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What is a Free Trade Zone?
With a view to further opening up and promoting international economic cooperation, many countries, especially developing countries, have set up a Free Trade Zone. In a Free Trade Zone, some normal trade barriers such as tariffs and quotas are eliminated and some procedures are simplified in an effort to attract new business and foreign investment.
What follows is an example of an importer benefitting from a “Free Trade Zone”:
Usually cargo owners will store their imported cargo in the Free Trade Zone temporarily before it is sold to customers to avoid paying a huge amount of tax in one tranche. Although the period of storage will usually be less than 3 months, it is advised that cargo owners extend their cargo insurance policies to cover the risk of storage and the subsequent transit of their cargo in order to enjoy comprehensive protection.
Customers should also consider adding the tax for their cargo to the sum insured because once the cargo leaves the Free Trade Zone, cargo owners will need to pay relevant tax according to their category. In some practices, even if their cargo is stolen within the Free Trade Zone, the customer may still need to pay the tax on the stolen cargo. Furthermore, when part of the cargo is sold, the sum insured under the cargo insurance policies extension is lower, so customers are advised to extend their cargo insurance policies for a month at the beginning and review the sum insured monthly in order to save on the premium.