Free Trade Zones & Bonded Warehouses

Essay by MakuntaUniversity, Bachelor's April 2007

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Free Trade Zone (FTZ):Definition:A Free Trade Zone is an area of a country, a federation of countries or parts of them, where tariffs, trade barriers or quotas are eliminated and bureaucratic requirements are lowered in order to attract (foreign) companies by raising the incentives for doing business here, such as tariff preferences, cheap labour force, completed infrastructure, tax exemption and the political stability of a FTZ.

Often laws like environmental laws or labour laws are suspended as well.

Most FTZs are located in developing countries. China is here one of the pre-dominant examples. They are special zones where (some) normal trade barriers such as import or export tariffs do not apply, bureaucracy is typically minimized by outsourcing it to the FTZ operator and corporations setting up in the zone may be given tax breaks as an additional incentive. Usually, these zones are set up in underdeveloped parts of the host country, the rationale being that the zones will attract employers and thus reduce poverty and unemployment and stimulate the area's economy.

These zones are often used by multinational corporations to set up factories to produce goods (such as clothing or shoes).

Because there ar no taxes as long as you stay inside the zone, a FTZ can be a good place to store goods temporarily in between shipments. It can also be a good place especially if those products to manufacture products such as toys or clothing, are made from raw materials that come from many different places.

In a FTZ as a federation, in contrast to a tariff union, each member keeps different tariffs towards third-party-nations. Goods from those countries must also be declared if shifted between member-countries. Therefore border controls are still necessary.

Examples of FTZ:•AFTA - ASEAN Free Trade Area•CARICOM - Caribbean Community and Common Market•CER -...