Certified Supply Chain Professional (CSCP) Practice Exam

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Study for the Certified Supply Chain Professional (CSCP) Practice Exam. Prepare with multiple choice questions, each accompanied by hints and explanations. Get ready to ace your exam!

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What is a potential disadvantage of establishing a free trade zone?

Increased revenues for the host country
Enhanced foreign investments
Loss of control over trade
Reduced revenues for the host country

The correct answer is: Reduced revenues for the host country

Establishing a free trade zone can lead to reduced revenues for the host country as businesses operating within these zones may be exempt from certain taxes and tariffs. This exemption, while promoting foreign investment and enhancing business operations, can significantly decrease the tax income that the host government collects. Without the revenue generated from traditional customs duties and other taxes, the government might struggle to fund public services, infrastructure, and other essential programs that rely on tax income. Furthermore, while a free trade zone can boost investment and economic activity, the associated tax breaks can create a situation where the anticipated benefits, such as job creation and local economic development, do not fully offset the losses in revenue. It is crucial for governments to carefully assess the balance between promoting trade and ensuring that they maintain sufficient revenue levels to support public needs and obligations.