A foreign-trade zone (FTZ) is

 Options:

a. a regional area within which trade with foreign nations is allowed b. a free trade agreement among several nations c. designed to limit exports of manufactured goods by placing export taxes on goods made within the zone d. designed to promote exports by deferring import duties on intermediate inputs and waving such duties if the final product is re-exported rather than sold domestically

The Correct Answer Is:

d. designed to promote exports by deferring import duties on intermediate inputs and waving such duties if the final product is re-exported rather than sold domestically

Correct Answer Explanation:

A foreign-trade zone (FTZ) is a designated area within a country that’s treated as being outside its customs territory for the purposes of customs duties and taxes.

The Correct Answer, (d), encapsulates the essence of an FTZ, as it’s specifically designed to promote exports by providing certain advantages to businesses operating within the zone. Here’s a detailed explanation:

(d) Designed to promote exports by deferring import duties on intermediate inputs and waiving such duties if the final product is re-exported rather than sold domestically:

Foreign-trade zones primarily aim to facilitate international trade and enhance a nation’s competitiveness in global markets. Businesses operating within these zones enjoy several benefits. They can defer paying customs duties on imported materials or components used in manufacturing goods within the zone.

This deferral of import duties helps businesses manage their cash flow better, as these duties are paid only when the final product leaves the zone and enters the domestic market.

Additionally, if the final product is re-exported to another country, the import duties on the materials used in its production are waived entirely, further encouraging foreign trade and enhancing the competitiveness of domestically produced goods in international markets.

Now, let’s address why the other options are not correct:

(a) A regional area within which trade with foreign nations is allowed:

This option is broad and doesn’t specifically define the purpose or advantages of a foreign-trade zone. It describes a geographical area where trade with foreign nations is permitted, but it doesn’t encapsulate the specific benefits and purpose of an FTZ, which focuses on providing incentives and advantages to promote international trade.

(b) A free trade agreement among several nations:

This choice describes a free trade agreement involving multiple nations, which is different from a foreign-trade zone.

Free trade agreements encompass broader economic and trade policies between nations to reduce barriers to trade, while an FTZ is a specific designated area within a country that offers certain advantages to businesses engaged in international trade.

(c) Designed to limit exports of manufactured goods by placing export taxes on goods made within the zone:

This statement is contrary to the actual purpose of an FTZ. Rather than limiting exports, foreign-trade zones are designed to encourage and facilitate exports by providing various incentives to businesses.

They do not typically impose export taxes on goods made within the zone. Instead, they focus on deferring or waiving import duties on materials used for production, thereby enhancing a country’s export potential.

In summary, a foreign-trade zone is a designated area within a country that offers specific advantages and incentives to businesses engaged in international trade.

Option (d) accurately describes the primary purpose of an FTZ by emphasizing its role in promoting exports through the deferral or waiver of import duties on goods used for manufacturing, ultimately facilitating global trade and enhancing a nation’s competitiveness in the international market.

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