A customs-defined area in which goods or services may be processed or transacted without attracting taxes or duties or being subjected to certain government regulations. A special case is the free port, into which goods are imported free of customs tariffs or taxes. Free trade zones have been approved at fifty-six locations in the United States, of which about thirty are operational. In these, customs duties are not paid until, and if, the goods are sold in the United States outside the zone. A plan was approved by the Federal Reserve Bank in 1980 for the setting up of free-trade zones for banks dealing in international finance. This enables the banks to service the accounts of multinational firms without attracting city and state taxes and also to be free from the normal banking regulations such as the FED’s reserve requirements and rate of interest ceilings.
Reference: The Penguin Business Dictionary, 3rd edt.