Free Trade Zones in Malaysia

A free trade zone (FTZ) 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 zones can be defined as labor intensive manufacturing centers that involve the import of raw materials or components and the export of factory products. 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 (such as clothing or shoes). Free Trade Zones are also known as Special Economic Zones in some countries. Special Economic Zones (SEZs) have been established in many countries as testing grounds for the implementation of liberal market economy principles.

SEZs are viewed as instruments to enhance the acceptability and the credibility of the transformation policies and to attract domestic and foreign investment. In 1999, there were 43 million people working in about 3000 FTZs pning 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. Historical Development of Malaysia’ Free Trade Zones

Export-processing or Free Trade Zones have been design as special are in which foreign or domestic firms may manufacture or assemble goods for exports without being subjected to the normal custom duties on imported raw materials or exported products. As a matter of fact, the South Korean government describes its “Zone” in the following manner. Free Trade Zones A Free Zone is an area declared by the Minister of Finance under the provision of Section 3(1) of the Free Zones Act 1990. It is mainly designed to promote Centerport trade and specially established for manufacturing companies that produce or assemble products mainly for export.

A Free Zone comprise of a free commercial zone for commercial activities which include trading (except retail trading), breaking bulk, grading, repacking, relabeling and transit, and a free industrial zone for manufacturing activities. The activities and industries there in are subject to minimal customs formalities and it is deemed as a place outside the Principal Custom Area except in respect of Prohibition of Imports and Exports under Section 31 of the Customs Act 1967. Malaysia has Free Zones (FZ’s) in which export-oriented manufacturing and warehousing facilities may be established.

Raw materials, products and equipment may be imported duty-free into these zones with minimum customs formalities. Companies that export not less than 80% of their output and depend on imported goods, raw materials, and components may be located in these FZ’s. Goods sold into the Malaysian economy by companies within the FZ’s must pay import duties. In addition to the FZ’s, Malaysia permits the establishment of licensed manufacturing warehouses, which give companies greater freedom of location while allowing them to enjoy privileges similar to firms operating in FZ.

To-date there are 13 FCZs located at North, South and West Port of Port Klang, Port Klang Free Zone, Pulau Indah MILS Logistic Hub, Butterworth, Bayan Lepas, KLIA, Rantau Panjang, Pengkalan Kubor, Stulang Laut, Johor Port and Port Tanjung Pelepas. Port, shipping and maritime-related services play an important role in Malaysia since 90% of its international trade is seaborne. The government is presently promoting Port Klang (Westport and Northport) as a regional load and transshipment center and the government has designated Port Klang as a Free Commercial Zone. Other ports with Free Commercial Zone status are Penang Port and Johor Port.