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”
Benefits of free trade zones include:
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.
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.
"Customs duties play an important role in your international shipment. How they're determined and calculated varies from country to country"
Klaus Lydsal, vice president of operations at iContainers