U.S. Foreign Trade Zones and Chinese Free Trade Zones: A Comparative Analysis

Abstract

There are many free trade zones in the United States and in China. Free trade zones have played an important role in the tremendous growth of the Chinese economy. One year ago, China established the Shanghai pilot free trade zone, and China plans to establish another free trade zone in Guangdong Province. Free trade zones increase manufacturing, jobs, and exports, all of which improve the economy.

This article compares and contrasts U.S. foreign trade zones with Chinese free trade zones and the laws regulating these zones. It explores the institutionalization of domestic and international rules of trade law and the theoretical framework of free trade zones. The article examines the legal framework of free trade zones, how they work, the performance of U.S. foreign trade zones to date, the economic benefits of the development of foreign trade zones in the U.S., and the difference between bonded warehouses (which are what most Chinese free trade zones are) and free trade zones. It explores the history of Chinese free trade zones, the laws governing these primarily export processing zones, and it provides an in-depth look at a few well-established Chinese free trade zones located in Shenzhen and Xiamen as well as an analysis of the new Shanghai zone and its performance in its first year.

This article also discusses the overall economic benefits of free trade zones in China. It offers a constructive critique of the Chinese free trade zones in view of the many economic challenges facing China today. Chinese free trade zones need more transparency, flexibility, the elimination of corruption and graft, and strict adherence to the rules of international trade. This article also provides some suggestions for the beneficial development of free trade zones in China as well as foreign trade zones in the U.S.

Keywords: China, free trade, free trade zones, foreign trade zones

JEL Classification: K33