Increasing Exports through Free Trade Zones (FTZ)

Countries have long since realized the importance of furthering their interest by supporting the International Trade and Exports from in house and actively supporting the industries to become globally competitive. Besides this objective, many governments also aim to promote Foreign Direct Investment into the country and encourage Multi National Companies to set shop and manufacture goods for home consumption as well as Exports. In order to support such initiatives most countries set up Special Economic Zones in their country.

Governments develop certain underdeveloped or rural regions as industrial parks, provide international standard amenities and designate such zones as Special Economic Zones. These areas are normally exempt from most of the normal trade barriers, tariffs and national laws and seek to promote free market export oriented manufacturing activities. There are several sub categories of Special Economic Zones (SEZ) namely Free Trade Zones (FTZ), Export Processing Zones (EPZ), Free Zones (FZ), Industrial Parks, Free Ports etc.

The Governments give preference to large scale manufacturing or assembly units to be set up by Multi National Companies of repute and provide tax holidays as well as waiver of many of the formalities required to be followed by the Companies in the said Zone. Typically the Companies import Raw Materials and manufacture goods locally thus using local cheaper labor and Export the goods outside the Country. Both the Imports and Exports are exempt from Customs Duties and other levies. Only the goods that enter the local market as domestic sale product are taxed. Such manufacturing intensive zones help generate a lot of employment in the rural sector and lead to the overall development of the area and in turn stimulate economic growth in the area. Besides local growth of the area, it helps country earn huge foreign exchange as well.

Ireland was the first country to set up Shannon Free Zone which was followed up quickly by most of the developing countries like Philippines, Malaysia, China, India, Mexico, Costa Rica, Honduras, and Guatemala etc. The list of countries now having adopted EPZ has cross over 100 numbers.

While Jabil Ali FTZ made a huge impact on Dubai and its growth, China has benefited from its most successful SEZ - Shenzhen which helped employ over 10 million people. India has become one of the Asia’s largest outsourcing hubs thanks to establishment of SEZs through out the Country.

Though in many countries the SEZs are implemented by the Governments, quite a few SEZs have been implemented by private parties too as private operator, private developers. Quite a few countries have adopted a mid path of setting up public sector quasi-government agencies with a pseudo corporate institutional structure and autonomy in operations. In some other cases SEZs have also developed on the basis of public-private partnership arrangements.

SEZs can be said to be the precursor for establising liberal market economy and free trade. Today world over more than 3000 FTZs in over 116 countries are employing appx. 43 million people engaged in manufacturing of various consumer items such as clothes, shoes, electronic gadgets, computers and toys etc.