Free zones will be key to post-virus world

The Mongol warriors led by Genghis Khan wreaked havoc in the 14th century as they swiftly moved from east to west, all the way to Vienna. The legendary Golden Horde left behind panic and ruins, but also helped spread a disease that eventually would prove even more disruptive for Europe: the Black Death or bubonic plague.

Not only did this disease wipe out half of the European population, it also caused the definitive closing of the Silk Road trade routes. The European nobility no longer had access to silk, but also ivory, perfumes, incense, pepper and any other product that came from the Far East.

Fast-forward to today, where the Covid-19 pandemic has had a similar effect on international trade, paralysing factories (the production of some computers has been reduced by up to 60%), putting international trips on hold and even prompting countries to close their borders. All of this has caused a profound impact on our globalised markets, where global value chains rely on the inputs of suppliers located in many different countries. 

In the globalised markets to which we have become accustomed, systems such as just-in-time manufacturing have become common practice. What was its main strength has now become its biggest weakness, and the concepts of supplier’s redundancy, supply chain diversification and security inventories will undoubtedly become the essence of the post-coronavirus commercial policy. Besides this, it will further accelerate the reshoring of industrial operations that has been going on for the past 10 years. 

In this challenging environment, free zones become a fantastic alternative to relocate industrial clusters to adjust to the new circumstances. Here is why. Free zones allow the rapid movement of machinery and equipment tax-free to world-class industrial parks, much closer to the producer and the final consumer. They facilitate the movement of raw materials and supplies free of paperwork, with automated processes and excellent logistics, allowing the creation of security inventories. They allow fast and real-time training of the workforce required for these processes.

But free zones also have to adjust to deliver in this fast-changing environment. Besides their typical ‘duty-free’ offer, they have to become ‘carbon-free’ and ‘virus-free’ via sophisticated hygiene standards for industrial and logistic processes. If they can do this, they will play a key role in the development of new, safer, cleaner and more redundant value chains. 

Martín Ibarra Pardo is the chairman of Araújo Ibarra & Asociados, a law firm based in Bogotá. He also serves as vice-president of the World Free Zones Organisation. 

This article first appeared in the April-June edition of fDi Magazine.