In simple words, free trade means free international trade. The classical economists like Adam Smith, Ricardo and others strongly favored free trade and this doctrine held the field for nearly one hundred years. How ever later, the countries all over the world began to adhere to the policy of imposing restrictions in one form or other.History and Development of Free Trade Zones
During the last 20 years, the labor charges in developed countries have increased substantially. According to a recent estimate, the labor cost is nearly 1 USD per hour for semi-skilled workers in most European Countries, U.S and Japan. This high labor cost was due to the acute shortage of both skilled and unskilled labor in most of these countries. Countries like Germany, France, Switzerland, Sweden, Austria, Belgium and England even imported laborers from other countries. Therefore, the cost of production involving a considerable labor content has become noncompetitive in these countries. Therefore, these countries prefer to send the raw materials and components to developing countries where trained man power and skill are available at a comparatively lower cost. So that they may have finished products which they can market at competitive prices.
In order to take advantage of this situation, various developing countries which have strong labour force began to organize Free Trade Zones (FTZs) in their countries. These FTZs not only provide employment to millions of people in these under developed countries and improve their economy, but also provide an opportunity to earn foreign exchanges to the extent of the conversion costs.… Read the rest