What is Free trade area ?
A group of countries that have few or no price controls in the form of tariffs or quotas between each
other. Free trade areas allow the agreeing nations to focus on their comparative advantages and to
produce the goods they are comparatively more efficient at making, thus increasing the efficiency
and profitability of each country. One of the most well-known and largest free trade areas was created
by the signing of the North American Free Trade Agreement (NAFTA) on January 1, 1994. This
agreement between Canada, the United States and Mexico encourages trade between these North
Free Trade Zones are also known as Special Economic Zones in some countries. Special Economic
Zones (SEZs) have been established in many countries as testing grounds for the implementation of
liberal market economy principles. SEZs are viewed as instruments to enhance the acceptability and
the credibility of the transformation policies and to attract domestic and foreign investment.
• The world's first Free Trade Zone was established in Shannon, Ireland (Shannon Free Zone). This
was an attempt by the Irish Government to promote employment within a rural area, make use of a
small regional airport and generate revenue for the Irish economy. It was hugely successful, and is
still in operation today. The number of worldwide free-trade zones proliferated in the late 20th
century. In the United States free-trade zones were first authorized in 1934.
• This is not to be confused with an "Export Processing Zone" (EPZ) which is actually a type of free
trade zone (FTZ), set up generally in developing countries by their governments to promote
industrial and commercial exports. Most FTZs located in developing
countries:Brazil, Colombia, India, Indonesia, El Salvador, China,
the Philippines, Malaysia, Bangladesh, Pakistan, Mexico, Costa
Rica, Honduras,Guatemala, Kenya, Sri Lanka, Mauritius and Madagascar have EPZ programs. In
1997, 93 countries had set up export processing zones employing 22.5 million people, and five
years later, in 2003, EPZs in 116 countries employed 43 million people
• Arshiya International Ltd., India's first free trade and Warehousing zone. The largest multi-product
free trade and warehousing infrastructure in India. Arshiya first 165 acre FTWZ is operation in
Panvel, Mumbai, and is to be followed by one in Khurja near Delhi. Arshiya mega logistics hub at
Khurja to have 135 acer FTWZ, 130 acer Industrial and Warehousing zone in Central, South and
East of India.
• Cochin Special Economic Zone is a Special Economic Zone in Cochin, in the State of Kerala in
southwest India, set up for export- oriented ventures. The Special Economic Zone is a foreign
territory within India with special rules for facilitating foreign direct investment. The Zone is run
directly by the Government of India. Cochin SEZ is a multi-product zone. Cochin is strategically
located. It is in southwest India, just 11 nautical miles off the international sea route from Europe to
the Pacific Rim. Cochin is being develop by the Dubai ports International as a container
transshipment terminal with direct sailing to important markets of the world, which could it as Hub
of South Asia.
Free Trade Zone
• A foreign-trade zone is a designated location in the United States where companies can use special
procedures that help encourage U.S. activity and value added - in competition with foreign
alternatives - by allowing delayed or reduced duty payments on foreign merchandise, as well as
• A site which has been granted zone status may not be used for zone activity until the site has been
separately approved for FTZ activation by local U.S. Customs and Border Protection (CBP)
officials, and the zone activity remains under the supervision of CBP. FTZ sites and facilities
remain within the jurisdiction of local, state or federal governments or agencies.
• Airport, seaport, or any other designated area for duty-free import of raw materials, components,
sub-assemblies, semi-finished or finished goods. Such items can be stored, displayed, assembled,
or processed for re-export or entry into the general market of the importing country (after paying
the required duties). Also called foreign trade Zone or free zone.
• Foreign-trade zones are designated sites licensed by the Foreign-Trade Zones (FTZ) Board
(Commerce Secretary is Chairperson) at which special customs procedures may be used. These
procedures allow domestic activity involving foreign items to take place prior to formal customs
entry. Duty-free treatment is accorded items that are re-exported and duty payment is deferred on
items sold in the U.S. market, thus offsetting customs advantages available to overseas producers
who compete with producers located in the United States. Subzones/usage-driven sites are
approved for a specific company/use. A site which has been granted zone status may not be used
for zone activity until the site or a section thereof has been separately approved for FTZ activation
by local U.S. Customs and Border Protection (CBP) officials, and the zone activity remains under
the supervision of CBP. FTZ sites and facilities remain within the jurisdiction of local, state or
federal governments or agencies.
Allowing in depth value- added
E.g.: assembling, packaging,
Facilitating business activities
procedure for granting
Entry and issuing lining visas to
Business personnel; providing
Exhibition facilities and services
Ease of financial
Permitting setup of
Companies for offshore
To handle foreign currency
With national territory, but outside
the customs territory
Autonomous management; exempt from
Customs checking and inspection, as well as
Cargo tracking and escort
ratio for foreign
40% of total work force
Duty & tax exemption
Exempt fromcustom duties,
Commodity tax, sales tax, tabacco and
Wine excise tax
Free Trade Zone in India
• Establishment of Free Trade Zone is an important aspect of zones –
I. Kandla Free Trade Zone
II. Santacruz Free Trade Zone
• The Santacruz Free trade Zone at Bombay is mainly for firm in electronic area. In
these zones various facilities are provided by the government for export production in
he form of developed land, water, electricity, and transport, taxes etc.
• Supplies can be obtained in these zones for future production without payment of
excise duty or import duty. Importation is possible without prior licensing. However,
it is obligatory on the firms to export their 100 percent production.
Benefits of Free Trade Zone Users
• Duty Exemption - No duties on or quota charges on re-exports.
• Duty Deferral - Customs duties and federal excise tax deferred on imports.
• Inverted Tariff - In situations where zone production results in a finished product that has a lower
duty rate than the rates on foreign inputs (inverted tariff), the finished products may be entered at
the duty rate that applies to its condition as it leaves the zone (requires prior authorization).
• Logistical Benefits - Companies using FTZ procedures may have access to streamlined customs
procedures (e.g. "weekly entry" or "direct delivery").
• Other Benefits - Foreign goods and domestic goods held for export are exempt from state/local
inventory taxes. FTZ status may also make a site eligible for state/local benefits which are
unrelated to the FTZ Act.
• No duties on or quota charges on re-export.
• Customs duties and federal excise tax deferred on imports.
• In situations where zone production results in a finished product that has a lower duty rate than the
rates on foreign inputs (inverted tariff), the finished products may be entered at the duty rate that
applies to its condition as it leaves the zone
• Foreign goods and domestic goods held for export are exempt from state/local inventory taxes.
FTZ status may also make a site eligible for state/local benefits which are unrelated to the FTZ Act.
• Help facilitate and expedite international trade.
• Provide special customs procedures as a public service to help firms conduct international trade
related operations in competition with foreign plants.
• Encourage and facilitate exports.
• Help attract offshore activity and encourage retention of domestic activity.
• Assist state/local economic development efforts.
• Help create employment opportunities.
Activities in Zones
• Merchandise in a zone may be assembled, exhibited, cleaned, manipulated, manufactured, mixed,
processed, relabelled, repackaged, repaired, salvaged, sampled, stored, tested, displayed and
• Production activity must be specifically authorized by the FTZ Board. (Production activity is
defined as activity involving the substantial transformation of a foreign article or activity involving
a change in the condition of the article which results in a change in the customs classification of the
article or in its eligibility for entry for consumption.)
• Retail trade is prohibited in zones.
Merchandise in a Zone
• Any merchandise that is not prohibited from entry into the territory of the U.S. may be admitted to
• If applicable, import licenses or permits from other government agencies may still be required to
bring the merchandise into the zone.
Zones can be Located
• Zone sites must be within or adjacent to a U.S. Customs and Border Protection (CBP) port of entry.
The adjacency requirement can be satisfied if one of the following factors is met:
1. The zone or subzone site is within the limits of a CBP port of entry.
2. The zone or subzone site is within 60 statute miles of the outer limits of a CBP port of entry.
3. The zone or subzone site is within 90 minutes' driving time from the outer limits of a CBP port
of entry as verified by the CBP Service Port Director.
4. For subzones only: subzone sites that are outside the 60 miles/90 minutes driving time from the
outer limits of the CBP port of entry may alternatively qualify to be considered adjacent if they
work with the CBP Port Director to ensure that proper oversight measures are in place.
Zone Exist Now…
• There are about 250 general-purpose zones and over 500 subzones approved
Legal Authorities and Requirements
• FTZ Act of 1934 (19 U.S.C. 81a-81u) est. FTZ Board (Commerce, Treasury) to license and
• FTZ Board regulations (15 CFR Part 400).
• Customs regulations (19 CFR Part 146).