Confirming this, director-general of foreign trade NL Lakhanpal has allayed fears expressed by the confederation of (hundred per cent) export units that the tax holiday facility may be withdrawn once the EPZs are converted into FTZs as envisaged in the revised export- and-import policy.

Lakhanpal has also clarified that the initial opposition from some of the units in the EPZs against the change-over had been overcome after reasoning with them about the main purpose behind the move--giving them total `operational freedom'.

However, to begin with, three EPZs--Kandla, SEEPZ and Noida--will be converted into FTZs. The remaining four at Kochi, Chennai, Visakhapatnam and at Falta will be taken up later, according to the latest indications.

Lakhanpalsaid, as per the revised Exim policy, FTZs can undertake either manufacturing or trading activity. The latter can include sub-assembly or value addition.

He explained that FTZs will necessarily have to export as they will find the domestic market hard to sell because of the prohibitive duties. For their own survival and to boost the country's export growth, they will have to find markets abroad for absorbing 50 per cent of their production, he said.

FTZs can sell the remaining half in the domestic tariff area (DTA) but that will attract full customs duties as prevailing in free zones in the UAE, he stated.

DGFT said in order to enable them to make a big dent in the global market, FTZs will be freed from fulfilling the prescribed export obligation, value addition and standard input-output norms.

Earlier, EPZs were committed to export 70 per cent of their production value by adhering to the above norms, but were allowed to sell 30 per cent of their products in the DTA. The DTA sale included `rejects' upto a maximum of five per cent.

He said the Indian labour laws will apply to FTZs, through the commerce ministry's ultimate objective is to make these laws inapplicable. The practice the world over is to exempt FTZs from the purview of labour laws.

The customs department has agreed to exempt FTZs from all the rules and regulations. The role of the department officials will be confined to working outside the units, giving them full operational flexibility as proposed in the policy.