To understand the history of free trade zones, we must look at the general category: Special Economic Zones (SEZs).
There are many different variants of the term SEZ. But they were all created for the same purpose.
What is a Free Trade Zone
A free trade zone is a type of special economic zone (SEZ), a designated economic area that is exempt from trade-related fees such as customs duties and taxes.
In these zones, goods manufactured, stored and handled are subject to different customs preferences. They are often granted exemptions and incentives to encourage investment.
The following is the OECD definition of a free trade area.
“Countries where tariff and non-tariff barriers to trade between members are generally eliminated but where there is no common trade policy for non-members”
In the words of the UN itself.
“…… Within defined parameters, they provide a regulatory regime for businesses and investors that is different from that normally applied in the broader national or local economies in which they are established.”
– United Nations Conference on Trade and Development
The first special economic zones, known simply as ‘free zones’, were designated areas, usually adjacent to a seaport, airport or located between two or more countries. These began in the 1960s and began to grow exponentially in the 1980s.
Today, there are over 5,400 Special Economic Zones in the world. Of these, 1,000 have been established in the last five years. Experts expect more than 500 new SEZs to be established in the coming years.
-Organisation for Economic Co-operation and Development (OECD)
The benefits of an FTA include
- increase foreign exchange earnings
- Promote trade and business opportunities
- create jobs
- Keeping logistics costs low
- Attracting investment
- Reduce red tape and bureaucracy
North American Free Trade Agreement (NAFTA)
Countries involved: USA, Canada, Mexico
Established: 1 January 1994
Total trade: $1 trillion/year
Total GDP: $24.9 trillion
Population: 450 million
EU Single Market
Participating countries: 28 EU member states, Iceland, Liechtenstein, Norway, Switzerland.
Founded: 1993
Gross domestic product: $14 trillion
Population: 500 million
African Continental Free Trade Area (AfCFTA)
Countries involved: 52 of the 55 member states
Established: 2019
Gross domestic product: $2.5 trillion
Population: 1.2 billion (largest free trade agreement by population)
Association of Southeast Asian Nations Free Trade Area (AFTA)
Countries involved: Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam, Laos, Myanmar and Cambodia.
Established: 1992
Gross Domestic Product: US$1.5 trillion
Population: 580 million
Total trade: US$1.7 trillion/year
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