Free trade and protectionism

Importance of freeports in international trade

A freeport is a customs-free zone with the necessary logistics for the transhipment, consolidation, storage and minor processing of goods for re-export.

The purpose of the existance of freeports is to promote trade. Within the freeport areas, production and processing of goods can be carried out without the payment of any taxes on the produced goods. Even though customs duties are not charged on goods entering or leaving the freeport, port charges must be paid freeport is actually a port area.

Examples of freeports are Dubai, Singapore and Liverpool.

Restrictions on trade

There are certain ways in which trade can be restricted.

  1. Tariffs – These are taxes levied on imported goods. The result is that the imported goods have to be sold at a higher price to cover the cost of tax. The purpose of this could be to promote goods made locally in the country.
  2. Quotas – These are limits imposed on the quantity of certain goods that are allowed into a country. Quotas could be imposed to restrict import of goods which the government discourages people to buy.
  3. Embargoes – This is a complete ban on the import of certain goods. Most countries ban harmful items such as narcotic drugs, firearms and liquor etc.
  4. Administrative barriers – Administrative barriers include requirement of strict standard of quality and formalities involved in import procedure. The idea is to make import difficult and time consuming.