> The effect of Free Trade Zone (FTZ) to Malaysia

BY # GAN SHUE YING, TANG PUI KEI AND CHEONG  KUOK ZHONG 

Free Trade Zone (FTZ) is a territory where merchandise might be exchanged with no boundaries forced by customs authorities like tariffs or quotas. Malaysia government already divides FTZ into Free Industries Zone (FIZ) and Free Commercial Zone (FCZ). FIZ is where the manufacturing and assembly take place while FCZ is generally for warehousing commercial stock. The companies in the FIZ have to export at least 80% of the products and the raw materials are mainly imported. Then can enjoy duty-free imports of raw materials, equipments and products which are used directly in the production. In Malaysia, there are now 13 FIZs like Bayan Lepas FIZ and 12 FCZs like Tanjung Pelepas. Recently, Malaysia launched a world’s first Digital Free Trade Zone (DFTZ) which can promote the growth of e-commerce.

FTZ have many advantages toward Malaysia. First of the advantage of the FTZ to Malaysia is increasing the working opportunities and the employment rate because of the need of man power to smooth the high volume working process. FTZ also can help our country or local company explore the new market in the cooperative country which we did not explore before. Next, FTZ can attract more investment from foreign country to develop our country in particular field. Moreover, it can increase the benign competition and having the economies of scale which can benefit both countries by reducing the price of the product and the cost of the product.

            Although FTZ have its advantages, but it also have some disadvantages to Malaysia. The first disadvantage is the transactions costs are often substantial. The engagement set up cost is high and it takes long time to get the approval. Secondly, it may influence the competitive companies that are located outside the FTZ. The company in FTZ has a competitive advantage in the market by enjoying lower cost of production and higher profit. Besides, government forgoes customs revenue. In order to encourage the investment, government may offer foreign companies flexible trading law with no custom tax. Fourthly, there is problem of smuggling and fraud by authorities. They may smuggle the goods that is not being tax in FTZ for getting a huge profit. The fifth disadvantage is health hazards. Repetitive work and inappropriate shift work would lead to health problems for the workers.

            In conclusion, FTZ is important for Malaysia because it can help to boost the economy of the country.