International Free Trade Zone

Free Trade Zone, popularly known as FTZ, is an area where goods may be traded without any barriers imposed by customs authorities like quotas and tariffs. Free Trade Zone (FTZ) is a special designated area within a country where normal trade barriers like quotas, tariffs are removed and the bureaucratic necessities are narrowed in order to attract new business and foreign investments.

Free trade zones are developed in places that are geographically advantageous for trade. Places near international airports, seaports, and the like are preferred for developing free trade zones.

The Free Trade Zone can be defined as a labor-intensive manufacturing hub, which involves the import of components and raw materials, and the produced goods are exported to different countries.

The Free trade zones are located in the developing countries. Outsourcing the zone to the FTZ operator minimizes the bureaucracy and the businesses established in that zone may be given tax benefits. One of the main purposes of the free trade zones is to develop the economy of that location by providing more job opportunities, business options, manufacturing options, etc.

These zones are mostly used by transnational corporations for establishing factories for the manufacturing of several goods. The goods depend on the availability of the raw material, skilled labor, and well-equipped technical staff. Some of the oldest Free Trade Zones in the world are found in South America. Free trade regulations were endorsed in Uruguay and Argentina, as early as 1920. During the 60s and the 70s there was a rapid surge in the development of FTZs across the world.

There were around 3000 free trade zones across 116 countries in the year 1999, where nearly 43 million people were working. These FTZs produce various goods such as shoes, clothes, sneakers, toys, convenient foods items, electronic goods, etc. The other important purposes of such trade zones are the development of export-oriented units, increase in the foreign exchange earnings, and generation of employment opportunities.

Purpose of International Free Trade Zones

The main idea behind creation of free trade zones is to facilitate cross-border trade by removing obstacles imposed by customs regulations. Free trade zones ensure faster turnaround of planes and ships by lowering custom related formalities. FTZs prove to be beneficial both for the importers and exporters, as these zones are designed to reduce labor cost and tax related expenditures. Free trade zones help the traders to utilize the available business opportunities in the best possible way. FTZs promote export-oriented industries. These zones also help to increase foreign exchange earnings. Employment opportunities created by free trade zones help to reduce unemployment problem in the less developed economies.

International Free Trade Zones

International free trade zones are placed mostly in developing countries. It was in the initial decades of the 20th century that the free trade zones in Latin America came into prominence. International FTZs are spread over 116 countries across the world. Among the major products that are produced in free trade zones electronics goods, cloths, toys, and shoes are worth mentioning.

The setting up of Free trade zones have also been criticized, for encouraging commercial activities sometimes under the influence of corrupt governments, and for providing the multinational corporations with more economic liberty. A number of developing countries have allowed the local industrialist to set up units located within the free trade zones, in order to exploit the export-based incentives.

The governments of these countries provide relaxation of the rules pertaining to environmental protection and negligence to the workers, tax holiday for the first five years, and sometimes the initial cost of setting up of the production unit.

Major FTZs

Some of the major free trade zones, which have gained considerable importance over the years:

CUSTOMS PAYMENTS

Task 1. Read and translate the text.

       Revenue collection and protection of economic interests of the country have always been the principle functions of the Customs.

       The legal act the Customs appliesto fulfill its fiscal function is the Statute of the Customs Union “On Customs Tariff”.

       Tariff is a duty or a tax, levied on goods that are imported or exportedacross theborder of a country or a group of countries that have formeda customs union.

Historically there have been three types of tariffs:transit, export and import.The most significant of these areimport tariffswhich are classified as either protective or revenue. Protective tariffsare designedto protect domestic industriesandagriculturefromforeign competition by raising the price of imported goods. Revenue tariffs are designed to obtain revenue and provide a major source of income for the federal government. These two types are closely related. Protective tariffsraise revenue and revenue tariffs give some protection to domestic producers.

There is one more type of tariff – a preferential tariff. It is an importduty, at especially low rate,which is applied in respect of goods imported from a country that is being favored. Usually preferential tariff is exchanged exclusively within the countries of the customs union and is not extended to outside countries.

       The amount of tax collected is called the customs duty. If the duty is imposed according to thephysical quantity of the goods (per ton, per meter, per item, etc.), it is called specific duty. When the duty is charged by weight, it is calculatedof the net weight of the article excluding the weight of any container.

       If they are levied according to the value of the goods, they are known as ad valorem* duties. When an article containsmore than one ingredient, the duty is calculated on the proportionate value of the dutiable ingredients. For advaloremduty the value of an article is assessed according to the price of the article on the open market. This value includes freight, insurance, commission, packing, containers and other costs.

       VAT (Value Added Tax) is an indirect tax on the final consumption of goods and services in the home market.

The excise taxis levied on most imported items considered luxury goods, such as cars, jewelry, alcohol and tobacco.

Goods will be released only after the payment of duties. In the Russian Federation all Customs duties are payable both in Russian and foreign currencies. Payments are accepted in cashandby cheque.

* Ad valorem is a Latin term meaning “according to the value”.

Working on the text

Task 2.Write out from the text: a) all international words;b) economic terms.

Task 3. Give the Russian equivalents of the following:

a) protection of economic interests;

b) to protect domestic production from foreign competition;

c) to obtain revenue;

d) the physical quantity of the goods;

e) is charged by weight;

f) the proportionate value of dutiable ingredients;

g) final consumption of the goods and services;

Task 4.Many English words can be used both as a verb and a noun without any change in the form. Mark how these words are used in the text:

V- verb; N – noun.

interest - N

function

amount

act

tax

cost

group

form

price

design

border

raise

value

freight

Task 5. Find in the text the English equivalents of the following:

обеспечение поступления налоговых сборов в государственный бюджет; основная функция таможни; применять; взимать; отечественный производитель; иностранные конкуренты; обеспечить источник дохода; налагать; количество; начислять; чистый вес; стоимость товара; транспортировка; страховка; иностранная валюта; НДС; косвенный налог; потребление

Task 6.Find the words in the text that follow the verbs below:

a) to form

b) to protect

c) to provide

d) to raise

e) to apply

f) to obtain

g) to contain

h) to levy

i) to design

j) to assess

k) to include

l) to accept

Task 7. a)Match to make word

combinations:

revenue                   weight

home                       duties

proportionate           consumption

final                      collection

net                            market

protective                 acts

excise                       tariffs

legal value

b) Make sentences with these word combinations.

Task 8. Find the words or phrases in the text that mean the following:

Task 9. Say if it is true or false. Correct the false statements.

1. Protective tariffs are designed to provide a major source of income for the federal budget.

2. Revenue tariffs are aimed at protecting domestic production from foreign competition.

3. Ad valorem duties are levied according to the value of goods.

4. Specific duties are imposed according to the value of goods.

5. When duty is charged by weight it is calculated including the weight of the container.

6. When an article contains more than one dutiable ingredient, the duty is calculated on the proportionate value of the dutiable ingredients.

7. Freight, insurance, commission, packing and containers are not included in the value fixed for assessing ad valorem duty.

8. All customs payments in the Russian Federation are accepted in cash only.

9. Excise is the duty charged on goods such as oil products, tobacco, alcohol, jewelry and automobiles.

10. Value Added Tax is a tax on the final consumption of goods and services in the home market.

Task 10. Answer the questions:

1. What functions of the Customs have always been the principle ones?

2. What legal act do the Customs authorities apply?

3. What is tariff?

4. What are protective tariffs designed for?

5. What are revenue tariffs meant to do?

6. What is a preferential tariff?

7. What duties are called specific?

8. How are ad valorem duties assessed?

9. What other costs are included in the value when they assess ad valorem duties?

10. Is the weight of containers included when the duty is charged by weight?

11. How are the duties calculated when articles contain dutiable ingredients?

12. How can payments be made?

13. What is excise?

14. What excise duties are there in Russia?

15. What is VAT?