What is a Foreign Trade Zone and What Does it Mean for the Global Economy?

Wondering what a foreign trade zone is? These zones are specially set up and designated areas that are designed to draw in foreign investments. This means that these zones often feature considerable business benefits. Such benefits include tax free trading, subsidized office space, easy access to high speed internet, and other key features. For investors and international business persons, the trade zones are a great opportunity to invest and to run international businesses.

You might have heard of some of these free trade zones. For example, the United Arab Emirates and Dubai are known for their local trade zones. Because of these zones, Dubai has emerged as the financial and business capital of the entire Middle East. While Dubai may currently be the most famous city for free trade zones, it’s certainly not the only area offering such benefits.

India, for example, has set up its own “special economic zones” which are also designed to draw in foreign investments. India is home to a ton of highly educated technical talent. Unfortunately, much of India is unfavorable for foreign investments due to the poor infrastructure and burdensome regulations. The country, however, can design special trade zones to be more attractive to foreign investments. Kandla Special Economic Zone is an example of such a trade area in India. These trade zones often feature looser regulations that are better for international businesses, as well as better infrastructures.

Indonesia has its own trade zone too, called the Batam free trade zone. So too do Malaysia, Pakistan, the Philippines, and various other countries.

Why developing countries love special trade zones

One thing many countries that are home to special and free trade zones have in common is that they are “developing”. Developing countries often use special zones to draw in foreign investments. More developed countries often don’t launch special zones. That’s because they offer so many benefits that companies will move there and set up shop anyways. Many developing countries lack high speed infrastructures. They, however, can equip trade zones with high speed infrastructures relatively easily.

When it comes to advanced countries there are some exceptions, however. Cities, states, and provinces in developed countries will often offer special tax breaks and other benefits that make it similar to special trade zones. So even if you don’t want to travel somewhere exotic, like Dubai, you may find similar benefits nearby.

Foreign trade zones are very important for foreign trade. These zones help direct investments to key areas. These key areas are often equipped with extremely good infrastructures and other features. Yes, low taxes are certainly a part of the draw of such a trade zone. This is only a start. If you are looking to set up a global or international business, then trade zones should be at the top of your consideration list.

Foreign trade zone and foreign exchange

Often, trade zones make it easier to conduct foreign exchange trading. This is very important for international companies which need to be able to trade and exchange currencies in order to conduct their international business operations. Companies moving goods across international borders and paying staff in different countries need to be able to quickly and easily access foreign currencies.

Having access to a reliable, large foreign currency exchange is simply a must for any company who conducts foreign trade. Why? Goods from foreign countries have to be paid, staff has to be paid in local wages, and various other things have to be bought and sold, often in differing currencies.

Many special trade zones also offer examples from certain foreign trade regulations. Since many of the countries offering these zones have stricter import and export laws, this can be essential for international companies. This is another important reason why global companies tend to be drawn to these special economic areas.

As you have probably figured out, conducting international trade is a pretty complex process. At first, these special zones might seem intimidating and even more complex. However, they actually make conducting international trade much easier. If you want to conduct global business or engage in international trading, you should definitely give these different zones a close look

The best special trade zones

Which zones are the best? That depends tremendously on what you need to do, and what you want to accomplish. You need to examine each local country to see what opportunities it offers. You also need to look at the specific policies and exemptions for each given trade zone as they will have a big impact on your business.

While special zones are often set up for companies that conduct activities outside of investing, some trade zones may offer special benefits for investing firms too. You will have to check with the each zone to find out what the specific benefits are and what you need to do to tap into them. So make sure you take your time and examine all of the rules and regulations very carefully before you set up any offshore companies or do anything else.