Free Zone Focus: how free zones are powering e-commerce

Crossborder e-commerce is booming and establishing itself as the new frontier of online sales, despite tariff wars and uncertainty in key markets. US e-commerce behemoth Amazon reported that crossborder transactions were up 50% in 2017, accounting for one-quarter of global revenues for sellers active on its platforms. Its Chinese counterpart, Alibaba, is also making strides to increase its crossborder footprint, and expects to import $200bn in the next five years to fulfil the needs of the Chinese market alone. Overall, global e-commerce already accounts for 12% of the world’s exports, and is expected to make up 30% of global trade by 2023, according to figures from the US Department of Commerce.

The rapid rise of crossborder e-commerce brings with it major challenges in logistics (the transition from containers to small packages), information and data management (a small package carries as much information as a container), tariff duties and taxation, as well as inspection and security for each delivery. All this calls for new, tailor-made solutions. Free-trade zones across the globe are gearing up to provide these, thereby becoming an essential link in the chain of online transactions.

There are already several examples of companies and countries investing in these specialised areas. China is leading the way: Beijing has set up 13 free zones for e-commerce (known as Pilot Free Trade Zones) since 2015, and this year has approved 22 more.

Major airport hubs are also heading in this direction. Hong Kong’s International Airport, the world’s busiest cargo airport and one of the busiest passenger terminals, is about to open a new logistics centre for crossborder e-commerce covering 11 floors. In the Middle East, the Dubai Airport Free Zone recently launched an e-commerce free-zone project called Dubai CommerCity.

Online retailers are pushing for the development of e-commerce logistics centres under a free zone regime. In Mexico City, Amazon has recently requested the application of a strategic fiscalised enclosure regime (the Mexican free-trade zone regime) for its 93,000-square-metre warehouse, and in the Free Zone of Barcelona, Spanish supermarket group Mercadona has begun construction of a 20,000-square-metre online distribution centre, which is expected to start operations in 2020.

At the same time, major US apparel stores that sell clothing imported from China take their containers to free-trade zones in Canada, where they break down their imports into small packages to take advantage of the $800 minimum threshold for duty-free deliveries to the US, avoiding the increased import duties for goods from China.

By virtue of the principle of extraterritoriality that governs free-trade zones, these areas are the best location for distribution centres of the main e-commerce platforms, allowing for faster delivery of their products without incurring additional costs related to import duties. Free-trade zones bring together supervisory authorities, customs brokers, producers and marketers, enabling the efficiencies and economies of scale that online consumption demands. As crossborder e-commerce booms, their number will only multiply accordingly.

Martín Ibarra Pardo is the chairman of Araújo Ibarra & Asociados, a law firm based in Bogotá. mibarra@araujoibarra.com