Free trade zones (FTZs) are areas in a country where imported goods can be stored, assembled and processed while bypassing customs duties. Duties and taxes are only due once goods are moved into local consumer markets.<\/p>\n\n\n\n
Generally, FTZs allow companies to remain competitive by reducing the cost of importing materials for production and exporting manufactured goods.<\/p>\n\n\n\n
Foreign and domestic goods within FTZs are generally considered to be outside of a country\u2019s customs territory. However, they are still subject to local laws, regulations and inspections. <\/p>\n\n\n\n
Within FTZs, items are generally permitted to be:<\/p>\n\n\n\n
Companies may store their items in FTZs if they wish to re-export the goods at a later date. They may also store goods to delay processing fees for imports.<\/p>\n\n\n\n
Companies may sample imported goods from potential business partners or test their own products before letting them go out to market.<\/p>\n\n\n\n
Items may be repaired and repackaged within FTZs. This allows businesses to do quality checks and restorations before bringing them into the consumer market. <\/p>\n\n\n\n
Businesses may also request permission from local authorities to destroy damaged items without incurring customs duties.<\/p>\n\n\n\n
Items may be processed, assembled or mixed within FTZs. In some cases, the newly fabricated products may have a different tariff classification from the original imported materials. This may result in reduced duty rates.<\/p>\n\n\n\n
Activities prohibited in FTZs may differ in each country. Generally, this may include:<\/p>\n\n\n\n
Companies are usually required to maintain full and proper records of all operations within FTZs. Local authorities may conduct regular on-site checks and documentation reviews to ensure that no illicit activities are taking place.<\/p>\n\n\n\n
The various activities permitted within FTZs allow manufacturers, importers and distributors to save money due to duty exemptions, deferrals and reductions.<\/p>\n\n\n\n
Manufacturers get to tap into globally-sourced products and materials at lowered costs. This allows companies worldwide to produce better quality products, selling them at competitive rates in local and international markets.<\/p>\n\n\n\n
Many FTZs allow for warehousing<\/a> without time limits, allowing businesses to move their products into markets more strategically. They may store their products to:<\/p>\n\n\n\n As many FTZs are located near or in ports, they act as convenient sites for distribution centers to set up operations. These locations are also strategic for manufacturers that import materials from overseas, then re-export them elsewhere for assembly.<\/p>\n\n\n\n With greater ease of imports and exports, it becomes easier for certain manufacturers to produce knockoffs while evading intellectual property laws.<\/p>\n\n\n\n The presence of FTZs may encourage businesses to cut costs by outsourcing jobs to countries with weaker labor protection laws. Workers may be forced to work for low wages and under dangerous conditions.<\/p>\n\n\n\n Similarly, the presence of FTZs may encourage businesses to carry out operations in a way that may harm the environment. For example, manufacturers may be less mindful about air and water pollution in countries with less stringent regulations. <\/p>\n\n\n\n An FTZ warehouse is a facility geographically located within a country, but is classified to be outside the country\u2019s customs territory. It is where many FTZ activities take place, bypassing formal customs clearance<\/a> procedures.<\/p>\n\n\n\n A bonded warehouse<\/a> is a site where imported goods are stored prior to the payment of taxes and duties. Items stored here fall under a country\u2019s customs regulations.<\/p>\n\n\n\n Both FTZ and bonded warehousing services<\/a> allow for the extended storage of imported goods, during which customs duties are not payable. In both cases, duties are only due once goods are moved into the country\u2019s consumer market.<\/p>\n\n\n\n However, they differ in the following ways: Products may be moved between different bonded warehouses without the need for duties payments. Conversely, goods cannot be moved between FTZ warehouses and transportation outside of the zone will incur customs charges.<\/p>\n\n\n\n Items can only be stored in bonded warehouses for a limited period of time, while storage in FTZ warehouses may often occur indefinitely.<\/p>\n\n\n\n Products and materials can only be manipulated or manufactured in certain bonded warehouses, whereas these activities are allowed in all FTZ warehouses.<\/p>\n\n\n\n FTZs are also known as free zones, free ports and foreign trade zones in some countries. Here is a list of some popular FTZs around the world.<\/p>\n\n\n\nConveniently Located<\/strong><\/h3>\n\n\n\n
Drawbacks of Free Trade Zones<\/strong><\/h2>\n\n\n\n
Risk of Intellectual Property Infringements<\/strong><\/h3>\n\n\n\n
Potential for Labor Exploitation<\/strong><\/h3>\n\n\n\n
Potential for Environmental Pollution<\/strong><\/h3>\n\n\n\n
Free Trade Zone Warehouses<\/strong><\/h2>\n\n\n\n
FTZ Warehouses vs Bonded Warehouses<\/strong><\/h3>\n\n\n\n
<\/p>\n\n\n\nExamples of Prominent Free Trade Zones Globally<\/strong><\/h2>\n\n\n\n