Understanding Free trade zones and its impact on international logistics
International trading is crucial for businesses to grow their businesses globally. However, it has its own set of challenges, such as complex supply chain management, increased customs and tax charges, etc.
To overcome these challenges, free trade zones or FTZs can be a great option. Free trade zones can help businesses at different stages in reducing import/export and production costs and work great in improving overall supply chain management for transporting goods.
Different countries have different rules for free trade zones in relation to obtaining permission and execution. However, broadly, free trade zones aim to facilitate international trading, encourage domestic manufacturing, increase employment opportunities and support local and global economic development.
What are free trade zones, and what is their impact on international logistics? Read on to know more.
What are free trade zones?
Free trade zones are also called special economic zones, foreign trade zones (in the USA) or free export zones in other countries of the world.
They are specially designated geographical areas for businesses to manage their import/ export goods with less stress and more flexibility. Businesses can use FTZs for various purposes without paying customs duties or other taxes. Businesses can keep their goods in free trade zones and these goods are subject to customs charges only when they enter the market for consumption.
FTZs are situated mostly near the airport or seaport for providing convenience to businesses.
Businesses can use free trade zones for manufacturing, storing, repackaging, refurbishing and for many more purposes.
Positive impact or Benefits of Free trade zones for international logistics
FTZ offers many facilities to businesses to ease the stress of importing and exporting goods, such as -
- Duty exemption on items which are re-exported and delayed or reduced duty payment for items which enter the market for sale.
- Duty deferral on imported goods.
- Reduced merchandise processing fees (MPFs)
- Inverted tariff (where finished product has lower tariff than foreign input rate on qualifying goods)
- Storage facility for goods for unlimited time
- No duty charges on scraps or destructed parts
- Lower insurance cost
- Managing quota avoidance
All these facilities help in saving a handsome amount of money on import/export processes and offer enhanced security for businesses to maximize benefits.
Streamline your customs and logistics process
FTZ helps to streamline your customs and logistics processes. With the free trade zone facility, businesses need to make a single entry for their goods, rather than making multiple entries during the entire week for different items. In this way, it streamlines the logistics process and reduces paperwork. Moreover, free trade zones also reduce the burden of exhaustive custom processes and facilitate smooth administrative processes.
Offer more freedom and increase flexibility for businesses to manage their import and export
With FTZ, businesses gain more control over their import and export processes. FTZs allow businesses to make decisions with more freedom and increased flexibility as per their business requirements.
For instance, with FTZs, businesses are not required to pay immediate duty and other tax charges for storing their goods. If they want to re-export the goods or re-construct in another way, they get enough time, place and opportunity to make this transition possible with free trade zones.
Improve supply chain management
Managing efficient supply chain management is one of the biggest challenges for many organizations. Free trade zones help in supply chain integration and improve supply chain management. FTZs offer improved access to the market, thus it speeds up the supply chain process and facilitates smooth execution.
Attracting new foreign investment
FTZs offer cost-saving benefits and improved infrastructure for importing and exporting goods. These features create a business-friendly environment which attracts new foreign investment and plays a vital role in improving the economy and the logistics sector.
Supporting local and global economic development
FTZ helps increase employment opportunities in local regions. Thus, they support local economic development. Apart from direct industry employment, job and business opportunities are created in allied fields like logistics, warehousing, transport, etc. In the same manner, FTZ facilitates international trade. So, they help in global economic development as well.
In conclusion, FTZ offers plenty of benefits for businesses in managing their internal trades, exploring global opportunities and unlocking new markets. However, it is equally important to keep a strategic approach and conduct due diligence regarding rules and regulations. Free trade zones can be a game changer not only for business growth but for supporting the local and global economy as well.