INTRODUCTION TO ECONOMICS
Free Trade Zones [ Free Ports ]
The destruction of New Orleans in Louisiana by
Hurricane Katrina has revived memories of the earlier hurricane disaster
of 1900 which destroyed the port city of Galveston in neighbouring
Texas. Galveston prior to its destruction had been somewhat of a
boom city and appeared destined to become a major metropolis.
However it never recovered from the disaster and today, in terms of its
importance as a city, it is a shadow of its former self. Some
pundits are predicting a similar fate for New Orleans. To try to
prevent this, various remedies are being proposed. One is that New
Orleans should become a Free Trade Zone ["FTZ"]. In 1852
New Orleans had been the third largest city in the USA. Although
it has been in steady long-term decline for some time, prior to the
hurricane it was still the second biggest port in the
WHAT'S A FREE TRADE ZONE
An area of a country demarcated for the purpose of attracting trade and
creating employment by eliminating the operation of tariffs and
regulation within the area. If fully implemented it amounts to the
creation of a situation of 1 country 2 systems. Whilst its operation can
be confined to trade alone it can be extended to include warehousing,
assembling and even manufacturing, which if conducted within the zone
are subjected to zero or much reduced taxes and regulations.
There are numerous FTZs throughout the
world. Most are in third world or less developed countries,
typically in the poorer parts of such countries. However they also
exist in developed countries, including Australia.
The success of a FTZ depends on how well it is
positioned to take advantage of such status including its location on a
major trade route or proximity to a major market. More importantly
however is how genuine is its operation as a free trade zone. If
genuinely implemented and operated as such, experience suggests that
FTZs generally achieve their purpose.
For obvious reasons FTZs are frequently
established at or near ports and aerodromes. FTZs are to be
distinguished from a variety of superficially similar schemes such as
duty free shops, bonded warehouses, specifically targeted reduced tax
and regulation agreements and tax and tariff rebates.
Duty free shops are a commonplace measure
designed to stimulate the purchase in the host country of products
otherwise available more cheaply outside the country. Tourists and
residents leaving the country are accordingly encouraged to purchase in
the host country rather than waiting until they are able to purchase
more cheaply elsewhere.
Bonded warehouses enable importers, after posting
a bond to cover the potential tariff on imported goods are able to store
them in special warehouses. If the imported goods are then
re-exported either with or without additional work having been performed
on them at the warehouse, no duty is payable. This of course helps
keep the price of such re-exported goods competitive on world markets.
Specifically targeted reduced tax and
regulation agreements are aimed at particular businesses or companies
which a government wishes for whatever reason to attract to its
country. They are individual one-off deals.
Tax and tariff rebates are schemes designed to
attract foreign tourists. When making a purchase within a country,
which applies sales or similar taxes, foreign tourists can present their
passports and international travel tickets and be given a voucher for
the amount of the tax. This can then be redeemed at the port
aerodrome or other place of departure from the country in cash or by
Freeports of Pireus and Thessaloniki
Freeports of Hamburg and Bremen
Freeport of Hamilton Harbour
Subic Bay [former US naval base]
Colon Free Zone
Minnesota Foreign Trade Zone [Minneapolis]
Liverpool Free Zone, Tilbury Free Zone, Isle of Man
Dubai Free Zone
Shannon Free Zone
Darwin Free Zone
SOME ARGUMENTS AGAINST FTZs
The very popularity of FTZs has empowered large multinational
corporations, which are able to play off host countries to give them
additional privileges to locate in a particular FTZ. This
particular criticism is negated if in fact the FTZ applies the same
rules for all and eschews government subsidies.
Foreign companies are given benefits denied
ordinary citizens. This criticism likewise is negated if domestic
firms are given the same rights to establish in the zone.
Existing businesses in the rest of the country
trying to compete in exporting products are placed at a disadvantage
thereby prejudicing the various regions in which they are located with
reduced trade and employment.
Governments are deprived of tax revenue, which
could otherwise be used as the government determined to benefit the
country and the people.
The benefits of FTZs are enjoyed largely by
foreign companies and businesses, which at the same time are spared from
having to contribute taxes and regulatory benefits to the host
The absence of or reduction in regulations
reduces or removes the safeguards and benefits otherwise available to
workers within the zone. At the same time pressure is applied to
workers in the rest of the country to accept the same conditions as
those applying within the zone or otherwise risk their employers ceasing
to operate in their existing location and relocate to the FTZ.
Proclaiming and permitting a part of the country
to operate as a FTZ is to benefit that area and thereby discriminate
against the rest of the country.
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