FREE ECONOMIC ZONES
Free Economic Zones: Definition
Free economic zones refer to special zones where normal trade barriers such as import or export tariffs do not apply. Bureaucracy is typically minimized by outsourcing it to the Free Economic Zone operator and corporations setting up in the zone may be given tax breaks as an additional incentive. These zones will attract employers and thus reduce poverty and unemployment and stimulate the area's economy.
Free zones promote economic well-being not only of the beneficiaries but of the whole economy of the host country in terms of job creation, attraction of FDI (Foreign Direct Investment), boosting of exportation, transfer of technology and management know-how, regional development and industrialization.
There are many names for free economic zones (FEZ), among them free trade zones, free ports, export processing zones, industrial free zones, and technological free zones. Till now there are 43 million people working in about 3000 zones spanning 116 countries.
Free Economic Zone: Evolution
Free economic zone came into wide usage after World War II as a way to encourage foreign investment, mostly in the Third World countries. But they have actually been in existence since at least the 14th Century when merchants belonging to the Hanseatic League (of Germany) set up free-trade zones at many North Sea ports. The purpose then was to facilitate trade in the region and to avoid the greedy grasp of local princes and dukes looking for ways to tax international commerce.
Six centuries later, these free economic zones are still around and thriving, and often for similar reasons, whereby companies are taxed very lightly or not at all to encourage development. Each zone is set up within a specific country and governed only by that country’s laws. The host country gains new foreign investment and additional employment opportunities. From a company’s perspective, free economic zones are among the most versatile devices for saving on duties, taxes and other costs involved with global trade. Both parties gain, and world trade is stimulated.
Free Economic Zone: Common Incentives - Non-discriminatory access to the zone, freedom of transit, no barriers to the use of loading and unloading port facilities;
- Simplified business start-up and license requirements;
- Customs procedures simplification;
- Relief from customs duties (import duties and taxes, etc);
- Fiscal incentives (relief from VAT, corporate tax, income tax, property tax, local taxes, etc);
- Financial incentives, such as free flow of capitals, free repatriation of capitals, profits and dividends, preferential interest rates;
- Subsidized infrastructure (low rents, cheap services, etc);
- Liberalization of transports to/from the zone;
- Labor law deregulation;
- Other additional incentives and streamlined procedures.
Free Economic Zone: Features - Location
- Infrastructure
- Government stability
- Transparent laws and regulations
- Skilled labor
- Social protection and conditions of work
- Specialization of zones – for e.g.; single-commodity zones or single-industry zones
- Zone marketing
- Efficient services
- Logistics
- Information technology
- Efficient telecommunications
- Synergy between bonded areas and the host country
Free-trade zones and similar initiatives help in advancing the cause of globalization. Developing countries need foreign investment to create jobs and a manufacturing base. At the same time, the world’s companies need incentives and cost-cutting advantages to compete globally. Hence, Free Economic Zone will always play a crucial role.
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