Assessing Free Trade Zones

October 21, 2013

Global free trade negotiations have been stalled for nearly two decades, yet bilateral trade deals and free trade zones (FTZs) have compensated for this stagnation by continuing to enhance trade and growth, says Roger Bate, an adjunct scholar at the American Enterprise Institute.

  • FTZs have flourished in emerging nations, even within autocracies thatrhetorically oppose open trade.
  • FTZspossess many attributes of capitalist economies -- free exchange, low taxes, notariffs or other customs rules, and light regulation.
  • All of these traits can attract foreign companies, foreign investment in domestic companies, industrial production andoverall wealth generation.

However, such zones are also troubling; they can produce several negative results including a strong mafia presence, massive counterfeit operations, tax evasion, money laundering and even terror financing.

  • Criminal syndicates are finding that the creation anddistribution of counterfeit goods carry lowerpenalties than narcotics trafficking, are much harder to detect and tend to be low priorities forauthorities.
  • Corrupt FTZs increasebusiness costs, deter the entrance of new entrepreneurs into the marketplace, exploit workers, decrease the quality of products bought and sold, and put all of us at greater risk through money laundering and financing of lethal actions.

At best, FTZs are workarounds that are desirable only when the political system is captured by vested interests that limit international trade. At worst, they are deniable locations for odious regimes to gain hard currency and even credibility.

Source: Roger Bate, "Are Free Trade Zones Assisting Capitalism or Criminals and Crony Capitalists?" American Enterprise Institute, October 10, 2013.

 

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