Certified Supply Chain Professional (CSCP) Practice Exam

Why might a country establish a free trade zone?

1. To restrict foreign investments

2. To attract new businesses and foreign investments

3. To increase trade barriers

4. To regulate local businesses more tightly

The correct answer is: To attract new businesses and foreign investments

A country might establish a free trade zone primarily to attract new businesses and foreign investments. Free trade zones are designated areas where goods can be imported, processed, and re-exported without the intervention of customs authorities. This setup often includes tax incentives, reduced tariffs, and fewer regulations, making it highly attractive for both domestic and foreign companies. By creating a favorable business environment, the country can stimulate economic growth, foster innovation, and create jobs. Businesses benefit from decreased operational costs and increased access to international markets, which in turn drives competition and economic development. This approach aligns with the goals of many countries seeking to enhance their global competitiveness and economic resilience.