Certified Supply Chain Professional (CSCP) Practice Exam

What is one benefit of a free trade zone?

1. Increased customs duties

2. Exemption from customs, duties, and quotas

3. Restriction on the duration of storage

4. Higher tariffs on finished products

The correct answer is: Exemption from customs, duties, and quotas

A free trade zone provides significant advantages for businesses engaged in international trade, primarily through exemptions from customs duties, tariffs, and quotas. This allows companies to import goods and materials into the zone without facing the same costs usually associated with these transactions. As a result, businesses can reduce their overall expenses and improve cash flow, making it easier to manage inventory and operate more efficiently. By taking advantage of these exemptions, companies can process, assemble, or manufacture their products within the free trade zone before exporting them to other countries, often minimizing their overall tax burden. This strategic advantage can also lead to increased competitiveness in the global market, as companies can offer lower prices or expand their operational capabilities without the financial constraints typically tied to tariffs and other customs fees. In contrast, increased customs duties, restrictions on storage duration, and higher tariffs on finished products would discourage trade activities, leading to increased costs and reduced operational flexibility for businesses. Hence, the exemption from customs duties, tariffs, and quotas stands out as a crucial benefit of free trade zones, making it an essential consideration for companies looking to enhance their international trade operations.