A free trade zone (FTZ) is a geographical region where goods may be imported, stored, processed, and re-exported under normal trade laws and regulations without undergoing customs procedures or incurring duties.
Key Characteristics:
- FTZs are established within national borders yet considered legally outside for tariff purposes.
- Imported components can be assembled/packaged for global markets before clearing customs as final products.
- Various tax and logistic incentives aim to attract multinationals by offsetting infrastructure investment costs.
Example Benefits:
By establishing operations within Panama’s Colón Free Trade Zone to serve Latin America, a pharmaceutical corporation streamlined regional distribution while exempting import charges on major inputs.
Significance:
FTZs facilitate international trade flows and induce foreign investment by offering cost-saving exemptions and procedural simplicity versus traditional port areas, particularly appealing to export-oriented industries.