Question

.Regional free trade zones are becoming popular. What are the negative and positive aspects of such trade zones? How will they help or hinder global organizations?

Answer 1

Regional free trade zones are those specified demarketed geographical areas , created by Regional economic integration trading agreements between blocs of countries , where exported or imported goods are landed, stored or reconfigured and re-exported and are not subject to customs duty. They are generally promoted by different countries to increase bi-lateral trades and strengthen relationship with neighbouring countries and thus, the regional economic dynamics.

There are positive and negative aspects of such trade zones.

The advantages are:

1) Growth & economic prosperity of region - strengthening economy, trade activity, building of eonomic & social infrastructure to boost trade and economic development

2) Increased regional competition, which consequently increases a country’s efficiency, in order to be on par with its competitors.

3) Results in specialization of production based on efficiency and factor endownment

4) Elimination of monopoly

5) Regional consumers have access to large variety of goods & services with high purchasing power

6) Deferral, reduction, or elimination of certain duties including exemption from inventory tax, keeping in view the regional interest and trade specialization of participating countries

7) Relief from inverted tariffs , resulting in payment of minimum or no tariff, thereby resulting in the elimination of any costs associated with importing raw materials and goods to manufacture essential goods & services

8) Duty exemption on re-exports, thereby making it possible to bring regional balance in the availability of goods & services between participating countries

9) Duty elimination on waste, scrap, and yield loss resulting in proper planning & implementation of waste management system in the region

10) Weekly entry savings thereby resulting in savings on custom brokerage fees and thereby resulting in reduction of bureaucratic headaches and costs associated with entry filings.

11) Indefinite storage and Improved compliance, inventory tracking, and quality control

12) Waived customs duties on zone-to-zone transfers within regional trade zone

The negatives of Regional trade zones:

1) It may result in geo-politization of the region

2) It may cause hindrance to the access of passage between two regional free trade zones

3) There would be threat to intellectual property rights

4) Lowered tax revenues

Regional free trade zone may not hinder the global organization. The global organization would have assured market. A country can have more than one bi-lateral trade agreement. This forms the basis on which the country can be a member of two or more regional free trade zones. Thus, in a way, the world would become more intergrated. The social & economic infrastructure development resulting out of it would help global organization to increase trade agreements with reigional & local companies. The global organization can reap the benefit of low cost production & services. They would also get relief from complex rules & regulations that generally become hindrance to reach a business pact.