It is a fact that free trade zones around the Globe attract investments in production, import, export and distribution fields.
A free trade zone or a free zone is an enclosed territory inside a country where you can import goods. There you can store or change them, export afterward without fiscal customs state intervention.
When you sell goods from a free zone to customers you may have to pay customs duties and taxes. But only for the number of goods you sell.
The main purpose of free trade zones is to reduce the fiscal intervention of states. Also to level borders between states and commercial flow.
Free trade zones are manufacturing and storing points at the intersection of commercial routes. This is their primary trait. Take a look at the location of free trade zones at the global level.
You will see that they are right where the goods traffic and commerce are more intense. Here are just a few examples:
- Africa – Free Zone of Tangiers – right near the Gibraltar straits ( no need to comment why )
- Egypt – Free zones at Alexandria and Port Said in the Suez Canal area ( again a place vital for trade flow)
- China – Shanghai, Tianjin, Guangdong – just to name a few coastal free trade areas.
- United Arab Emirates – free trade zones from Ras Al Khaimah, Ajman, Dubai and Jebel
- Yemen – free trade zone from Port of Aden – a crucial point for naval commercial routes.
- Ireland – free trade zone at Shannon – this one is also the first free trade zone opened in 1959
- Panama – Free trade zone of Colon – with a direct link with Panama Canal. Again no need to explain why Panama has a free zone just on this link between Atlantic and Pacific oceans.
- United States of America – just think of Miami free trade zone.
- Almost every state in South America has one or more free trade zones.
- Romania has free trade zones in Arad, Giurgiu, Braila, Galati, Sulina and Constanta.
The full list of world’s free trade zones numbers thousands of them in more than 100 states.
What activities can you do in a free trade zone ?
Well, you can do almost any type of economic activity. Of course, excluding the outlaw activities like making or selling forbidden goods.
This is maybe the number one economic activity as importance. It is also one of the first human activities in the history of mankind. Maybe the first one that led to human species evolution to what it is today. All good and bad effects included.
Production is the action of making or manufacturing goods using components or raw materials. In a free trade zone production can include other activities as perfection, repairing, dismantling. Just to name a few of them.
When production takes place inside a free trade zone, let’s say Galati FTZ, there are some benefits for the producer.
- first, the producer can import raw materials and components from another state. He will not be bound to paying customs taxes and VAT. This translates into reduced costs for the production process.
- The producer can use qualified workforce right from the area where the free trade zone is. If you think of Galati FTZ – you can find plenty of workforce around Galati Municipality. That’s due to the nearby location of steel mills, naval shipyards, and no less than two universities.
- In the production process, you can use foreign goods ( outside the European Union let’s say). Galati FTZ is on Romanian soil, and also inside the European Union. That means that ant product made inside Galati FTZ will have to be imported in the EU by paying taxes and VAT. But if in the production process you will use Romanian raw materials, workforce, and utilities amounting to 50% of the final product, you can request a certificate of origin. In this way, the final product made inside the free trade zone will be “made in EU”.
Warehousing involves the storage of various goods inside a warehouse for a time. Free trade zone warehousing is important because brings advantages to traders or producers.
- you can storage a big quantity of goods or raw materials to use them in production inside or outside the free zone.
- import of goods from anywhere in the world to a free trade zone is not bound to VAT and customs taxes.
- if you export the goods from free trade zone warehouse, you pay taxes and VAT just for the exported amount.
3.Trading of goods
This is the king of economic activity. The essence of human economic tribulations since the invention of agriculture. And also one of the most profitable activities you can do in a free trade zone.
When trading includes import and export, traders have benefits working with free trade zones. Trading inside a free trade zone always includes other connected activities.
Handling, sorting, measuring, packing, labeling and marking, surveying is just a few of them.
4. Fares and expositions
International trade fares or expositions are good opportunities to promote new products. Also to make new business relations. The ideal place to hold such events can be a free trade zone.
The reason is the tax-free regime. You can bring goods and materials from all over the world to present them to potential clients. Importing these goods just inside a free trade zone is easy: no customs taxes and no VAT.
At the end of the exposition, you make the export of the goods back in their country of origin.
5. Transport and forwarding
In a free trade zone, there is a considerable amount of goods traffic. Goods come and go from and to various places on the Globe.
Just by following the naval shipping traffic on the world’s oceans at a given moment, it can shock you. Billions of tons of goods and raw materials loaded on ships goes from one point to another on a daily basis.
Project results are amazing. You can visualize millions of ships loaded with various goods steaming all over 2012.
Can you see some nodes in naval routes? Where is the traffic more intense? There are the big ports or transit routes of world commerce. And yes, exactly on those spots you can find many free trade zones or free ports.
The environmental side of the report is worrying indeed. The CO2 emission just from the shipping activity is rising as the commerce grows. Urgent measures at the Global level has to be taken as soon as possible to reduce CO2 emissions.
But you can also see another aspect besides the environmental issue. Transport and forwarding companies are quite busy these times. And where is the best place to locate such an activity? Free trade zones again – close to markets – and close to final clients.
Here you have some of the most important economic activities in a free trade zone.
In present times speed and efficiency are the keys to surviving as a business. It seems more difficult today to adapt your business to global consumerism. Still yet, free trade zones can offer some key benefits to clever investors. They can cut some business operating costs in term of taxes and location.
You know that there are fewer and fewer locations to open a new industrial or commercial site inside a town. High taxes and environment, noise and city planning rules make industrial investing difficult sometimes. Free trade zones are one of the solutions for investors, traders and industry developers.
Galati Free Trade Zone is also a viable solution for trade and industrial development. It is well situated exactly on the Danube shore in the South East of Europe. It is close to the Black Sea and also linked to the North Sea by Rhine – Main – Danube Canal. It acts as a transit point between Orient and Europe and can bring real benefits to investors.
What do you think about activities in free trade zones? Have you encounter problems or issues with import and export of goods? Do you think that a free trade zone will help your business?
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