Is it time for Electronic Free Trade Zone?

Is it time for Electronic Free Trade Zone?

The Executive Chairman of the Alibaba Group, Jack Ma, seems to think so. In his recent address at the St. Petersburg International Economic Forum he called for the establishment of online free trade zones. These e-hubs would be focused on increasing the participation of small business in global trade who due to their size often face challenges plugging into the global market place.

But what exactly is an Electronic Free Trade Zone?

Free Trade Zones go by varying names depending on the policy objectives and priorities of the country that implement them.  However, no matter the policy objectives or name, Free Trade Zones bare  – Special Economic Zones (SEZ), Free Zones, Enterprise Zones, etc – have some commonalities. According to the World Bank they are defined as:

Geographically delimited areas, usually physically secured (fenced-in), single management/administration, eligibility for benefits based upon physical location within the zone, separate customs area (duty-free benefits) and streamlined procedures.

Free Trade Zones are development tools used by governments to attract, and facilitate investments that act as catalysts to diversify whole or targeted segments of their economies. Logically then an Electronic Free Trade Zone would simply therefore be an electronic version of the above. In other words an e- commerce tool used to by governments to attract investments that would act as catalysts to strengthen the participation of small businesses in global trade. The idea then of a Electronic Free Trade Zone is an intriguing one indeed. This especially true where focused on giving small business opportunities to trade globally.

However, there is one major issue that needs to be addressed. And that is if Free Trade Zones are “geographically delimited areas” by definition they are bound by being physical defined places. However, electronic platforms by definition are not so bound. Therefore, we seemingly have a contradiction here. So did Jack Ma get it wrong?

Not necessarily.

To find out why I think so, stay tuned for part II.

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