Prospects for free zones under FTAA

Prospects for free zones under FTAA

Published Jan 2002

Author

H. Braga

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To what extent do the free trade zones in Latin America aid development?

The support for free trade zones appears to be growing worldwide. In Latin America, although the general concept of free trade zone is uniform in nature, there are a number of different types of free trade zones which vary according to national characteristics and the goals set for them by national governments. Despite the success and general acceptance of free trade zones in some countries, different levels of reaction to this instrument can be found in other countries. This paper reviews the existing free trade zones in Latin America and explains the role they can play in the development process.

The paper starts by identifying six broad categories of Latin American free trade zones:

  • the Mexican and Central American and Caribbean "maquiladoras"
  • the Brazilian Export Processing Zones (EPZs) and the Argentine "zonas francas"
  • the Manaus free trade zone and the Argentine "Area Aduanera Especial de Tierra del Fuego"
  • other MERCOSUR free trade zones (Uruguay and Paraguay)
  • Andean Community free trade zones
  • Chilean free trade zones

The author then explains how free trade zones can play a key role in promoting economic development by attracting investment, generating employment and foreign exchange earnings and by reducing regional imbalances. He argues that despite some unsuccessful free trade zones, in most cases free trade zones have been successful in reaching the goals set at their creation.

After addressing some issues concerning the WTO regulations, the author concludes that free trade zones are beginning to be seen as an important contributing factor for development promotion. In order to increase the possibilities of successful free trade zone development, the author recommends improving the usually required preconditions. These preconditions include among others :

  • location and infrastructure
  • highly skilled labour force
  • a policy environment favouring exports
  • a good attractive business climate

Finally, the author suggests that the creation of the Free Trade Area of the Americas (FTAA) - which is the expansion of the North American Free Trade Agreement (NAFTA) to every country in Central America, South America and the Caribbean, except Cuba - will favour the Latin American free trade zones and help these free trade zone organizations in developing a closer relationship.

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