Despite the problems wrought by the pandemic and supply chain disruptions, free zones have emerged as a solution to a world that has become increasingly centred around nearshoring, the green transition and innovation. In 2021, more greenfield projects were recorded into free zones than ever before, as multinationals eye scale and governments incentivise certain new sectors, such as green hydrogen production and electric vehicle plants. Martín Gustavo Ibarra, vice president of the World Free Zones Organization (WFZO), discusses free zones’ approach to sustainability and how the new global minimum tax rate will be applied.
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Q: Why do free trade zones help promote new regional value chains?
A: Free trade zones create a competitive environment, both in their infrastructure of buildings and public services, as well as in the special customs and foreign trade regime, which allows complete projects to be moved duty-free from one continent to another. This is the concept of the new regionalisation of foreign trade.
The Inter-American Development Bank estimates that nearshoring will attract close to $80bn in new investments for Latin America in the coming years.
Q: What is the role of free trade zones in decarbonisation?
A: The WFZO has promoted the concept of circular free trade zones, which aim to be carbon neutral in industrial, logistics and service parks. With this new concept of circular strategy, energy will be produced with solar panels, wind and water. In these free zones, energy will be based on green hydrogen production, which will guarantee free zone users can produce goods in the greenest way.
In addition, the proximity of the new production processes to consumers and suppliers will reduce, by up to five times, the carbon footprint produced by the transfer of raw materials from one continent to another and the return of the final product, resulting in cleaner logistics.
Q: Are free zones compatible with the new global minimum tax rate of 15% promoted by the OECD?
A: Free zones are fully compatible with the minimum global tax, since the essence of a free zone is the special customs and foreign trade regime that applies to both equipment and inventories of raw materials and inputs and final products. These are produced or distributed within the free zones, giving them both fiscal and procedural neutrality.
Income tax, which is the subject of the OECD initiative, is treated very differently in different countries around the world. For example, in some OECD member countries where a thousand free trade zones are located, they can have the same income tax treatment for companies located inside or outside their free trade zones. Others, such as Mexico (with its border free trade zones) and Colombia, have an income tax rate of 20%.
And then, there is a third group of countries that grant companies located in their free trade zones taxes of less than 15%. In this last case — and if the 15% minimum global tax is approved internally by the countries as of 2024 — this tax will not be applied to all the companies in the free zones, many of which are small and medium-sized, but will only affect those with an annual turnover of more than Ä7bn and a minimum profitability of 15%.
This issue was discussed in depth in June, at the last world summit of free zones in Jamaica, with the participation of the OECD.
Q: What is the role of free trade zones when it comes to the sustainability agenda and environmental, social and governance (ESG) principles?
A: The vast majority of modern free zones have ESG principles among their core values and have the best training and education facilities, medical, dental and sports services for their workers. Some, as in the case of Dubai, have developed the Happy Free Zone programme for the benefit of their employees’ wellbeing.