Top 10 Free Trade Zones with high economic activity: biggest players in the global market

There are a lot of various state associations in the world that exist for the purpose of creating better conditions for the movement of goods, services, and capital between countries. Among these trade unions, there are some giants – the largest free trade zones. Together, the economic potential of such zones makes up a significant part of the world GDP.

What Is a Free Trade Zone?

Free Trade Zones (FTZs), also called free commercial zones, are a sub-type of special economic zones. They are designated geographic areas, where selling goods and services is possible with zero or minimal trade barriers (tariffs, quotas, and taxes).

Free trade zones are created by governments of one or more countries in order to attract business. For this purpose, more favorable conditions are established within the Free Trade Zone than those that exist in the country or region, typically including:

• Lower or zero taxation;
• Simplified customs procedures and regulations.

Free zones can either be located within one country or cover the territory of several countries. Usually, they are created around ports, airports, logistics hubs, and borders.

In addition to geographic affiliation, free trade zones can also specialize in specific industries, such as manufacturing or technology, or they can be universal.

The main goal of FTAs is to promote economic growth and development by attracting foreign investment, increasing exports, and creating jobs. Due to the favorable business conditions in free trade zones, the companies located there incur lower costs and thus become more competitive.

The Main Advantages of Free Trade Zones

Today, there are thousands of Free Trade Zones in the world. Naturally, each of them has its strengths and weaknesses. However, certain advantages, which attract businesses to them, are common to all FTAs:

• Tax incentives. FTAs usually offer special tax conditions, including the following: reduction or elimination of import and export duties, as well as exemption from income, local taxes, and VAT;
• Simplified customs procedures. Companies in Free Trade Zones enjoy the benefits of simplified customs clearance procedures, which allow to reduce the clearance time and lower the costs of importing and exporting goods;
• Access to international markets. FTAs provide companies with access to international markets, helping to increase exports by providing favorable terms of trade and removing trade barriers;
• Infrastructure. Local authorities try to organize advanced infrastructure (such as transportation networks or telecommunications) in free trade zones to attract investors. The existence of already built roads, ports, railways, and other elements of infrastructure in the FTZ allows for reducing the investors’ logistics costs;
• Flexibility of regulations. Free zones have different rules and laws that result in more flexible and less constraining regulations, allowing companies to experiment with new processes, products, and technologies.

In addition to the advantages for investors, free trade zones also have some benefits for governments. Here are some positive factors:

• Creating jobs. FTZs with good business conditions attract international and national companies, which register legal entities and employ the local population;
• Attracting foreign investments. Due to more favorable conditions for activities (low taxes, developed logistics, etc.), free trade zones attract foreign companies looking for an opportunity to reduce their costs.

Find out the advantages of registering a company in the Free Trade Zone in the UAE.

Top 10 Largest Free Trade Zones in the World

There are around 3,000 Free Trade Zones in the world, located in 135 countries. Following is the description of the largest and most attractive FTZs.

The African Continental Free Trade Area, AfCFTA

The largest free trade zone in terms of area in the world is AfCFTA. It was created in May 2019 but became fully operational in January 2021. It covers 55 African countries with a combined population of over 1.3 billion. That also makes it the largest free trade area in terms of population and number of participating countries. The cumulative GDP of the latter is about $3.4 trillion.

United States-Mexico-Canada Agreement, USMCA

The USMCA is the second largest free trade area in the world and the first in terms of potential turnover. The US-Mexico-Canada Agreement came into force on July 1, 2020, replacing the North American Free Trade Agreement (NAFTA) that had existed since 1994.

The goal of the agreement is to remove trade barriers between participating countries, which should encourage economic activity. USMCA covers countries with a total population of more than 500 million people and a combined GDP of about $26 trillion.

The European Union

The third largest economy in face value and purchasing power parity after the US and China is the free trade area established by the European Union (the EU), which covers 27 countries. It is one of the largest economies in the world, with a total population of over 447 million people and a GDP of approximately $16.6 trillion in 2022.

Within the EU, the single market rule operates, which implies the free circulation of goods, capital, and people. The European Union has also concluded several free trade agreements with countries that are not its members, which makes it even more attractive.

Find out about the benefits of doing business in a  Free Trade Zone in Turkey.

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership, CPTPP или TPP-11

The trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam was originally based on the Trans-Pacific Partnership, which never worked due to the fact that the United States refused to participate in it.

The 11 member countries of the CPTPP agreement comprise 13.4% of the global GDP, which is approximately $13.5 trillion.

The ASEAN Free Trade Area, AFTA

This Free Trade Zone was established in August 1967 in Bangkok. It unites ten countries: Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam, Laos, Myanmar, and Cambodia.

By 2030, the participating countries are planning to become the fourth largest integrated economic partnership in the world, with a GDP of $4 trillion. This growth should be facilitated by an increase in the incomes of their combined population of 600 million. According to forecasts, over the current decade, about 65% of the inhabitants of these countries will form the middle class.

It is important to note that in 2010, the ASEAN countries entered into a free trade agreement with Australia and New Zealand, which increased the total GDP to $4.3 trillion, and the population of the trade union grew to 653 million people.

The agreement is supposed to come into full force by 2025. By then, almost all trade between the ASEAN states, Australia and New Zealand will be duty-free.

The Gulf Cooperation Council, GCC

Established in May 1981, this trade union includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE. These countries started the market integration process in early 2008. By 2015 it was completed and marked with the creation of a customs union.

As a result, the citizens of the countries received the following advantages:

• equal employment rights;
• freedom of movement between countries;
• free access to social insurance and pensions;
• the right for free movement of capital, including equal rights in real estate management;
• free access to education, health care, and other social services of all the Member States. 

However, today there are still some barriers to the free movement of goods and services in this zone. The combined population of the GCC trade union is about 57.5 million, and its GDP is around $3.7 trillion.

The Southern Common Market, MERCOSUR

The full members of this agreement are Argentina, Brazil, Paraguay, and Uruguay. Until 2016, MERCOSUR included Venezuela, but its membership has been suspended. The associated trading bloc countries are Bolivia, Chile, Colombia, Ecuador, Guyana, Peru, and Suriname.

The agreement aims to create a single market in Latin America, which should help promote the development of free trade and the movement of goods, people, and currency.

Since its foundation, the goals and objectives of MERCOSUR have undergone several changes and additions. Today, the association is limited to the customs union, within which there is an FTZ based on a common trade policy between member countries.

In 2022, MERCOSUR member countries generated a nominal GDP of about $5.1 trillion, making the bloc the 6th largest economy in the world. The trade union has also signed a free trade agreement with Israel, Egypt, Japan, and the EU, which has provided it with even more economic power.

The Pacific Alliance

The Alliance, created in April 2011, is the association of four South American countries: Chile, Colombia, Mexico, and Peru. All of them include some coastline of the Pacific Ocean, which explains the name. Its main goals are as follows:

• free movement of goods, services, and people among the member countries;
• stimulating the development and competitiveness of the participants;
• the prospect of further integration into the Asia-Pacific region. 

The combined population of all member countries of this Free Trade Zone is 230 million people, and their nominal GDP is $2.3 trillion.

In addition to removing trade barriers, the Pacific Alliance has launched several other projects. These are visa-free tourist trips, the common stock exchange, and joint embassies in several countries.

The Common Market for Eastern and Southern Africa, COMESA

This African economic community includes 21 countries: Djibouti, Egypt, Kenya, Madagascar, Malawi, Mauritius, Sudan, Zambia, Zimbabwe, Rwanda, Burundi, Comoros, Libya, Seychelles, Tunisia, Somalia, Eritrea, Ethiopia, Uganda, Eswatini, and Congo.

The population of this free trade zone is about 583 million people, and the total nominal GDP is $805 billion. Geographically, COMESA occupies almost two-thirds of the African continent, and its total area is around 12 million square kilometers.

The main aim of the union is to ensure the free movement of goods and services and to encourage the economic development of all participating countries.

The Eurasian Economic Union, EAEU

This association includes Russia, Armenia, Belarus, Kazakhstan, and Kyrgyzstan and has Free Trade Partnerships with Iran, Serbia, Vietnam, and China. In addition, more countries are preparing to join. The union started its work in January 2015. Its main goal is to organize a single market for goods, services, capital, and labor.

Member countries of the Eurasian Economic Union represent an integrated market with a total area of 20.26 million square kilometers and a population of around 181.27 million people.

Registering a company in a country participating in a Free Trade Zone opens up some business benefits. However, each zone has unique properties and characteristics. If you want to organize a business structure abroad and are looking for a jurisdiction that best suits your goals and objectives, contact us at: info@offshore-pro.info. Our experts will help you to choose the jurisdiction and provide all the necessary assistance in creating a company.