What is a Free-Trade Zone in International Trade?

Free Zones are zones established to encourage investment and production and accelerate foreign direct investments and technology entrance. They develop international trade within the political borders of the country in which they are located. Ordinary trade barriers such as taxes, tariffs, and quotas are abolished in Free Zones, and bureaucratic restrictions are eased. When compared to other places, Free Zones offer more incentives and exemptions for industrial and commercial activity. Goods imported from other countries can be processed, stored, and manufactured in this territory without being submitted to customs processes. The purposes of free zones are often varied, including manufacturing, storage, packing, research and development, insurance, banking, sorting, and assembly.

Although free zone practices differ from country to country, free zones are generally regions where various incentives are implemented. Because of their multiple applications around the world, free zones are assigned several names. There are six different types of free zones: Free zone, Free port, Free economic zone, Duty free zone (customs free zone), Foreign trade zone, and Free production zone.

Moreover, while production-oriented activities are typically carried out in developing-country free zones, trade-oriented activities are usually carried out in developed-country free zones. Free zones contain the free zone customs directorate, the free zone directorate, and the free zone operator.

The period of time goods can stay in the free zone is unlimited. Customs authorities supervise the free zone borders and entrance and exit points, as well as the goods entering, remaining in, or departing the free zone. Individuals or institutions must make an import declaration to customs for goods that will be withdrawn from the free zone and enter the country. Furthermore, if an individual or institution within the country wants to transport items to the free zone, they must additionally submit an export declaration.

For What Purposes Are Free Zones Established?

Free zones are one of the strategies implemented, particularly by developing nations, to enable quick integration into the global economy. The primary objectives of establishing free zones are to provide inputs for foreign trade and foreign direct investments that will contribute to export-oriented industries by encouraging the development of exports. In addition to that, increasing foreign currency inflows, and helping solve the problem of unemployment by creating new job opportunities are also the main goals.

No. 3218 Free Zones Act

Customs Law No. 4458 and Free Zones Law No. 3218 both contain provisions regulating free zones in Turkey. This law outlines the basic objectives for the establishment and operation of free zones. It includes export-oriented investment and production. This law will help to promote foreign direct investment and speed up the adoption of technology. It aids the economy in regularly redirecting its exports to ensure the requirement for external financing. The law is realized to benefit more from trade opportunities. 

Furthermore, the President of the country determines the locations and borders of the free zones. The President grants permission for the establishment and operation of free zones by public institutions and organizations, domestic or foreign real or legal persons. All kinds of industrial, commercial, and service-related activities can be carried out in free zones, which are deemed appropriate by the High Planning Council. Domestic or foreign real or legal persons may operate in the free zone with the approval of the Ministry of Economy.

Free zones in Turkey are considered outside the Turkish Customs Zone in terms of customs and foreign trade laws, but within the Turkish Customs Zone in terms of origin rules until the date of full membership in the European Union. The foreign trade regime is not applied between the free zones and other countries, and free zones. In order to operate in free zones, it is necessary to obtain an activity license first.

Finally, there is a total of 18 Free Trade Zones in Turkey. Some of them are; Adana Yumurtalık Free Zone, Antalya Free Zone, Denizli Free Zone, Kayseri Free Zone, Gaziantep Free Zone, European Free Zone (Tekirdağ), and Bursa Free Zone.

What Are the Advantages of a Free Zone?

The benefits of free zones, which may be found practically anywhere, to states, traders, and customers are substantial. The main advantage of the Free Zone is that it promotes transit trade development. Free zones are exempt from Value Added Tax. The energy consumed in these areas is less expensive than in other areas. It benefits the state’s economy by increasing export-oriented production and investment. Free Zones help to expand transportation networks and allow foreigners to invest directly. It also advances technological projects and directs exports through the benefits it offers to businesses. It promotes the growth of international trade. Utilization of company tax exemption in free zones is a significant benefit to traders.

In Free Zones, there is no income tax. Free Zones, with their adaptable and commercial structures, help to improve trade volume. It increases import transactions as well as exports. Finally, Free Zones support individual institutionalization.

What Activities Are Carried out in Free Zones?

All types of industrial, commercial, and service-related activity are permitted in free zones authorized by the High Planning Council. Production, trading, warehouse management, office renting, assembly-disassembly, maintenance-repair, banking, insurance, offshore banking, financial leasing, and other disciplines are included. The activities allowed in the Free Zone may differ from one country to another.

Decommissioned land parcels, general and detached warehouses, offices and open stock spaces, and ready-made production facilities in Free Zones are available for rent or title deed ownership to investors. In Free Zones, where cost competition and bureaucracy are minimized, all types of infrastructure services (electricity, water, natural gas, wastewater, treatment, road, communication) are provided. Construction contracting, public catering, IT, insurance, maintenance and repair, loading/unloading, consultancy, private security, and other services are offered in free zones such as the European Free Zone. It also provides different kinds of services to its investors.

In summary, trade relations are conducted in accordance with the rules established by the countries’ regulations. Free Zones are places with large volumes and advantages that are separated from one another by these borders.

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