A free trade zone (FTZ) or export processing zone (EPZ) , also called foreign-trade zone, formerly free port is an area within which goods may be landed, handled, manufactured or reconfigured, and re- exported without the intervention of the customs authorities.
Only when the goods are moved to consumers within the country in which the zone is located do they become subject to the prevailing customs duties. Free-trade zones are organized around major seaports, international airports, and national frontiers—areas with many geographic advantages for trade.
It is a region where a group of countries has agreed to reduce or eliminate trade barriers. 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. The world’s first Free Trade Zone was established in Shannon, Co. Clare, Ireland Shannon Free Zone.
This was an attempt by the Irish Government to promote employment within a rural area, make use of a small regional airport and generate revenue for the Irish economy. It was hugely successful, and is still in operation today. The number of worldwide free-trade zones proliferated in the late 20th century. In the United States free-trade zones were first authorized in 1934.
Most FTZs located in developing countries: Brazil, India, Indonesia, El Salvador, China, the Philippines, Malaysia, Bangladesh, Pakistan, Mexico, Costa Rica, Honduras, Guatemala, Kenya, Sri Lanka, and Madagascar have EPZ programs. In 1997, 93 countries had set up export processing zones employing 22.5 million people, and five years later, in 2003, EPZs in 116 countries employed 43 million people.
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. The Latin American Free Trade Association (LAFTA) was created in the 1960 Treaty of Montevideo by Argentina, Brazil, Chile, Mexico, Paraguay, Peru, and Uruguay.
However, the rapid development of free trade zones across the region dates from the late 1960s and the early 1970s. Latin American Integration Association is a Latin American trade integration association, based in Montevideo.
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.
Free Trade Zones in India
FTWZ (Free Trade and Warehousing Zones) is a policy of the Government of India (GoI). It was announced in the Foreign Trade Policy 2004-09 to set up Free Trade and Warehousing Zones (FTWZ) to create trade related infrastructure to facilitate the import and export of goods and services with freedom to carry out trade transactions in free currency.
On June 23, 2005, the Parliament of India passed the Special Economic Zones Act 2005 and on February 10, 2006 Government of India notified Special Economic Zone Rules 2006. The Free Trade and Warehousing Zones (FTWZ) is a special category of Special Economic Zone and is governed by the provisions of the SEZ Act and the Rules.
FTWZ is designated as a deemed foreign territory and are envisaged to be integrated zones and to be used as International Trading Hubs. FTWZs will be fully independent mega-trading hubs integrated with state-of-the-art warehouse and special storage infrastructure, Container Freight Stations, Environment friendly equipment, Rail sidings for hinterland connectivity, Commercial complexes for offices, Independent utility stations, banks and insurance corporations added to recreational and eventual residential complex for the FTWZ workforce.
Indian FTZ locations:
- Arshiya International Ltd, India’s first fully functional and operational FTWZ.
- Inspira Pharma and Renewable Energy Park, Aurangabad, Maharashtra, India
- Sricity Multi product SEZ, part of Sricity which is a developing satellite city in the epicentre of Andhra Pradesh & Tamil Nadu, India
- Kandla Trade Free Zone, India
- Free Trade Warehousing Private Limited (FTWPL)
- Balaji Infra Projects Limited (BIPL)
- FAB City SPV, India
- LMJ Warehousing, Gujarat
- Jafza Chennai Business parks, Gujarat
- Shipco Infrastructure, Karnataka
- Chiplun Infrastructure Private Limited
- DLF Universal
- Matadee Eco Parks Private Limited (DHL,INDEV LOGISTICS PVT. LTD,SEAWAYS SHIPPING and LOGISTICS LIMITED.
- Jhunjhunwala Vanaspati
To know more about SEZ, Read these articles:
What are Free Trade Zones | Indian FTZs List