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Breaking the “chain effect” of tariffs – foreign trade zones in the time of protectionism

Author

Listed:
  • Di Nino, Virginia
  • Cigna, Simone
  • Tatomir, Srdan

Abstract

Foreign trade zones (FTZs) are designed to promote economic development by favouring international trade, especially trade within global production networks. In FTZs, a substantial share of imports (ranging from 12-17% of total domestic imports) is manufactured and, in part, re-exported. FTZs can break the “chain effect” of tariffs because intermediate goods imported via FTZs enjoy preferential treatment or even duty exemption. This already occurs in the United States and is under consideration in China, where capital controls in FTZs are looser and tax advantages already exist. In the European Union, however, FTZs are mainly used to smooth out customs processes, while an import duty suspension scheme is used to grant favourable treatment to imports of intermediates. JEL Classification: E23, F10, F13

Suggested Citation

  • Di Nino, Virginia & Cigna, Simone & Tatomir, Srdan, 2020. "Breaking the “chain effect” of tariffs – foreign trade zones in the time of protectionism," Economic Bulletin Boxes, European Central Bank, vol. 1.
    • Handle: RePEc:ecb:ecbbox:2020:0001:3
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    More about this item

    Keywords

    Foreign Trade Zones; Tariffs; Trade;
    All these keywords.

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • F10 - International Economics - - Trade - - - General
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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