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The Value of Free Trade Zones to Exporters and Importers
Introduction
A Free Trade Zone (FTZ) is a special area where goods can be imported, stored, or manufactured without immediate customs duties. Exporters benefit partially from the FTZs as it is able to lower production costs and make the products more competitive. Companies can import raw materials without paying any duty, manufacture the goods and export the manufactured products with the most efficiency. Importers can also avoid the tariff's effect on their cash flow and on business costs, because they can delay the importation until the goods are sold to the intended domestic market (World Trade Organization, 2023).
In United States, Foreign-Trade Zones (FTZ) Zone No. 84 is at Houston, Texas. This Free Trade Zone aids businesses such as oil industry, manufacturing, shipping business in reducing the cost of customs, besides easing the trading process. A FTZ can also be used to store or assemble imported products before their export, a capability that can enhance the profitability and international trade activities of businesses. The zone has contributed significantly towards the enhancement of the local economy and also the creation of jobs.
The benefits of FTZs are mostly for multinational companies, manufacturers and trading companies as they have lower operating expenses and higher profits. Governments too can benefit from greater foreign investment to job creation. Advocates say that FTZs promote business expansion and nurture foreign companies. Critics argue, however, that the FTZs can result in governments losing out on taxes and unfair competition for businesses that are not in the zones. FTZs could in general contribute to economic development but they require proper regulation and supervision.
Reference
World Trade Organization. (2023). World trade report 2023: Re globalization and trade cooperation. World Trade Organization.
