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Free Trade Zones: What are They and How Can Small Businesses Benefit?

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Free Trade Zones: What are They and How Can Small Businesses Benefit?

By JamieD
Published: June 25, 2010 Updated: February 28, 2014

Many countries designate certain areas within their borders as a free trade zone. Free trade zones help to minimize international trade barriers, enabling importers and exporters to operate under better economic conditions. However, many importers and exporters are unfamiliar with free trade zones and uncertain how to take advantage of them.


What is a free trade zone?

A free trade zone is a designated area that eliminates traditional trade barriers, such as tariffs, and minimizes bureaucratic regulations. The goal of a free trade zone is to enhance global market presence by attracting new business and foreign investments.


How do the terms;free trade zon-,-export processing zon', and'foreign trade zon' relate to and differ from one another?

Free, foreign, and export processing zones all fall under the umbrella of being free trade zones. Because these terms are confusingly similar, they are often used interchangeably. The distinction between each term often depends on where a particular zone is located.


Generally speaking:

  • Foreign Trade Zone is the term used in the United States. For more information on U.S. foreign trade zones, visit their overseeing body' the U.S. Foreign-Trade Zones Board.
  • Free Trade Zone is the term used in other developed countries, such as those included in the European Union.
  • Export Processing Zone is commonly used in developing nations.


Because the principals and regulations of each free trade zone differs from country to country, you must check the governing authority of the country in which you wish to operate for specific benefits of their programs. Visit business.usa.gov for free trade zone guides of specific countries.


Where are free trade zones located?

Free trade zones are generally located near a countr's ports of entry. For convenience purposes, locations with a close proximity to seaports and airports are commonly designated free trade zones. In some cases, free trade zone are designated outside these areas to accommodate a specific industry or trade purpose.


For example, in the United States, foreign trade subzones are designated as single-purpose sites for businesses such as oil refineries or large manufactures because they could not feasibly be moved to a traditional location.


What types of business use free trade zones?

Free trade zones are utilized by everyone from large manufactures to small businesses to individuals. Any person or entity that intends to import or export goods and can consider taking advantage of free trade zones.


What are the benefits to trading in a free trade zone?

Operating within a country's free trade zones offers many benefits to importers and exporters. Common economic benefits include the deferral or elimination of customs duties, exemption from certain taxes, and inverted tariff relief. Free trade zones also offer operational benefits such as indefinite storage opportunities, increased security and insurance on goods, and top-of-the-line operating facilities.


Who can I contact for more information on foreign trade zones in the United States?

If yo're looking to do business through one of the foreign trade zones in the United States, you should contact the appropriate project liaison in the most convenient area. Visit the International Trade Administratio's U.S. Foreign Trade Zone guide for details.


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