Glossary
Free Trade Zone (FTZ)
Tags: Glossary
Also known as an export processing zone (EPZ), one or more special areas of a country where some normal trade barriers, such as tariffs and quotas, are eliminated and bureaucratic requirements are lowered in hopes of attracting new business and foreign investments. Free trade zones can be defined as labor-intensive manufacturing centers that involve the import of raw materials or components and the export of factory products.
What is Free Trade Zone (FTZ)?
A Free Trade Zone (FTZ), also known as an export processing zone (EPZ), is a special area or areas within a country that aim to attract new businesses and foreign investments by eliminating certain trade barriers and reducing bureaucratic requirements. In these zones, trade barriers such as tariffs and quotas are eliminated or significantly reduced, making it easier for businesses to import raw materials or components and export finished products.
The primary objective of establishing a free trade zone is to promote economic growth and development by creating an environment that is conducive to international trade. By eliminating or reducing trade barriers, countries hope to attract foreign businesses and investments, which can lead to job creation, increased exports, and overall economic prosperity.
Free trade zones are typically characterized by labor-intensive manufacturing activities. This means that the focus is on industries that require a significant amount of manual labor, such as textile manufacturing or electronics assembly. These industries often involve the import of raw materials or components, which are then processed or assembled within the zone, and the resulting finished products are exported to other countries.
One of the key advantages of operating within a free trade zone is the cost savings that businesses can enjoy. By eliminating tariffs and quotas, companies can import raw materials or components at a lower cost, which can significantly reduce their production expenses. Additionally, the streamlined bureaucratic requirements within the zone make it easier for businesses to set up and operate, further reducing costs and administrative burdens.
Another benefit of free trade zones is the potential for increased foreign direct investment (FDI). The elimination of trade barriers and the favorable business environment within the zone make it an attractive destination for foreign companies looking to expand their operations. This influx of FDI can bring in new technologies, expertise, and capital, which can further stimulate economic growth and development.
In conclusion, a free trade zone is a designated area within a country that aims to attract new businesses and foreign investments by eliminating trade barriers and reducing bureaucratic requirements. These zones are characterized by labor-intensive manufacturing activities and involve the import of raw materials or components and the export of finished products. By creating a favorable business environment, free trade zones promote economic growth, job creation, and increased international trade.