What is a Free Trade Zone?

About Free Trade Zones

The terms ‘Free Trade Zone’ (FTZ), ‘free zone’, ‘special economic zone’ and ‘freeport’ are often used interchangeably. At the most basic level, they refer to a geographic zone where customs duties are not collected.

FTZs are created to boost trade and investment. They are often located in maritime, rail- and air- ports. To attract businesses to their FTZs, countries often offer other incentives in addition to not paying customs duties. These can include liberalised tax, labour or other regulatory regimes.

This means FTZs can be more vulnerable to crime than the rest of the national territory. Although some FTZs have strong control measures in place, the absence of customs duties can reduce the incentive for customs agencies to fulfil their security obligations such as inspecting incoming goods.

For more details on crime in FTZs and how it can affect your organisation, please see ‘How can an FTZ expose my organisation to risk?’.

Free Trade Zone

If one thinks of an FTZ as a construction toy, it will always include a ‘no customs duties’ building block. It may also have other building blocks such as ‘tax incentives’, ‘relaxed labour regulation’, ‘immigration incentives’, ‘foreign direct investment regime’, etc. Image courtesy, Creative Commons Licence

For more information refer to: RUSI, ‘Improving Governance and Tackling Crime in Free-Trade Zones’, October 2020, pp. 36-38.