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
Cost saving
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