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U.S. Foreign Trade Zones of the United States, Free-Trade Zones of the World, and Their Impact on the Economy, Journal of International Business and Law Volume 12 | Issue 2 Article 11 2013 U.S. Foreign Trade Zones of the United States, Free- Trade Zones of the World, and their Impact on the Economy Susan Tiefenbrun Follow this and additional works at: http://scholarlycommons.law.hofstra.edu/jibl Part of the Law Commons Recommended Citation Tiefenbrun, Susan (2013) "U.S. Foreign Trade Zones of the United States, Free-Trade Zones of the World, and their Impact on the Economy," Journal of International Business and Law: Vol. 12: Iss. 2, Article 11. Available at: http://scholarlycommons.law.hofstra.edu/jibl/vol12/iss2/11 This Legal & Business Article is brought to you for free and open access by Scholarly Commons at Hofstra Law. It has been accepted for inclusion in Journal of International Business and Law by an authorized administrator of Scholarly Commons at Hofstra Law. For more information, please contact [email protected]. Tiefenbrun: U.S. Foreign Trade Zones of the United States, Free-Trade Zones o U.S. FOREIGN TRADE ZONES, TAX-FREE TRADE ZONES OF THE WORLD, AND THEIR IMPACT ON THE U.S. ECONOMY Susan Tiefenbrun* I. INTRODUCTION ................................................................ 151 A. Background of FTZs. .............................................................................................. 151 B. W hat are FTZs and SEZs? ...................................................................................... 152 C. Stereotypes and Types of FTZs. .............................................................................. 153 D. Export-increasing Function of FTZs ...................................................................... 153 E. O bjectives of FTZs .................................................................................................. 154 F, Global Proliferation of FTZs. ................................................................................. 154 G. Success and Failure of FTZs .................................................................................... 155 1. W hy D oes a FTZ Fail? ............................................................................................. 155 2. What Accounts for the Success of a FTZ? ............................................................. 156 H . Threats to FTZ Expansion. ...................................................................................... 157 I. N am es of Zones ....................................................................................................... 158 1. Free trade zone ...................................................... 158 2. Free port ............................................................ 158 3. Transit Zone .............................................................. 158 4. Free Perimeter ........................................................... 158 5. Export Processing Zone (EPZ) ................................................................................ 158 6. Single Factory EPZ ....................................................... 158 7. Enterprise zone ........... ............................................... 159 8. Specialized zone ...................................................... 159 J. FTZ Benefits to Importers and Exporters. ............................................................. 159 K . Statistics on FTZs ................................................................................................... 159 L. More About the Terms Related to Free Trade Zones, ............................................ 160 M . History of Free Trade Zones. .................................................................................. 166 N. Free Trade Zones vs. Free Trade Areas ................................................................. 166 I. FOREIGN TRADE ZONES IN THE U.S........................................................................... 167 III. FREE TRADE ZONES OF THE WORLD....................................................................... 171 A. Economic Performance and Impact of Free Trade Zones ...................................... 171 B. Specific Free Trade Zones of the World .................................................................. 174 1. C hina ......................................................................................................................... 174 2. R ussia ................................................................................................................. 175 3. North K orea ....................................................................................................... 176 4. Japan .................................................................... 177 5. Vietnam .................................................................. 177 6. Cambodia ............................................................... 178 7. Cyprus ...... .......................................................................... 178 8. Africa .............................................................................................................. 178 9. Kenya...................................................... 179 10. G ambia ............................................................................................................ 179 11. Burundi ............................................................................................................ 180 * Professor of International Law 149 Published by Scholarly Commons at Hofstra Law, 2014 1 Journal of International Business and Law, Vol. 12, Iss. 2 [2014], Art. 11 THE JOURNAL OF INTERNATIONAL BUSINESS & LAW 12. Algeria ..............................................................................................................180 13. M iddle East .......................................................................................................180 14. Central Am erica ...............................................................................................180 IV. FREE TRADE ZONES AND THEIR SERVICES .............................................................180 V. FREE TRADE ZONES AND THE EUROPEAN UNION ..................................................182 VI. MAJOR BUSINESS BENEFITS OF FREE TRADE ZONES ..........................................182 A. No Customs Formalities ...........................................................................................182 B. Improved Cash Flow ................................................................................................183 C. Owner Access to Merchandise .................................................................................183 D . Show room Space Available ......................................................................................183 E. A ccounting A dvantages .. .....................18414.................................................................. F. Reduced Insurance and Duty Costs ..........................................................................184 G. Assembly of Domestic with Foreign Goods ..............................................................184 H. Ideal Manufacture Location of Goods .....................................................................184 I. Processing or Manipulation of Goods ......................................................................185 J. Packing, Repacking, and Labeling ...........................................................................185 K . Easy to D iscard G oods .............................................................................................186 L. Wide Variety of Products Handled ..........................................................................186 VII. SOME PRACTICAL ASPECTS OF USING A FOREIGN TRADE ZONE IN THE UNITED STATES OR A FREE TRADE ZONE IN THE WORLD ............................... 186 A. Protection Against Theft .........................................................................................187 B. H elps Trade Balance ...............................................................................................188 C. Typical Processing Transaction ...............................................................................189 D. Tax Treatment Favorable for Zone Users ................................................................189 E. Tax Treatment: Domestic Users and Foreign Exporters into USA FTZs Should Avoid "Permanent Establishments" and "Being Effectively Connected" ........................190 VIII. CUSTOMS-RELATED ISSUES FOR USERS OF FREE TRADE ZONES ..................191 IX. AMENDMENTS PROPOSED BY U.S. FOREIGN TRADE ZONES BOARD TO FACILITATE INTERNATIONAL TRADE .....................................................................192 X. ENTERPRISE ZONES ...........................................................................................................196 A. Enterprise Zones, Empowerment Zones, and Their Public Service to the U.S. E conom y ................................................................................................................196 B. Enterprise Zones in the World and Their Economic Benefits .................................196 XI. APPLICATION OF NATIONAL LAWS TO FREE TRADE ZONES ............................199 XII, TAX BENEFITS OF FOREIGN TRADE ZONES IN THE U.S ..................................... 199 A. Corporation Income Tax and Payment ...................................................................199 B. Corporation Alternative Minimum Tax ..................................................................200 C . C apital G ains ...........................................................................................................201
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