What is a Free Trade Zone?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 27 April 2020
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A free trade zone (FTZ) is a geographical location that allows goods to be imported without the need to incur various types of import duties and related taxes. Sometimes referred to as a free trade area or a duty-free zone, there are a number of shipping ports and airports around the world that carry this designation. In these zones, the goods in question may be placed into temporary storage, put on display, or even used in manufacturing without the assessment of duties. Often, the goods may remain in the free trade zone for some time, and then allows to be exported out of the country without the need to tender any type of duties.

In some areas of the world, a free trade zone is also known as an export processing zone. The idea is to make the use of the airport or shipping port attractive to businesses that sell goods on an international scale. By providing a port that does not require the tendering of tariffs or duties, the hope is that more international corporations will make use of these zones, a move that helps to stimulate the local economy in terms of job creation while also increasing the amount of taxes collected from transportation companies that choose to make use of those ports.

Not all types of goods may enjoy the benefits of a free trade zone. Most of the zones do have some restrictions in terms of the types of products that may be received into the ports and enjoy duty-free status. In addition, while no duties may be assessed on the products during their sojourn in the zone, that does not mean that shippers may not have to pay storage and similar fees related to the use of the facilities located within the zone.

While there are exceptions, it is not unusual for a free trade zone to be established in an area that is considered somewhat undeveloped in terms of economic growth. This means that a nation may choose to identify a seaport or an airport that is somewhat remote from the larger cities and develop that port into a free trade zone. In return for making use of those zones rather than shipping directly into other ports of call, governments normally provide some sort of incentive to companies that do use the free trade zone. Measures of this type can often help to stabilize the economy in the local area, provide additional jobs for local residents, and generally help the area to slowly develop economically.

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