Understanding Free Trade Zones

Study Notes

Free Trade Zone (FTZ) Overview

FTZs are designated areas where taxes and restrictions on business, employment, imports, and trade are relaxed.
They are crucial for international trade, providing unique regulatory and tax advantages for specific trade-related goods and services.
Predominantly located in developing nations, FTZs are often situated near ports or airports to facilitate trade.
Over 3,000 FTZs exist across 135 countries worldwide, linking global trade hubs to international financial markets.

Key FTZ Locations

U.S. Foreign-Trade Zone No. 26 in Atlanta, Georgia
Daegu-Gyeongbuk Free Economic Zone in South Korea
Shannon Free Zone in Ireland
Panama Pacifico Special Economic Zone in Panama
Dubai Airport Free Zone in the UAE

Operations within FTZs

Goods in FTZs undergo handling, storage, manufacturing, or reconfiguration before being re-exported.
Minimal intervention from local customs authorities often characterizes these processes.
FTZs serve as entry points for goods into the country, increasing efficiency in trade.

Anti-Money Laundering (AML) Risks

FTZs exhibit reduced AML controls compared to other areas of the host country.
Communication between FTZ authorities and local law enforcement is often diminished.
Weak procedures for inspecting goods and entities lead to poor recordkeeping and ineffective IT systems.
Sales and shipping invoices may not be rigorously examined, complicating shipment legitimacy.
Urban location and weak security measures allow for easier smuggling and illegal cargo manipulation.

Challenges in Monitoring

Relaxed oversight in FTZs creates an environment conducive to trade-based money laundering operations.
FATF notes some FTZs can be as large as cities, complicating cargo monitoring and inspections.
Zones exporting billions annually may lack competent authorities for adequate oversight of cargo and trade transactions.

Description

Explore the concept of Free Trade Zones (FTZs) and their significance in global commerce. This quiz delves into the advantages, regulatory features, and geographic locations of FTZs, particularly in developing countries. Test your knowledge of how FTZs facilitate international trade and economic growth.