What Is a Free Trade Zone?

Free trade area (Free Trade Area) refers to the signing of free trade agreements between member states to completely eliminate tariffs and quantitative restrictions on merchandise trade, so that goods can flow freely among member states. However, member states still maintain their own restrictions on imports from non-member states. Some free trade zones only implement free trade on some products. For example, the free trade goods in the "European Free Trade Association" are limited to industrial products, not including agricultural products. This free trade zone is called an "industrial free trade zone". Some free trade zones implement free trade on all goods, such as the Latin American Free Trade Association and the North American Free Trade Area. All trade in industrial and agricultural products in the zone are exempt from tariffs and quantitative restrictions. ^[1]

Free trade zone

Free trade area (Free Trade Area) means signing

Kyoto Definition Convention

The emergence and development of free trade zones have profound historical, economic, political, and cultural reasons.

Ancient

Britain pursues a policy of free trade. Mid-18th century to mid-19th century, completed in England

Free trade zones have evolved from free ports. It is usually located in the port area of the port or adjacent to the port area, especially in economically developed countries. For example, the United States has 92 foreign trade zones. As early as the early 1950s, the United States proposed that manufacturing industries with export processing as the main goal could be developed in free trade zones. In the late 1960s, some developing countries took advantage of this form and built special industrial zones and developed them into export processing zones. Beginning in the 1980s, many countries' free trade zones developed toward high-tech, knowledge, and capital-intensive developments, forming "technology-based free trade zones." ^[6-7]

The free trade zone allows foreign ships to enter and leave freely, foreign goods are imported duty-free, and quota controls on imported goods are lifted. It is also a further extension of the free port and is a special functional area opened to the outside world by a country.

In addition to most of the characteristics of a free port, the free trade zone can also attract foreign investment to set up factories, develop export processing enterprises, allow and encourage foreign investment to set up large commercial enterprises and financial institutions, and promote the comprehensive and comprehensive development of the region's economy. The limitations of the free trade zone are that it can cause distortions in commodity flows and tax avoidance. If there are no other measures to supplement it, it is likely that a third country will ship the goods into a member country with low tariffs or trade barriers in the integrated organization, and then transfer the goods to a country with high tariffs.

With the development of time, the development of free trade zones gradually presents the following characteristics:

Increasing number

The most typical is the rapid growth of the US Foreign Trade Area. In the late 1960s and early 1970s, the United States began to decline in the global economy. At the same time, the dollar depreciated and the number of unemployed increased. In this case, in order to stimulate the development of foreign trade, states have set up foreign trade zones one after another. By 1980, the number of free trade zones in the United States had increased to 77. By the end of 1994, the number of free trade zones had reached 199, and the number of trade zones reached 285, for a total of 484.

Functional Trend Synthesis

As the number of free trade zones continues to grow, the functions of free trade zones are also expanding. As early as the 1970s, the free trade area mainly based on re-exports and import and export trade and the free trade area mainly based on export processing have begun to merge with each other, and the functions of free trade areas have become more integrated. Raw materials, parts, semi-finished products, and finished products can be freely moved in and out of the zone. Import and export trade, re-export trade,

The establishment of a free trade zone will inevitably lead to trade diversion. Signing multiple free trade agreements at different times will make trade transfers more complicated. Due to the different effective time of multiple free trade agreements, different transition periods, different content of preferential arrangements, and different comparative advantages of partner countries, trade transfers may be repeated multiple times. Repeatedly. Therefore, it is necessary to coordinate the bilateral trade policies to reduce the losses caused by preferential trade arrangements.

The main WTO rules on free trade zones:

1.The purpose of establishing a free trade zone is to facilitate trade between the countries and regions that make up the free trade zone. Generally, the trade barriers should not be higher or stricter than those of the countries and regions that have not participated in the free trade when the free trade zone has not been established. The level of general restrictions imposed by tariffs and trade regulations imposed by members of the zone.

2. If any member decides to join the free trade zone or sign the provisional rules for the establishment of a free trade zone, there should be a plan and schedule for establishing a free trade zone within a reasonable period.

3. Any member who decides to join the free trade zone or enter into an interim agreement to establish a free trade zone shall promptly notify all members and shall provide them with information about the proposed free trade zone so that all members can consider it and provide it to each member. Make reports and recommendations. If all members find that the parties to the agreement are unlikely to form a free trade area within the proposed period, or that the proposed period is not reasonable enough, all members should make recommendations to the parties to the agreement if the parties to the agreement are not prepared to comply with these Proposed amendments to the provisional provisions would not maintain or implement the agreement.

4. All members should be notified of any important changes to the establishment plan or schedule of the free trade zone. If this change would endanger or unduly delay the establishment of a free trade zone, all members may request consultations with the members concerned.

5. The reasonable duration of the transitional interim agreement for the establishment of a free trade zone is allowed to exceed 10 years only in special circumstances. When members of an agreement consider that 10 years is not enough, it must provide the goods council for a longer period Full explanation.

6. The free trade zone shall be inspected by the working group of the World Trade Organization, and report on the implementation of the agreement to the Council of the World Trade Organization on a regular basis. In today's world, the development situation of free trade zones is very rapid. The number of free trade zones has reached tens in the global scope, covering all continents. It is one of the main forms of regional economic integration. Among them, the North American Free Trade Area and the ASEAN Free Trade Area are the most typical, and the North American Free Trade Area is also the largest free trade area in the world. Other free trade areas include the Central European Free Trade Area, the EU-Latin American Free Trade Area, and so on. Generally speaking, all countries in the world attach great importance to serving their own economic development through the establishment and development of free trade zones. Except for Japan and South Korea in Asia, almost all major trading nations in the world have joined the free trade zone, and some still have many. Members of a free trade zone. ^[28]

The impact of free trade zones on the region's economy can be broadly divided into two categories:

The first category refers to the direct impact on the trade development of each member due to the elimination of tariff and trade volume restrictions between members in the region;

The second category refers to the indirect effects of the accelerated economic growth of each member after the conclusion of the free trade zone due to the increase in production efficiency and capital accumulation in the region.

With ASEAN

Beginning in 1990, China-ASEAN trade volume increased at an average annual rate of about 20%. In 2003, bilateral trade volume reached US $ 78.2 billion. ASEAN has become China's fifth largest trading partner for 11 consecutive years. In the first nine months of 2004, bilateral trade volume increased by 35.6%. ^[30]

Basic positioning of the World Free Trade Area Federation

Association Name: World Federation of Free Trade Zones

Nature: Non-profit organization ^[32]

Conference summary

Name or characteristics	Country, region, city
Jebel Ali Free Zone	Dubai
New Free Trade Zone [34]	Nepal, Bangladesh, Bhutan, Maldives, Pakistan, Sri Lanka, India [34]
Multilateral Free Trade Area of the CIS member states [35]	CIS member states [35]
China-Japan-Korea Free Trade Area	China, Japan, South Korea
North American Free Trade Area (NAFTA)	United States, Canada, Mexico
American Free Trade Area (FTAA)	Argentina, Antigua and Barbuda, Barbados, Bahamas, Paraguay, Panama, Brazil, Peru, Bolivia, Dominican Republic, Dominica, Ecuador, Colombia, Costa Rica, Grenada, Haiti, Canada, USA, Mexico, Nicaragua, El Salvador, Saint Lucia, Saint Vincent and the Grenadines, Saint Kitts and Nevis Federation, Suriname, Trinidad and Tobago, Guatemala, Venezuela, Uruguay, Jamaica, Chile, Guyana, Belize, Cuba, Caribbean
Central European Free Trade Area (CEFTA for short)	Poland, Hungary, Czech Republic, Slovakia, Slovenia, Romania, Bulgaria
ASEAN Free Trade Area (AFTA)	Indonesia, Malaysia, Philippines, Singapore, Thailand, Brunei, Vietnam, Laos, Myanmar, Cambodia
EU-Mexico Free Trade Area	Austria, Belgium, Bulgaria, Cyprus, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom, Mexico
China-ASEAN Free Trade Area [30]	China, Indonesia, Malaysia, Philippines, Singapore, Thailand, Brunei, Vietnam, Laos, Myanmar and Cambodia
Colon Free Trade Zone, Panama	Panama, Cologne
Hamburg Free Trade Zone, Germany	Germany
New York Foreign Trade Zone 1	United States
China Pilot Free Trade Zone	China Shanghai, Guangdong, Tianjin, Fujian, Liaoning, Zhejiang, Henan, Hubei, Chongqing, Sichuan, Shaanxi, Hainan
Caribbean Free Trade Area	Antigua and Barbuda, Barbados, Bahamas, Belize, Dominica, Grenada, Guyana, Saint Lucia, Saint Kitts and Nevis, Saint Vincent and the Grenadines, Trinidad and Tobago, Montserrat, Suriname, Haiti, Jamaica.