The world's most important free trade zones

What are Free Trade Zones

Free trade zones are a kind of Special Economic Zone (SEZ) that are designated economic areas free of trade-related fees such as duties and taxes.

In these areas, goods that are manufactured, stored, and handled are subject to different customs preferences. They are often offered reliefs and incentives to encourage investments.

Here’s the OECD’s definition of a free trade zone:

“Countries within which tariffs and non-tariff trade barriers between the members are generally abolished but with no common trade policy toward non-members”

— Organisation for Economic Co-operation and Development (OECD)

Benefits of free trade zones include:

• Promotes trade and business opportunities
• Keeps costs of logistics low
• Reduces red tape and bureaucratic formalities
• Increase foreign exchange earnings
• Creates employment opportunities
• Attracts investments

History of Free Trade Zones

To understand the history of free trade zones, we must look at the overarching category: Special Economic Zones (SEZs).

There are many different variations of the term SEZ. But they are all established for the same purpose.

In the United Nation’s own words:

“…within a defined perimeter, they provide a regulatory regime for businesses and investors distinct from what normally applies in the broader national or subnational economy where they are established.”

— United Nations Conference on Trade and Development

The first of all SEZs were known simply as ‘free zones’ and were designated areas, usually next to seaports, airports, or between two or more nations. These began in the 1960s and began to increase exponentially in the 1980s.

Today, there are over 5,400 SEZs in the world. Of them, 1,000 were established in the past five years. Experts expect the establishment of more than 500 new special economic zones over the next few years.

Here’s an infographic to illustrate the world’s major free trade areas, including the China’s 12 SEZs.

North American Free Trade Agreement (NAFTA)

• Countries involved: United States, Canada, Mexico
• Established in: January 1, 1994
• Total trade: $1 trillion/year
• Total GDP: $24.9 trillion GDP
• Population: 450 million

European Union Single Market

• Countries involved: 28 EU member states, Iceland, Liechtenstein, Norway, and Switzerland.
• Established in: 1993
• Total GDP: $14 trillion
• Population: 500 million

African Continental Free Trade Area (AfCFTA)

• Countries involved: 52 of 55 member states
• Established in: 2019
• Total GDP: $2.5 trillion
• Population: 1.2 billion people (Largest free trade agreement by population)

Association of Southeast Asian Nations Free Trade Area (AFTA)

Countries involved: Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam, Laos, Myanmar and Cambodia.
Established in: 1992
Total GDP: $1.5 trillion
Population: 580 million
Total trade: $1.7 trillion/year

China Special Economic Zones

There are a total of 12 Special Economic Zones, or SEZs, in China, of which the first, the Shanghai free trade zone, was established in 2013. Since then, 11 more have been added, with Hainan being the most recent inclusion in 2018.

2013

• Shanghai: 121km2

2015

• Fujian: 118km2
• Tianjin: 120km2
• Guangdong: 116km2

2017

• Chongqing: 120km2
• Henan: 120km2
• Hubei: 120km2
• Liaoning: 120km2
• Shaanxi: 120km2
• Sichuan: 120km2
• Zhejiang: 120km2

2018

• Hainan: 35,400km2