Politics of Free Trade Zones

-DR. ABDUL RUFF

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I

Free Trade Zones (FTZ) and free trade agreements are now one of the global fashions in boosting international regional trade in favor of the economically stronger states.



A free trade zone (FTZ) or export processing zone (EPZ) is an area of a country where some normal trade barriers such as tariffs and quotas are eliminated and bureaucratic requirements are lowered in hopes of attracting new business and foreign investments. It is a region where a group of countries has agreed to reduce or eliminate trade barriers.

Free-trade zone, also called foreign-trade zone, formerly free port, an area within which goods may be landed, handled, manufactured or reconfigured, and reexported without the intervention of the customs authorities. A free trade zone is a designated area that eliminates traditional trade barriers, such as tariffs, and minimizes bureaucratic regulations.

Foreign Trade Zone is the term used in the USA. Free Trade Zone is the term used in other developed countries, such as those included in the EU. Export Processing Zone is commonly used in developing nations. Free, foreign, and export processing zones all fall under the umbrella of being free trade zones. The distinction between each term often depends on where a particular zone is located. Free trade zones are generally located near a country's ports of entry. For convenience purposes, locations with a close proximity to seaports and airports are commonly designated free trade zones. In some cases, free trade zone are designated outside these areas to accommodate a specific industry or trade purpose.

Free-trade zones are organized around major seaports, international airports, and national frontiers—areas with many geographic advantages for trade. Examples include Hong Kong, Singapore, Colón (Panama), Copenhagen, Stockholm, Gdañsk (Poland), Los Angeles, and New York Citylike. Alternative devices such as the bonded warehouse and associated systems are used in some large seaports like London and Amsterdam. Many countries designate certain areas within their borders as a free trade zone. Free trade zones help to minimize international trade barriers, enabling importers and exporters to operate under better economic conditions. However, many importers and exporters are unfamiliar with free trade zones and uncertain how to take advantage of them.

Free trade zones can be defined as labor intensive manufacturing centers that involve the import of raw materials or components and the export of factory products. Multinational corporations setting up in a zone may be given tax breaks as an incentive. Usually, these zones are set up in underdeveloped parts of the host country; the rationale is that the zones will attract employers and thus reduce poverty and unemployment, and stimulate the area's economy. These zones are often used by multinational corporations to set up factories to produce goods for huge profits.


The primary purpose of a free-trade zone is to remove goods for trade from a seaport, airport, or border in order to benefit the countries concerned equally. Only when the goods are moved to consumers within the country in which the zone is located do they become subject to the prevailing customs duties. Common economic benefits include the deferral or elimination of customs duties, exemption from certain taxes, and inverted tariff relief. Operating within a country's free trade zones offers many benefits to importers and exporters. Free trade zones also offer operational benefits such as indefinite storage opportunities, increased security and insurance on goods, and top-of-the-line operating facilities.

 


The world's first Free Trade Zone was established in Shannon, Co. Clare, Ireland Shannon Free Zone last century. This was an attempt by the Irish Government to promote employment within a rural area, make use of a small regional airport and generate revenue for the Irish economy. Free trade zones in Latin America date back to the early decades of the 20th century. The first free trade regulations in this region were enacted in Argentina and Uruguay in the 1920s. In 1999, there were 43 million people working in about 3000 FTZs spanning 116 countries producing clothes, shoes, sneakers, electronics, and toys. The basic objectives of EPZs are to enhance foreign exchange earnings, develop export-oriented industries and to generate employment opportunities.

 

In 1994, the USA, Canada and Mexico implemented the North American Free Trade Agreement (NAFTA). At the time, proponents of the landmark agreement said NAFTA would create hundreds of thousands of high-wage jobs in the USA. It was also supposed to pull Mexico’s economy into the First World and transform it into a robust market for American goods.  After seventeen years, it’s clear that NAFTA hasn’t lived up to expectations. Yet after the August recess, Congress plans to vote on three more free trade agreements — this time with South Korea, Panama and Colombia. With President Obama and politicians on both sides of the aisle under tremendous pressure to create jobs, the likelihood is high that they’ll pass.




II


The goal of a free trade zone is to enhance global market presence by attracting new business and foreign investments. Free trade zones are utilized by everyone from large manufactures to small businesses to individuals. Any person or entity that intends to import or export goods and can consider taking advantage of free trade zones.

Euro-Mediterranean Free Trade Zone is perhaps the much talked about trade zone today.


The Euro-Mediterranean Free Trade Area (EMFTA) is a free trade zone under construction since the Barcelona Declaration, a framework plan, was adopted in 1995. It is being built through a series of bilateral FTAs (called Association Agreements) between Brussels and each state bordering the Mediterranean, as well as so-called horizontal FTAs between the non-EU Mediterranean countries themselves, such as the Agadir Agreement.  The countries in question are Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, Palestinian Territories, Syria, Tunisia and Turkey.

Many people view the EU’s ambitions to build this special "partnership" with North African and Middle Eastern states — which involves not only trade and investment liberalization but deep political reform, what Brussels calls "approximation" of other countries’ legal and political institutions with its own — as both imperialist and neocolonial. This is all the more significant taking into account the United States’ plans to weave together a US-Middle East Free Trade Agreement (MEFTA).

EMFTA is supposed to be completed by 2010. However, an ongoing sustainability impact assessment of EMFTA commissioned by the EU already foresees important negative social and environmental consequences. Complicating things further, French President Sarkozy took the initiative to set up a Union for the Mediterranean, involving only the countries that border the sea, which was launched in July 2008. Further still, questions have been arising as to why the EU does not merge its Mediterranean FTA initiative with its GCC, FTA initiative.

EU seeks to begin FTA negotiations with S. Mediterranean countries. Sept 26 The European Union (EU) Foreign Affairs Council on Trade agreed to begin negotiations on free trade agreements (FTA) with Egypt, Jordan, Morocco and Tunisia. The Council agreed on the importance of sending a strong signal to the Southern Mediterranean countries which are ready to undertake economic and democratic transformation. Polish economic affairs minister Marcin Korolec chaired the meeting, as Poland holds the current EU Presidency. He said the Council welcomed the announcement by the European Commission that it will submit to the Council in October a draft legislation to begin negotiations on direct and comprehensive FTAs with the four countries. "The launch of those negotiations will depend on the interest and readiness of southern Mediterranean partners," he said.

On his part, EU Trade Commissioner Karel De Gucht said the EU will try to accelerate these negotiations, but noted that some countries want to wait until new elected, democratic governments are in place. "With Libya, it will take a little more time," said De Gucht. The ministers discussed the ongoing FTA negotiations with India and Ukraine and hoped to conclude the FTA with Ukraine by end of this year, said the Polish minister. They also discussed Russian membership in the WTO and hoped that discussion could be completed during the WTO (World Trade Organization) ministerial meeting in Geneva in December. De Gucht said that he expects to conclude FTA negotiations with India by next February, but admitted that outstanding problems remain.



III


A new Trans-Pacific trade pact is being discussed, demanding a new free trade deal being negotiated for the Pacific region include protections for workers rights, health care and the environment. The TPP includes the US, Vietnam, Brunei Darussalam, Singapore, Malaysia, New Zealand, Australia, Peru and Chile. However, China, India and Indonesia are not part of the negotiations. Trade ministers from nine Pacific Rim countries gathered recently in Chicago on Labor Day weekend to negotiate the Trans-Pacific Partnership Free Trade Agreement (TPP). Labor, environmentalists, consumer, faith based small business, farmers and public health organizations from the USA and globally are outraged negotiations are taking place in secret. A Labor Day protest is demanding transparency and a voice for workers and their communities in drafting the new treaty.  This is the first trade agreement negotiations initiated by the Obama regime, which is already encountering stiff opposition to passage of Bush regime initiated free trade agreements with Korea, Columbia and Panama over similar issues. The Citizens Trade Campaign (CTC) calls the TPP the next generation NAFTA and warns of job losses in the U.S., loss of tax revenues for struggling cities and states and a continued race to the bottom for workers here and in the Pacific Rim countries.

The objective of US negotiators is to guarantee US-based transnationals maintain domination in the Pacific-Asian market. The U.S. has dominated Pacific region trade since WWII, but the emergence of China and India as global powers is threatening that domination.  The USA already has FTAs with several of the countries involved, but U.S. negotiators hope the TPP will serve as the basis for a comprehensive free trade agreement covering all of Asia, and allow for other countries to join at a later date. Presently, U.S. trade with the TPP countries represents about 7 percent of total U.S. trade with Asian and 2 percent of global trade. Asian market constitutes 60 percent of global GDP and 50 percent of global trade.


The USA has promised the TPP will a "be a 21st century trade agreement" and has promised to include labor and environmental standards. But critics are wary since no draft treat text has been made public and powerful corporate lobbying groups have deeply influenced negotiations. Labor and its allies have a number of concerns with the framework being proposed for the treaty. Some of these issues are also contentious among the nations involved.

A 2010 joint declaration of labor federations in four countries, including the AFL-CIO, stated, "The TPP must at a minimum require that each party adopt and maintain laws and regulations consistent with the International Labor Organization core labor rights and effectively enforce those rights, as well as all domestic laws with regard to wages, hours of work and safety and health."  One serious concern is inclusion of an "investor-state" resolution process. This would allow corporations to challenge laws, regulations and court decisions of sovereign governments if they felt they interfered with the trade. Such provisions are part of NAFTA and other FTAs.  Another area is intellectual property rights. The U.S.-based pharmaceutical companies want to undercut competition from inexpensive generic drugs. They want to extend the protection for brand name drugs another seven years, longer than even the World Trade Organization mandates. This could even supersede domestic health care laws of Pacific Rim countries.  Other proposals would essentially handcuff government’s ability to regulate or even ban regulations that limit the size of financial institutions, erect firewalls between them or prevent the sale of toxic derivatives, including those that brought on the mortgage crisis.


The treaty would also remove protections and rules that ensure local programming content in the media. Pacific Rim countries would be at the mercy of US media transnationals. When negotiations take place in the shadows they are a huge benefit to corporations, because they talk among themselves, but if we can drag the negotiations into the public light, it will send a message that enough is enough.

US corporations want unrestricted access every where now to Australian government contracts. They want changes to Australian government purchasing policies, which allow for some local employment and which require all government contractors to implement workers’ rights."

 A few notes

The first lesson here is in international politics there are no free lunches. Free trade, therefore, is yet another method of  imperialism.

Developed nations continue to exploit the underdeveloped and developing ones. The invading states are permitted to loot the natural resources and cheap labor available in the host nation. The "guests" brig=be the politicians cutting across the parties, bureaucrats, media lords, police and even military establishment so as to  ensure "smooth" operations. However, it is not only the advanced nations that seek free trade zones, but a few developing nations that have made significant growth also promote this "free" trend for advancing their transnational operations , complicating the less developed countries and people.

More often than not, the domestic government pays part of the initial cost of factory setup, loosens environmental protections and rules regarding negligence and the treatment of workers, and promises not to ask payment of taxes for the next few years. When the taxation-free years are over, the corporation that set up the factory without fully assuming its costs is often able to set up operations elsewhere for less expense than the taxes to be paid.


Since every one who matters in the regime is sufficiently  bribed or taken care of  by other means, none makes any complaint about the inadequacy of FTZ. As a result, the regime is rendered impotent to tackle any problem affecting nation. For every thing the leaders hide behind the fake slogan of "national security" and the practice of strict secrecy maintenance always bailout the  corrupt leaders.

In international economic relations and international politics, most favored nation (MFN), like FTZ is a status or level of treatment accorded by one state to another in international trade. The members of the World Trade Organization (WTO) agree to accord MFN status to each other. The term MFN means the country which is the recipient of this treatment must, nominally, receive equal trade advantages as the "most favored nation" by the country granting such treatment. (Trade advantages include low tariffs or high import quotas.) In effect, a country that has been accorded MFN status may not be treated less advantageously than any other country with MFN status by the promising country. There is a debate in legal circles whether MFN clauses in BIT's include only substantive rules or also procedural protections. Exceptions allow for preferential treatment of developing countries, regional free trade areas and customs unions. Together with the principle of national treatment, MFN is one of the cornerstones of WTO trade law.  Most favored nation relationships extend reciprocal bilateral relationships following both GATT and WTO norms of reciprocity and non-discrimination. In bilateral reciprocal relationships a particular privilege granted by one party only extends to other parties who reciprocate that privilege, while in a multilateral reciprocal relationship the same privilege would be extended to the group that negotiated a particular privilege.

Free trade, therefore, is a double-edged sword. On the surface it appears as equal opportunity for everyone in the pact, promoting underprivileged nations.  While it has some advantages, it also carries some horrid disadvantages. The extent of disadvantages for any country in the free trade zone is directly related to economics and the attained level of technology for that country. This means that less industrialized members of a free trade region may be at a disadvantage until such countries overcome their technological obstacles and reach at par with them which is almost impossible.


Free trade regions may also impact some regions more than others in terms of the level of economic development. Some areas of the region may attract a greater level of economic development than others, resulting in the economic underdevelopment of some areas within the free trade zone. Underdevelopment could also impact the country's gross domestic product and depress the country's total exports as a result.



When countries open their international borders to member nations in the same free trade zone, they also open themselves up to the possibility of fierce competition which may come from other nations in the same free trade zone. All countries within the zone would be competing with one another for the same consumers. Because of the increased competition, some countries may appear to have gained some degree of competitive advantage against others.

Unless companies that are at a competitive disadvantage restructure their operations, they may not be in a position to catch up with their competitors. Restructuring is an expensive endeavor; it may involve the corporate management team, ownership, or the operational aspects of the firm.



For instance, the North American Free Trade Zone includes USA, Canada and Mexico. Because of the technological superiority of the unipolar USA over a developing country like Mexico, unemployment levels in Mexico might be higher than that of the USA because of fewer employment opportunities in Mexico compared to those in America.

Although both MFN and FTZ are generically good for the countries engaged in this exchange operation, the stronger ones have got the upper hand. At times, it so happens that such status is extended by one country to another for extra advantages. The guest nation o r nations exploit the host in all possible ways.  Hence weak nations hesitate to trust the big terrocracies when an “offer” is extended to set up industries. 

 Free trade zones are domestically criticized for encouraging businesses to set up operations under the influence of other governments, and for giving foreign corporations more economic liberty than is given indigenous employers who face large and sometimes insurmountable "regulatory" hurdles in developing nations. However, many countries, pushed by multinational corporations, are increasingly allowing local entrepreneurs to locate inside FTZs in order to access export-based incentives. Sri Lanka is vary of Indian offer for such zones because they are afraid that their own domestic companies would face problems from Indian corporations. Sri Lankans, like people in Bhutan and Nepal, might prefer Indian goods even if they are costlier with quality deficit than the local ones, but they argue, eventually the Sri Lanka with a weak economy and and technology would be the losers if FTZ is created for outsiders. 

The case of Sri Lanka may not be an isolated one but a general trend of coercive tactics many stronger nations apply on weaker ones to get more benefits from outside. USA, Europe, many Eastern nations like Russia, China, Japan, India, operating under the aegis of of the notorious UNSC and NATO terror syndicate, also want to loot as much resources as they can from other nations by such or similar  treaties and tactics. These foreign colonial capitalists throw some small bones at the greedy locals to achieve their imperialist objectives tactfully.

Weaker nations, even while getting into the foreign traps,  must also guard their scarce resources from the multinational and transnational owls and vultures! After all, Great Britain, claiming to democratize and modernize the world around it and beyond, had gone around the world to colonize many weak nations, including India, today's important colonizer, creating tensions in Asia.