Free trade zone

From Wikipedia, the free encyclopedia

You have new messages (last change).
It has been suggested that this article or section be merged into Free trade area. (Discuss)
This is article for special economic zones. For inf information agreements for free trade with elemination of tariffs see Free trade area.

A free trade zone (FTZ) or Export processing zone (EPZ) is one or more areas of a country where tariffs and quotas are eliminated and bureaucratic requirements are lowered in order to attract companies by raising the incentives for doing business there. 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. They are special zones where some normal trade barriers such as import or export tariffs do not apply, bureaucracy is typically minimized by outsourcing it to the FTZ operator and corporations setting up in the zone may be given tax breaks as an additional incentive. Usually, these zones are set up in underdeveloped parts of the host country, the rationale being 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 twentieth century. The first free trade regulations in this region were inacted 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.

In 2002 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.

[edit] Criticism

The creation of special free trade zones is criticized for encouraging businesses to set up operations under the influence of often corrupt governments, and giving foreign corporations more economic liberty than is given indigenous employers who face large and sometimes insurmountable "regulatory" hurdles in developing nations. 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 erupt between competing governments.

Often the 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 which 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 in order for it to continue operations in the country.

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.

[edit] Free Trade Zones

[edit] See also


 view  Topics in Trade

Definitions

Balance of payments · Current account (Balance of trade) · Capital account · Foreign exchange reserves · Comparative advantage · Absolute advantage · Import substitution · International trade

Organizations & Policies

World Trade Organization · International Monetary Fund · World Bank · International Trade Centre · Trade bloc · Free trade zone · Trade barrier · Import quota · Tariff

Schools of Thought

Free trade · Balanced trade · Mercantilism · Protectionism

Related Issues

Globalization · Outsourcing · Trade justice and fair trade
Retrieved from "http://en.wikipedia.org../../../f/r/e/Free_trade_zone.html"