By Nick Lung    Photo：CANVA

Free Trade Zone refers to the implementation of a relatively free trade and investment environment in a specific geographical area through the support of government policies. These areas generally have fewer tariffs and trade restrictions, attracting foreign investment and international trade activities. The establishment of the free trade zone aims to promote the rapid development of various economic activities such as international trade, logistics, finance and manufacturing.

Features of Free Trade Zone

1. Tariff reduction and exemption: After goods enter the free trade zone, they usually do not need to pay tariffs immediately. Some goods may even be exempted from tariffs under certain conditions, which can effectively reduce the operating costs of enterprises.

2. Trade liberalization: Free trade zone generally allow companies to conduct import and export operations more freely. Goods can enter and leave the port area without strict inspection and customs declaration procedures, and storage, processing, repackaging and re-export are allowed.

3. Loose foreign exchange management: In many free trade zone, foreign exchange management rules are relatively loose, allowing companies to mobilize and manage cross-border funds more flexibly and promote the free flow of international funds.

4. Efficient logistics and warehousing: Free trade zone are usually equipped with modern logistics facilities and warehousing centers to provide efficient warehousing, transportation and processing services so that goods can circulate quickly and shorten the supply chain time.

5. Policies to encourage investment: The government usually formulates a series of preferential policies, such as tax cuts, financial subsidies and simplified registration procedures, to attract more domestic and foreign companies to set up business in free trade zone.

Examples of free trade zone

1. China Hainan Free Trade Zone: Hainan Free Trade Zone is China’s only free trade zone established by the central government. It aims to build a highly open trade and investment center. Its policies include zero tariffs, low tax rates and convenient foreign exchange management to support the diversified development of cross-border e-commerce, tourism, finance, etc.

2. Singapore: As a global trade hub, Singapore’s free trade zone policy has promoted the trade and warehousing of bulk commodities such as oil and electronic products. Singapore has advanced port infrastructure and flexible trade policies, making it a major re-export center in Asia.

3. Dubai Free Zone: Dubai Free Zone provides tax exemption and full foreign ownership, encouraging foreign businessmen to enter. The region has friendly policies, flexible regulations, and has established a variety of free zones for different industries, such as Dubai Media City and Dubai Health City.

Advantages and challenges of free trade zone

• Advantages: It can attract foreign investment, promote local economic development and enhance trade competitiveness, and provide more employment opportunities.

• Challenges: Possible risks of illegal activities such as money laundering and smuggling, thus requiring a strict regulatory system. In addition, the competitive pressure of free trade zone on local enterprises may increase, affecting the development of small and medium-sized enterprises.

As an important tool for global economic development, free trade zone has attracted more and more countries and regions to establish and promote free trade zone, helping the continued growth of global supply chains, logistics and trade.

Appreciate if you could share TGL Blog among your friends who are interested in first-hand market information of supply chain and updated economic incidents.