What Is the Definition of Free Trade Zones?
Free trade zones have been growing in number since the 1970s. With business becoming a global enterprise, companies are able to use free trade zones to their advantage. An area with no tariffs or quotas allows companies to ship raw goods into their factories and ship out their products at a reduced manufacturing cost. When companies set up businesses in these areas, they hire employees from the area, which in turn boosts the local economy.
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Defined
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A free trade zone is an area created within a country that does not allow trade barriers. Trade barriers include, but are not limited to, quotas, tariffs and high taxes on foreign goods.
Purpose of a Free Trade Zone
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Free trade zones help to build budding economies. The reduction of trade barriers benefits businesses by making it easier to sell their products. Once businesses move into the free trade zone and develop, the area then needs employees, so more people in the free trade zone are employed. Employment has a direct influence on the state of the area's economy. Some businesses use free trade zones as areas of manufacturing, while others use the zone for selling merchandise. By manufacturing in a free trade zone, the business is able to ship the product elsewhere without additional payments. By selling merchandise in the area, the business can import to the area without paying any tariffs.
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Examples of Free Trade Zones
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Some free trade associations include North American Free Trade Agreement (NAFTA), European Union (EU) and the Central American Free Trade Agreement (CAFTA).
Advantages for Companies
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Companies are able to manufacture goods for a reduced price with less regulation, and are able to ship products within the free trade zone without having to pay additional quotas, tariffs or taxes. This decreases company costs while increasing gross profit.
Intellectual Property Problems
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According to Jef Vandekerckhove, in his speech "The Challenges Facing Free Trade Zones and Transshipment Countries," people use free trade zones to hide the origin, nature and quality of goods. This allows for easier counterfeiting and shipping of fake products around the world.
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References
- Photo Credit pollution factory factory chimney image by Pali A from Fotolia.com
