Free trade zone (FTZ)
A free trade zone is an area designated within the territory of a country specifically for the purpose of stimulating investments and other economic activities. Also known as export processing zones, these are attractive to foreign investors because usual obstacles to trade are done away with. For instance, taxes on products are either reduced substantially or completely deferred in such locations. In addition, quotas are also removed and government regulation is relaxed.
Due to their business-friendly nature, free trade zones naturally attract a variety of activities which are vital to the operations of businesses. Both raw materials and completed products enter this area. Factories are likewise set up in such areas, bringing down the cost of production for businesses. This, in turn, increases the requirement for manpower.
Free trade zones help improve the economic condition of the countries in which they are located by providing a host of employment opportunities. It is therefore easy to understand why many developing countries have actively promoted the creation of such zones. Aside from simply providing much-needed employment, these designated areas also help generate more foreign currency, thus improving the position of the country concerned in terms of foreign exchange.
While free trade zones do seem to provide so much benefit for the countries which decide to push for such programs, these are viewed by critics as harmful to local businesses. Since such zones are friendly to foreign corporations, the inequality in the treatment of foreign business in comparison with local business has the tendency to hurt local industries. Many countries have addressed this issue by creating programs that may allow local businesses to operate in such areas or that may give them economic perks to stimulate productivity and the creation of profits.