Free trade zone

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A free trade zone (FTZ) or export processing zone (EPZ) is an area of a country where some normal trade barriers such as tariffs and quotas are eliminated and bureaucratic requirements are lowered in hopes of attracting new business and foreign investments. It is a region where a group of countries has agreed to reduce or eliminate trade barriers.^[1] Free trade zones can be defined as labor intensive manufacturing centers that involve the import of raw materials or components and the export of factory products.

Most FTZs are located in developing countries: China, the Philippines, Malaysia, Pakistan, Mexico, Costa Rica, Honduras, and Madagascar have EPZ programs.^[2] In 1997, 93 countries had set up export processing zones (EPZs) employing 22.5 million people, and five years later, in 2003, EPZs in 116 countries employed 43 million people.^[2]

Corporations setting up in a zone may be given tax breaks as an incentive. Usually, these zones are set up in underdeveloped parts of the host country; the rationale is 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).

Free trade zones in Latin America date back to the early decades of the 20th century. The first free trade regulations in this region were enacted in Argentina and Uruguay in the 1920s. However, the rapid development of free trade zones across the region dates from the late 1960s and the early 1970s.

Free Trade Zones are also known as Special Economic Zones in some countries. Special Economic Zones (SEZs) have been established in many countries as testing grounds for the implementation of liberal market economy principles. SEZs are viewed as instruments to enhance the acceptability and the credibility of the transformation policies and to attract domestic and foreign investment.

In 1999, there were 43 million people working in about 3000 FTZs spanning 116 countries producing clothes, shoes, sneakers, electronics, and toys. The basic objectives of EPZs are to enhance foreign exchange earnings, develop export-oriented industries and to generate employment opportunities.

Criticism

Free trade zones are domestically criticized for encouraging businesses to set up operations under the influence of other governments, and for giving foreign corporations more economic liberty than is given indigenous employers who face large and sometimes insurmountable "regulatory" hurdles in developing nations. However, many countries are increasingly allowing local entrepreneurs to locate inside FTZs in order to access export-based incentives. Because the multinational corporation is able to choose between a wide range of underdeveloped or depressed nations in setting up overseas factories, and most of these countries do not have limited governments, bidding wars (or 'races to the bottom') sometimes erupt between competing governments.

Sometimes the domestic government pays part of the initial cost of factory setup, loosens environmental protections and rules regarding negligence and the treatment of workers, and promises not to ask payment of taxes for the next few years. When the taxation-free years are over, the corporation that set up the factory without fully assuming its costs is often able to set up operations elsewhere for less expense than the taxes to be paid, giving it leverage to take the host government to the bargaining table with more demands, but parent companies in the United States are rarely held accountable.^[3]

The widespread use of free trade zones by companies such as Nike has received criticism from numerous writers such as Naomi Klein in her book No Logo.

Free Trade Zones

• Bahrain Logistics Zone, Kingdom of Bahrain
• Batam Free Trade Zone
• Sricity Multi product SEZ, part of Sricity which is a developing satellite city in the epicentre of Andhra Pradesh & Tamil Nadu.
• Inspira Pharma and Biotech Park, Aurangabad, Maharashtra, India
• Port Klang Free Zone
• Aras Free Zone
• Pacífico
• Freeport, Grand Bahama
• Walvis Bay Export Processing Zone, Namibia
• Maquiladoras, Mexico

References

1. ^ Economics: Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. 2003. pp. 454. ISBN 0-13-063085-3. http://www.pearsonschool.com/index.cfm?locator=PSZ3R9&PMDbSiteId=2781&PMDbSolutionId=6724&PMDbCategoryId=&PMDbProgramId=12881&level=4. 
2. ^ ^{a b} Sargent, John and Matthews, Linda. "China vs. Mexico in the Global EPZ Industry: Maquiladoras, FDI Quality and Plant Mortality" (PDF). University of Texas Pan America. http://ea.panam.edu/cbes/pdf/WorkingPaper1-06.pdf. Retrieved 2009-11-11. 
3. ^ Millen, Joyce and Timoth Holtz, "Dying for Growth, Part I, The Politics of Globalization, ed. Mark Kesselman, Hougton Mifflin, 2007

See also

• List of international trade topics
• SEZ
• Sweatshop
• Third world
• Multinational corporation
• Trade
• Free Trade Area
• Free economic zone
• Colonization
• Imperialism
• Globalization
• New distribution of labor
• Foreign trade zone

<A free trade zone is crossing the border without being taxed>