Free trade zones: awesome “free” tools for the international trade.
Not many people have heard about a free trade zone. Even fewer knows the very details of its functions.
Even if the free trade zones were around since the beginnings of trade itself. Are there any secrets that must be uncovered? I know that international trade experts are fully aware of this concept. This piece is, however, for the less aware people. Why? Maybe because it is worth to explain better the concept of free trade in the world which economic rules change day by day.
Now you can see a complete picture of this duty-free and international trade tool.
We live in times when the global economy enters a new phase.
All Central Asian states and also Russia show interest in this Chinese project.
What all these states in Central Asia have in common?
All have immense amounts of raw materials and they always search for new markets.
The latest evolution of Middle East crisis makes this project quite interesting.
Galati Free Zone has a rising importance for businessmen with trade deals towards East.
That’s due to its position in the East side of Union European near the border with Ukraine and close to the Black Sea.
Import and export business operations can get advantages by choosing free trade zones.
Who invented the free trade zones?[bctt tweet=”Free trade zones are like a heart that helps many countries to function economically…”] … technically and politically in the world (HAYWOOD, Robert – Director World Export Processing Zones Association – W.E.P.Z.A)
Free zone regime or free economic zone regime concept is old in economic world history.
It is not a new concept, but it is common throughout the world. It has over 20 different names all linked to the idea of export-import or producing goods for export.
Traces of free zone regimes dates back to antiquity. Carthago is the first harbor-city that used this regime and maybe is its inventor.
A city built by the most active traders of the ancient world must have been the first to use this useful commercial tool.
That’s a reconstruction of how Carthago Harbour used to be. Pretty impressive.
Later in history, “free ports” are present on Mediterranean shores and also in Orient.
It is worth to mention the powerful commercial system developed by Baltic Sea towns. They made a true free trade system of XIII Th century.
This system is also known as the Hanseatic League.
Other free ports appear often in XVII-XIX centuries. We can count: Marseille ( 1669 ), Gibraltar ( 1704 ), Civita Vecchia ( 1732 ), Bangkok ( 1782 ), Singapore ( 1819 ), Hong Kong ( 1842), Macao ( 1849 ).
What is a free trade zone? Free trade zone notion.
The Free Port or the Free Trade Zone is an area of land that can encompass a full harbor or the settlements around it. Here you can bring goods from anywhere in the world without paying customs taxes.
You will pay these taxes only when goods enter in a country customs territory.
Free trade zones concept appears for the first time in Italy in 1860. This year the town of Haute-Savoie becomes free trade zone.
A great expansion of free trade zones follows this event throughout the world. They appear at crossways of commercial trade routes or near industrial and commercial centers.
In present times, there are hundreds of free trade zones in the world.
The European Union does not make an exception even if its fiscal policy was against this concept. Fiscal policy of EU aims to level taxes inside Union’s borders. In this case, free trade zones in EU gave up of many fiscal incentives.
Even so, free trade zones are thriving inside the EU borders. You can see here the list of all free trade zones and free ports that operate in the EU.
Can this be a sign that the idea of free trade zone is a success model?
Why should you choose to make business through a free trade zone?
Free trade zones offer advantages to importers, exporters, and producers.
These advantages are of customs and commercial nature. And for the free trade zones outside the EU space, even of fiscal nature.
Let’s see how you can take advantage by doing business in a free trade zone:
Free Trade Zone advantages for importers.
As an importer, you can have some benefits by introducing goods inside a free trade zone.
- Closeness to own markets
You don’t have to worry about orders, transport, payment of customs duties and VAT.
You bring the goods inside a free trade zone and after that you can sell parcels of goods as your clients need.
You can buy different goods inside a free trade zone. You can process those goods to add to their initial value and to make them suitable to final buyers needs.
You can stockpile goods in a free trade zone, close to your distribution base. You can do this when market conditions are not good to sell.
All this time you don’t have to worry about payment of subcontractors or customs duties and VAT.
Free Trade Zones advantages for exporters:
- You don’t have to pay customs duties for parts or materials that you import in a free zone. You can avoid the blocking of great amounts of money.
Example: Let’s say that you manufacture a product inside a free zone. For this, you need some parts you can buy at convenient prices from a non-EU country.
If your factory is in a free trade zone, a simple solution is to import the parts you need inside the free trade zone.
You have to pay only the price of goods and transport as per your agreement with the seller. You have not to pay customs taxes and VAT.
After you manufacture the final product, you can export it globally.
- Possibility to respond fast to close markets needs and to sell your goods in the best moment;
Example: Let’s assume that there is a drought forecast for the next year in agriculture. A smart businessman sees, beyond the negative news, the opportunity.
He will build a cereal silo or deposit in a free trade zone and will begin to buy cereals from all over the world. He will import them in the free trade zone without customs and VAT duties, and stockpile them.
When the draught finally arrives, cereals production will drop down. The market need will rise and our businessman can sell to high prices his cereals at a higher price. No need to say the profit will be high also.
- You can organize permanent fairs and expo-markets. We all know that trade fairs and expositions are good occasions to close deals and sell goods.
Again, everything you bring inside the free trade zone is free of customs duties and VAT. With no limits of time.
- You can stockpile goods inside a free trade zone without time limit and duty-free up to the moment of export.
Your good will stay safe inside the free zone because it is an enclosed perimeter well guarded.
- You can get important advantages by transport prices difference. You can import bulk goods inside a free trade zone and make exports afterward. The difference of prices will add to your profit.
Example: You import a large quantity of goods with a cargo vessel inside Galati Free Trade Zone. You stockpile the cargo, maybe produce other goods, and make exports with trucks.
- You can get the origin certificate for the goods you process inside the free trade zone. But you have to include a percentage of local materials in the production process.
In most cases, this percent is about 50% from the cost of the final product.
Example: You have a production business inside a Galati Free Trade Zone. You use raw materials from Russia, Ukraine or China.
You import raw materials in Galati Free Trade Zone without customs duties and VAT. Those raw materials are the base for the manufacture of agricultural machinery.
You can get Romanian Origin Certificate for the final product. ( Galati Free Trade Zone is on Romanian territory ).
You must proof that you have used in production process 50% Romanian origin materials. Workmanship and utilities are also counted in.
- You can import components from different countries in the free trade zone. You can use them to manufacture new products inside the free trade zone. Afterward, you might want to re-export the final product.
- You have the possibility to negotiate to invest in own free trade zone infrastructure. You can recover your investment by free trade zones price reduction.
And yes, Galati Free Trade Zone is open to such negotiation.
Example: You can reduce the price of your rent in free trade zone if you make an investment in free trade zone own infrastructure.
Here are the advantages offered by free trade zones. Also some motives you have to open business through them.
Of course, free trade zones does not address to any type of business.
If your business aims to import or export, then you should take in consideration a free trade zone. This could be a further step to develop your affairs. And your profits.
PS: Stay tuned. We will soon provide a pdf guide with all the advantages of free trade zone for an easy use.
Let me know your opinion on free trade zones. Feel free to comment or to contact us. I will be glad to discuss with you.