Sociology Index

FREE TRADE ZONES

Free Trade Zones are specially designated geographical areas within a nation that are exempt from the regulations and taxation normally imposed on business. Free Trade Zones are intended to facilitate cross border production and trade. Examples of Free Trade Zones are found along the United States-Mexico border where they are referred to as ‘maquilladora.’

Free Trade Zones are now very common in almost all the countries of the world. There have been many avatars or manifestations of Free Trade Zones:

EOU - Export Oriented Unit is a Free Trade Zone.

SEZ - Special Economic Zone is a Free Trade Zone.

Technology Parks are Free Trade Zones.

Are free trade zones an abstract concept or a substantive development?

In terms of the abstract idea behind them, free trade port zones are special areas that are within national territory but outside customs territory.

The biggest difference between free trade zones and existing export processing zones and science parks is the great simplification of customs procedures for the entry and exit of goods and personnel.

But free trade zones don’t just involve a change in abstract meaning: they also include the installation of a cargo-tracking system and other information technology as well as multi-level processing, exhibition, foreign-exchange services and other operations inside the zones, and thus can be said to involve both conceptual newness and substantive development.

In the future, export processing zones and science parks will be able to apply to set up free trade zones under the provisions of the Act for the Establishment and Management of Free Trade Zones, and will be able to conduct multi-level processing, manufacture, storage and distribution, trade exhibitions, and other such activities within the zones.

Zones of Exception: Free Trade Zones and Sovereign Reformulations - Bach, Jonathan
Paper presented at the annual meeting of the International Studies Association.
Abstract: This paper investigates free trade zones (including special economic zones, export processing zones, free trade zones, maquiladoras, and similar designations) as spaces where sovereignty, citizenship, and urban life are being renegotiated within global neo-liberalism. They appear as new urban spaces while transformative of existing cities, to which they are often attached. The paper will build on an ongoing typology project for free trade zones and focus on two specific cases: the Pearl River Delta in China and the US-Mexican border region. It will combine empirical research into the role of special economic zones within the trajectory of globalization with theoretical and ethical questions on the role of the exception in the making of the rule.

Geographical Extension of Free Trade Zones as Trade Liberalization: A Numerical Simulation Approach - Chi-Yung Ng, John Whalley, CESifo Working Paper Series No. 1147
Abstract: We consider progressive geographical expansion of free trade zones within countries as a form of trade liberalization and compare observationally equivalent liberalization involving changes in the coverage of a free trade zone for a fixed tariff rate, and tariff reductions applying to all trade if there are no free trade zones in the country (in the sense of generating similar changes in trade volumes). Our work is motivated by China's approach to service trade liberalization in banking and other areas of progressive additions of cities to automatic licence treatment for foreign entities. We use numerical simulation methods to compare conventional national tariff reductions to trade liberalization achieved through the geographical expansion of free trade zones in terms of welfare impacts. Either the size of the free trade zone with a fixed tariff, or the tariff rate given the size of the free trade zone can be endogenously determined so as to yield observational equivalence in the sense of trade volume impacts across trade policy changes. Numerical policy analyses using a conventional tariff-equivalent ad valorem modeling approach to evaluate the impacts of liberalizing geographical barriers can thus be highly misleading. We explore both pure exchange and with production cases, and relate our discussion to earlier literature on free trade zones.

Free trade zones, tariffs and the real exchange rate, Bharat R. Hazari and Pasquale M. Sgro
Journal Open Economies Review, Issue Volume 7, Number 3 / July, 1996
School of Economics, Faculty of Management, Deakin University
Abstract This article examines the consequences of changes in final and intermediate good tariffs on structural adjustment, urban unemployment, and the real exchange rate in the presence of a free trade zone (FTZ) and foreign capital in the host country. The location of the free trade zone and the disaggregation of the economy allows us to examine the consequences of a tariff change on regional incomes. It is shown that as a consequence of a tariff change the urban and rural incomes need not necessarily move in the same direction (hence the potential for rural and urban conflict in policy making).

An Evolving Role For The World’s Free-Trade Zones - SupplyChainBrain.com
Overview: Free-trade zones are among the most versatile, and under-used, devices available for saving on duties, taxes, and other costs involved with global trade. However, the rules and benefits vary widely from country to country. It came into wide usage around the globe after World War II as a way to encourage foreign investment, mostly in Third World countries. It supports free trade without all of the infrastructure and politics that multilateral agreements require. Therefore, free-trade zones and similar initiatives continue to advance the cause of globalization. Developing countries need foreign investment to create jobs and a manufacturing base. At the same time, the world’s manufacturing companies need incentives and cost-cutting advantages to compete globally. Free-trade zones will always play a role.