ) is designed to do.
Instead of lifting foreign exchange controls generally and for the country as a whole, they could
be lifted for certain specific operations in a determined Free Port area or Free Trade Zone only.
Instead of allowing any foreign banks to enter the South African market and compete freely, they
could be allowed offer offshore banking facilities, together with South African banks, in a
demarcated Free Trade Zone only, for those businesses qualifying to operate within and from within
such a zone. Or instead of dreaming to abolish all customs barriers for the country as a whole
(which it will probably never be possible to do), tariffs would be suspended for the determined area
and operations of one or more Free Ports only.
The same approach or thinking can be applied to any other current constraint or impasse of the
South African economy, ranging from the limitations on local borrowing by foreign investors to the
question of a general or partial amnesty for past foreign exchange control contraventions. After all,
if individuals who rather went into exile, are afforded the moral highground, so should capital that
was disinvested and thereby withdrawn from the claws of the apartheid era Reserve Bank and the
apartheid tax man. In order to repatriate that capital, an amnesty is required, as well as the creation
of a “comfort zone”, offering at least slightly better conditions and advantages than those prevailing
wherever that capital is presently situated. Such a comfort zone can most easily be offered within
the terms and conditions of a Free Port, a Free Trade Zone, or a Free Industrial Zone.
Likewise, other shortcomings could be addressed on a limited scale in the special zone first, for
instance privatized and effective policing services, privatised and internationally competitive higher
education, or alternative judicial structures to resolve international commercial disputes in such a
manner that contracting parties would actually seek to make their relationship subject to that law,
rather than to try everything to exclude the risk of an application of South African law to their
eventual disputes.
His Excellency Prime Minister Goh Chok Tong of Singapore suggested in February this year in
Stellenbosch that South Africa must see its future as a “hub” for Africa. The starting point must be
determined soon. Just as China needed and will continue to need the economic freedom and the vast
range of services and international expertise and networking that was attracted to Hong Kong, so
will Africa need an African Hong Kong. Whether this role will be shared between several South
African ports, or end up being concentrated in Cape Town, cannot be predicted, What matters is
that the debate about the advantages, conditions and circumstances of a deliberate acceleration of
economic liberalisation and development within a specific targeted area or zone must now begin.

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 This is the topic of this study and the initiative taken by Unisa’s Institute of Foreign and
Comparative Law, to once again anticipate an important national debate. It continues a proud
tradition of IFCOL from the eighties, when the Institute started in 1984 a nation-wide debate on
the legal implications of inflation, at a time when most would have laughed at the proposition that
inflation had come to stay, and to profoundly affect the lives of everyone. In 1986, IFCOL started
together with the Herbert Quandt Foundation of the BMW motorcar company its 6-year long
research and community teaching programme entitled Development Law Strategies. In 1991, whilst
the liberation movements were still banned and their leaders jailed, this project culminated with
IFCOL’s Conference on Negotiations, and in 1992 with an equally important Conference on
Constitutional Transition.
It is my sincere hope and wish that this present study on INTERNATIONAL TAX-FREE
TRADE ZONES AND FREE PORTS will be as successful in stimulating and guiding the debate
on how to take South Africa’s economy into the next millennium, so as to ensure that it will indeed
by the Millennium of Africa.

Pretoria April 1997

André Thomashausen

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