The free trade zone is that area where there are no economic trade barriers. A free trade area is ​​a land where tariffs and taxes are lower than in other countries.

In this article, we will explain the most relevant information about the free trade zone so that you know its definition. Because economics inevitably influences international trade, we will begin with a historical analysis of the concept so that you understand the term as well as possible.

What is the history of free trade zones?

It is essential to keep in mind that we live in a global society. The numerous actions that take place, for example, on the stock exchanges of the economies of the different countries, have an impact on other third parties. In addition to this fact, it is also important to note that there are countries where particular goods are required, since they do not have them, for example, for the manufacture of automobiles. These products must be purchased through foreign countries.

Back in the 1960s, the first commercial-free zones began to be defined. During these first years, the location for these areas was none other than ports and airports. These locations were chosen mainly to respond to the demand to exchange goods with other neighboring states.

Around the 80s, there was a very notable increase in these types of commercial areas. So much so that there are currently more than 5,000 areas treated as particular areas due to their economic peculiarities.

What does a free trade zone entail?

Previously, we have explained that there are regions of the world where tariffs are lower, as happens, for example, in free trade areas. This possibility makes it possible for some countries to be more interesting than others for international business.

Countries are increasingly dependent on technology from third countries. Countries need certain raw materials from other parts of the world because they do not have these materials. Through the use of the free trade zone, goods can be disposed of so that they have customs benefits over other products.

Some of the most interesting free trade zone implications are as follows:

  • Reduction of tariff costs and payment for this type of fee.
  • Lower trade barriers for the importation of merchandise.
  • More excellent facilities for paying taxes by reducing or even eliminating them.

What are the advantages of free trade zones?

There are many opportunities in the form of advantages that a free trade zone offers. Next, we are going to detail some of the most common so that you can know them.

Facilitate foreign investment

It is a reality that taxes and duties affect the investment capacity of companies in different countries. When part of these is reduced or even eliminated, companies have more capital to invest.

Employment creation

Company costs increase when taxation is higher in one country than in another. Generally, the higher the taxes, the lower the resources of the companies. The different options to offer tax exemptions to companies may cause an increase in the number of people hired by these companies.

Reduce paperwork

If you work in a private sector company, you have undoubtedly heard of the concept of bureaucracy. There are numerous procedures that companies must carry out with most states. If issues such as taxes or tariffs are progressively reduced, to mention a few possible examples, the bureaucratic procedures are also more minor at the same time.

Increase profits

Sometimes states can design plans to attract foreign investment through increased profits for companies. There are many formulas to achieve this purpose, but one of the most common is tax benefits. If tax or duty rates are lowered, foreign companies tend to have higher profits.

What countries have free trade zones?

Next, we will detail the central locations that place each free trade zone so that you know them.

Europe

In addition to Switzerland, Norway, Iceland, and Liechtenstein, they are also part of the free trade area, which signed the free movement agreement.

North America

The acronym is NAFTA. There is this agreement signed by Mexico, the United States, and Canada.

Southeast Asian

Its initials correspond to AFTA. They are comprised of China, among which Shanghai stands out.

As you are verifying, practically in all the world’s continents, there are what are known as free trade zones.