B. Detailed description of the elements of the statistical territory
6.5. Free circulation area. The concept of free circulation area is used by the RKC in the context of the definition of “clearance for home use”. “Clearance for home use” is defined as “the Customs procedure which provides that imported goods enter into free circulation in the Customs territory upon the payment of any import duties and taxes chargeable and the accomplishment of all the necessary Customs formalities”. Goods in free circulation may be disposed of without Customs restriction.
6.6. Islands. Islands are generally defined as any piece of subcontinental land that is surrounded by water. Very small islands such as emergent land features on atolls can be called islets, cays or keys. A grouping of geographically or geologically related islands is called an archipelago. Continental islands are bodies of land that lie on the continental shelf of a continent. Oceanic islands are islands that do not sit on continental shelves. An island can be also a land surrounded by water in a river or lake.
6.7. Territorial waters. In general, the term “territorial waters” is understood to have the same meaning as the term “territorial sea” which is used in the 1982 United Nations Convention on the Law of the Sea. This term refers to the water area over which the sovereignty of a coastal state extends and is internationally recognized (see box VI.1 for details). However, in the statistical practice of some countries the term “territorial waters” may be used in a different or broader sense. It is advisable for countries to use terminology and definitions provided by the Convention as much as possible when referring to different territorial elements of their country that are relevant for their trade statistics and provide the detailed national definition of those elements in their trade statistics metadata. Further, it is good practice for countries to make clear whether a zone contiguous to its territorial sea, such as an exclusive economic zone, the continental shelf or any parts thereof, are included in its statistical territory (see box VI.1 for the definition of these terms). It is further advised that trade statistics compilers consult on this matter with appropriate legal authorities of their country, as well as with the SNA and BOP compilers, for necessary details and clarifications.
6.8. Offshore and outer space installations and apparatus. Offshore installations in the IMTS 2010 context refer to any installation or apparatus, mobile or not, located outside the geographical territory of a country, under economic ownership of the country’s resident(s) and remaining under the country’s jurisdiction. Examples are drilling rigs in international waters for the purposes of oil and gas production. However, if the offshore installation operates in the economic territory of another country for more than one year and is treated as the resident unit of that country in accordance with the System of National Accounts 2008 (2008 SNA), then that installation belongs to the economic and statistical territory of that other country (if that country applies the general trade system). However, if an installation periodically moves in and out of that economic territory, it can be treated in the same way as ships and seen as a part of the statistical territory of the country where the economic owner resides. In all such cases, it is advisable for the countries concerned to agree on a common treatment of such installations that is both operational and practical.
6.9. Outer space installations and apparatus. These are objects launched into outer space by countries and are subject to international law. Outer space is conventionally defined as space located at an altitude of 100 kilometres above sea level. The framework for international space law was established by the Outer Space Treaty, which was commended by the General Assembly of United Nations and in its resolutions 2222 (XXI) of 19 December 1966 entered into force in 1967. However, “Outer space, including the Moon and other celestial bodies, is not subject to national appropriation by claim of sovereignty, by means of use or occupation, or by any other means”(article II). For the purposes of trade statistics, the launched space object is treated as belonging to the statistical territory of the country of residency of the economic owner, irrespective which of country carried out the launch.
6.10. Commercial free zones. The term “free zone” (or “customs free zone”) means a part of the territory of a State where any goods introduced are generally regarded, insofar as import duties and taxes are concerned, as being outside the customs territory. Referring to two kinds of authorized operations specified in the RKC, a distinction may be made between commercial and industrial free zones. For IMTS purposes, a commercial free zone is a zone where goods, if admitted, “shall be allowed to undergo operations necessary for their preservation and usual forms of handling to improve their packaging or marketable quality or to prepare them for shipment, such as breaking bulk, grouping of packages, sorting and grading, and repacking”.
6.11. Industrial free zones. If the competent authorities allow processing or manufacturing operations in a free zone and specify the processing or manufacturing operations to which goods may be subjected in general terms and/or in detail in a regulation applicable throughout the free zone, or in the authority granted to the enterprise carrying out these operations, such a zone is referred to as an industrial free zone.
6.12. Various forms of free zones. It should be noted that customs free zones exist, inter alia, in such forms as investment promotion zones, export processing zones, foreign trade zones, commercial free zones and industrial free zones. In some cases, these zones are not delineated geographically but may involve only a different tax, subsidy or customs treatment of certain operations carried out by enterprises. A large and growing number of customs free zones are onshore manufacturing enclaves which have been created to attract foreign direct investment (FDI), stimulate local industry and provide employment to the local labour force. The legal status of these zones ranges from extraterritorial, whereby they are exempt from all customs laws, to one entailing varying degrees of customs control.
6.13. Customs warehouses. A customs warehouse is a designated place where goods can be stored under the “customs warehousing procedure”. Usually, these goods are imported goods which are brought into the country under that procedure and are stored under customs control without payment of import duties and taxes. However, in some cases, domestic goods intended for export can be stored in such warehouses as well. Warehoused goods can undergo usual forms of handling to improve their packaging or marketable quality or to prepare them for shipment, such as breaking bulk, grouping of packages, sorting and grading and repacking. They can provide specialized storage services such as deep freeze or bulk liquid storage. However, operations that may change the essential character of the goods are not normally allowed. After allowed operations have been performed, and within the warehousing period, the goods may be exported without the payment of duties, or they may be withdrawn for consumption upon payment of duties at the rate applicable to the goods in their manipulated condition at the time of withdrawal.
6.14. Premises for inward processing. Inward processing is defined by the RKC as “the Customs procedure under which certain goods can be brought into a Customs territory conditionally relieved from payment of import duties and taxes, on the basis that such goods are intended for manufacturing, processing or repair and subsequent exportation.” It should be noted that inward processing shall not be limited to goods imported directly from abroad, but shall also be granted for goods already placed under another customs procedure. The Convention does not require that inward processing be carried out in premises or areas especially approved by customs. Such processing can be carried out in any suitable premises provided that other conditions for inward processing are complied with. Therefore, this element of the statistical territory should be defined not only in terms of geographical location, but also functionally, at the enterprise level, as applicable. However, country customs practices may differ and certain inward processing might be limited to specific locations.
6.15. Territorial enclaves and exclaves. For the purposes of IMTS 2010, enclaves are defined as clearly demarcated land areas (such as embassies, consulates, military bases, scientific stations, information or immigration offices, aid agencies, central bank representative offices with diplomatic immunity, etc.) physically located in other territories and used by Governments that own or rent them for diplomatic, military, scientific or other purposes with the formal agreement of Governments of the territories where the land areas are physically located. An enclave of a given country is an exclave from the perspective of the country where that enclave is located. In certain cases, movements of goods between the host country and enclaves of other countries located on its territory might be significant. All such movements are out of scope of international merchandise trade statistics (see IMTS 2010, para. 1.49 (c)).
6.16. Overseas territories. Some countries exercise political and administrative control over certain territories outside of their own national boundary. Such territories might be considered separate statistical territories or part of the statistical territory of the mainland country.
6.17. Special case: duty-free shops. In many countries, travellers are allowed to buy certain goods such a cigarettes, alcohol, jewellery, etc., at certain locations at airports, on ships and aircraft or at borders, etc., without payment of duties and/or with a refund of all applicable taxes. Duty-free shops at airports and borders are part of the economic territory of a country. The same applies to aircraft and ships if the economic owner is a resident of the country. Following the applicable recommendations of IMTS 2010 on scope of trade statistics, goods acquired from abroad for sale at duty-free shops should be included in imports. The statistical treatment of goods sold at such shops is more complicated, as they may be sold to both residents and non- residents and for use in the compiling country as well as in other countries. Trade compilers are advised to cooperate with the BOP and SNA compilers with a view to adopting a consistent statistical treatment of goods sold at such shops.
 See RKC, Specific Annex B, chap. 1, E1/F2.
 See chap. II for information on the customs procedures defined in the RKC.
 The relevant part of the Convention in this regard is available from .un.org/Depts/los/convention_agreements/texts/unclos/part2.htm.
 United Nations publication, Sales No. E.08.XVII.29.
 Offshoring understood as the movement of a business process to another country has per se no relationship with Offshore and outer space installations and apparatus.
 The Outer Space Treaty (formally the Treaty on Principles Governing the Activities of States in the Exploration and Use of Outer Space, including the Moon and Other Celestial Bodies,) forms the basis of international space law. The treaty entered into force on 10 October 1967. See United Nations, Treaty Series, vol. 610, No.8843.
 See the RKC, Specific Annex D, Chapter 2, E1/F1.
 IMTS 2010 retains the terms “commercial free zone” and “industrial free zone” which were used in the original Kyoto Convention and which continue (as well as similar terms) to be applied in the commercial and legal practice of many countries. The RKC retains only the description of the allowed operations without referring to the zones where they might be used.
 RKC, Specific Annex D, Chapter 2, para. 11.
 Ibid, para. 12.
 See the RKC, Specific Annex D, Chapter 1/ E1.
 For example, according to customs regulation in China, a “customs warehouse for export goods” is a specific customs warehouse for storage of domestic goods intended for exportation when the customs procedure for exportation is completed.
 See the RKC, Special Annex F, Chapter 1, E3./F2.
 In China, such processing can be carried out either in the specific customs control areas, such as export processing zones, or outside of such areas, in processing factories or other premises approved by customs.
 For example, French overseas departments and territories (Guadeloupe, Martinique, French Guiana, Réunion) are treated as part of the French statistical territory while most British overseas territories are treated as separate statistical territories (e.g., Anguilla, Bermuda, Cayman Islands, Montserrat, etc.). For details, see Statistical Territories of the World for Use in International Merchandise Trade Statistics, Studies in Methods, Series M, No. 30 Rev. 3 (United Nations publication, Sales No. E.01. XVII.8). Available from http://unstats.un.org/unsd/trade/stat_terr_e.pdf.