What Is a Free Zone in International Trade

We've all heard about Free Zones one way or the other, but what exactly are they? What's the difference between a Free Zone and an Export-Processing Zone? Why do Free Zones exist in the first place? When it's the first time you have to deal closely with FTZs, it can be hard to understand the ins and outs.

This article will clarify these questions and provide helpful tips on how you can take advantage of Free Zones for your business.

What Is a Free Trade Zone?

A Free Trade Zone (FTZ) is an area within a country designated as a zone where goods can be imported and exported without the need to pay tariffs or undergo other trade restrictions. 

Goods brought into a Free Trade Zone are not subject to import duty or other taxes and can be stored, used, or re-exported without being subject to customs regulations. 

Free Trade Zones can be found in many countries worldwide, varying in size and scope. Some FTZs are pretty large, covering entire cities or regions, while others are much smaller. 

Free Trade Zones can be a helpful tool for businesses looking to minimize their trade costs and take advantage of duty-free import and export opportunities. 

They can also be used to encourage foreign investment, as many FTZs offer special incentives and benefits to businesses that locate there. 

For example, the JAFZA offers businesses that locate there a 100% foreign ownership structure, as well as several other benefits such as no corporate tax for the first 15 years and no personal income tax. 

Free Trade Zone vs. Export-Processing Zone

It's important to note that Free Trade Zones are not the same as Exporting Processing Zones (EPZ). 

An EPZ is a special type of FTZ typically located in developing countries. An EPZ aims to promote economic development by providing foreign investors with tax and other incentives to set up businesses that export goods. 

EPZs are often used to attract foreign investment and create jobs in areas that might otherwise be economically disadvantaged. 

One of the most famous EPZs is the Shenzhen Special Economic Zone in China, which was created in 1980 to attract foreign investment and spur economic development in the area. 

The Shenzhen SEZ was a huge success and led to the development of many other EPZs in China and other countries worldwide. 

Why Do Free Trade Zones Exist?

A free trade area can exist for a variety of reasons. 

One of the primary purposes of an FTZ is to promote trade and economic development. This is typically accomplished by providing businesses with incentives to locate in the FTZ and by making it easier for goods to move in and out of the zone. 

Another reason Free Trade Zones exist is to provide a way for countries to comply with international trade agreements. 

For example, the World Trade Organization's (WTO) General Agreement on Tariffs and Trade (GATT) requires member countries to provide duty-free treatment for goods imported and exported from FTZs. 

To comply with this agreement, many countries have established FTZs. 

What Kind of Merchandise Can Be Put in a Trade Zone?

Most FTZs are designed to be flexible and can accommodate a wide range of businesses. 

However, some restrictions exist on what types of merchandise can be stored in an FTZ. 

For example, many FTZs will not allow hazardous materials or weapons to be stored in the zone. 

The types of merchandise allowed to be stored in an FTZ will vary depending on the specific regulations of the country where the FTZ is located. 

US Foreign Trade Zone and ASF (Alternative Site Framework)

The United States has its own Free Trade Zones system, overseen by the US Foreign-Trade Zones Board (FTZB). 

There are over 250 FTZs in the US, and they are located in all 50 states. 

The US FTZ system is slightly different from other systems worldwide as it uses a two-tier structure. 

The first tier comprises general-purpose zones open to any type of business. 

The second tier is made up of subzones, which are specific to a certain type of business or industry. 

To take advantage of the benefits of an FTZ, businesses must first apply for and receive approval from the FTZB. 

Once approved, a business will be assigned to a specific zone. 

The US FTZ system is also unique in that it uses the Alternative Site Framework (ASF) to identify potential sites for new FTZs. 

The ASF is a flexible and adaptable tool that can be used to identify suitable locations for FTZs in areas that might not traditionally be considered for such a zone. 

How ATI Can Help You With International Trade

If you are interested in setting up a business for international trade success, ATI can help. ATI is a leading provider of international trade exporting services, and our team of experts can help you with everything from customs clearance and compliance to logistics and transportation. 

We have a team of experts who are knowledgeable and can help you navigate the process of setting up your business in such a zone. 

We can also assist with other aspects of international trade, such as logistics, shipping, and customs compliance. 

Contact us today to learn more about how we can help you with your international trade needs.


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