Special economic zone

A special economic zone (SEZ) is an area in which business and trade laws are different from the rest of the country. SEZs are located within a country's national borders, and their aims include: increased trade, increased investment, job creation and effective administration. To encourage businesses to set up in the zone, financial policies are introduced. These policies typically regard investing, taxation, trading, quotas, customs and labour regulations. Additionally, companies may be offered tax holidays, where upon establishing in a zone they are granted a period of lower taxation.

The creation of special economic zones by the host country may be motivated by the desire to attract foreign direct investment (FDI).[1][2] The benefits a company gains by being in a special economic zone may mean that it can produce and trade goods at a lower price, aimed at being globally competitive.[1][3] In some countries the zones have been criticized for being little more than labor camps, with workers denied fundamental labor rights.[4][5]

Definition

The operating definition of a SEZ is determined individually by each country. According to the World Bank in 2008, the modern day special economic zone typically includes a "geographically limited area, usually physically secured (fenced-in); single management/administration; eligibility for benefits based upon physical location within the zone; separate customs area (duty-free benefits) and streamlined procedures."[6]

History

Free zones and Entrepôts have been used for centuries to guarantee free storage and exchange along trade routes.

Modern SEZs appeared from the late 1950s in industrial countries. The first was in Shannon Airport in Clare, Ireland.[7] From the 1970s onward, zones providing labour-intensive manufacturing have been established, starting in Latin America and East Asia. The first in China following the opening of China in 1979 by Deng Xiaoping was the Shenzhen Special Economic Zone, which encouraged foreign investment and simultaneously accelerated industrialization in this region. These zones attracted investment from multinational corporations.[1]

A recent trend has been for African countries to set up SEZs in partnership with China.[2]

Types

The term special economic zone can include:[1][8]

The World Bank created the following table to clarify distinctions between types of special economic zones:

Type [6] Objective Size Typical Location Typical Activities Markets
FTZ Support trade <50 hectares Port of entry Entrepôts and trade related Domestic, re-export
EPZ (traditional) Export manufacturing <100 hectares None Manufacturing, processing Mostly export
EPZ (single Unit/free enterprise) Export manufacturing No minimum Countrywide Manufacturing, processing Mostly export
EPZ (hybrid) Export manufacturing <100 hectares None Manufacturing, processing Export, domestic
Free port/SEZ Integrated development >1000 hectares None Multi-use Internal, domestic, export
Urban enterprise zone Urban revitalization <50 hectares Urban/rural Multi-use Domestic

Special economic zones by country

India

SEZs were introduced to India in 2000, following the already successful SEZ model used in China. Prior to their introduction, India relied on export processing zones (EPZs) which failed to make an impact on foreign investors. By 2005, all EPZs had been converted to SEZs. As of 2017, there are 221 SEZs in operation, with a further 194 approved for 2018. For developers to establish an SEZ in India, applications can be made to the Indian Board of Approval. Companies, partner firms and individuals may also apply by completing Form-A which is available on the Department of Commerce's website. There are four types of SEZs in India, which are categorised according to size: Multi-sector (1,000+ hectares); Sector-specific (100+ hectares); Free Trade & Warehousing Zone (FTWZ) (40+ hectares); and Tech, handicraft, non-conventional energy, gems & jewellery (10+ hectares).[9]

List of SEZs in India.

China

China developed its first SEZs in the early 1980s (see Special economic zones of China), located along the country's southern coastal cities to act as both an advertisement for encouraging foreign direct investment (FDI) and a testing ground for more centrally located SEZs. China has many different types of development zones, with its largest and most significant being SEZs and Economic and Technological Development Zones (ETDZs). Other development zones include High-Tech Industrial Development Zones (HTDZs), Free Trade Zones (FTZs), Export Processing Zones (EPZs), Bonded Logistic Zones (BLZs) and Cross-Border Economic Zones (CBEZs)[10].

Vietnam

The development of SEZs in Vietnam started not long after the US lifted its trade embargo on the country. Types of SEZs which have been established since, include: Industrial Zones (IZs), Economic Zones (EZs), Export Processing Zones (EPZs) and High-Tech Zones (HTZs). When it comes to applying for investment certificates, this process is often much more simple in Vietnam compared with other countries, as the application can be sent direct to the IZ/EZ/EPZ/HTZ authorities who are efficient in responding.[11]. It is worth noting the rise of IZs which reached 325 in 2016 as foreign investment poured in. Incentives for IZs are targeted towards both foreign and domestic investors, offering reduction in import tariffs, Corporate Income Tax (CIT) and Value-Added Tax (VAT)[12].

Singapore

Singapore's size does not lend itself well to the SEZ model. Instead, it has partnered with Malaysia in order to create the Iskander SEZ in Johore Bahru. This zone has been very successful for companies wishing to extend their manufacturing operations to sell to the rest of Asia.[13]

Thailand

Thailand's 10 SEZs lie in the border provinces of the country. It first introduced its SEZ development policy in 2015 as part of wider plans to grow trade and investment with the respective countries neighbouring each border location. It is important to note that while SEZ development has been primarily used to encourage border trade, Thailand's Eastern Economic Corridor (EEC) abides by a different strategy, encouraging the development of innovation and high-tech industry in its Eastern provinces.[14]

The Philippines

The Philippines' government formed its own SEZ development authority in 1995 known as The Philippine Economic Zone Authority (PEZA), whose objective is to promote investment centred around manufacturing and service facilities in the region. As of May 2017, PEZA has in excess of 300 fully functioning Economic Zones in the country offering both financial and non-financial incentives to businesses. PEZA's client-focused priorities have earned the organisation a positive reputation among investors, which is of importance considering each SEZ is staffed by PEZA workers and admin teams.[15]

Indonesia

Indonesia has developed 12 SEZs (also known as Kawasan Ekonomi Khusus or KEKs) across multiple industries, including; manufacturing, agriculture, marine and tourism. In order for a business to claim on tax incentives relating to an SEZ, it must first meet requirements set by the Indonesian government. This includes being formally registered as a business entity, with a view to manage or develop an SEZ and conducting its main business activities in accordance with those denoted by the National Council for Special Economic Zones. Current challenges investors may expect to encounter if operating in one of Indonesia's SEZs are the increasing costs of industrial park land in combination with relatively poor infrastructure.[16]

See also

References

  1. 1 2 3 4 "Special Economic Zones Progress, Emerging Challenges, and Future Directions" (PDF). Washington DC: The International Bank for Reconstruction and Development/The World Bank. 2011. Retrieved 25 May 2014.
  2. 1 2 Woolfrey, Sean (2013). "Special economic zones and regional integration in Africa" (PDF). Trade Law Center. Retrieved 25 May 2014.
  3. ↑ "Goldman Sachs says reforms to create 110 mn jobs for economy in 10 yrs". Business Today. March 29, 2014.
  4. ↑ Watson, Peggy (July 23, 2012). "Sackings expose the harsh reality of Poland's junk jobs". The Guardian.
  5. ↑ Młodawska, Agata (March 8, 2012). "Maciejewska: Kobiety w strefie pracowniczego bezprawia". Nowe Peryferie.
  6. 1 2 "Zone Definition", Special Economic Zone: Performance, Lessons Learned, and Implication for Zone Development, Washington DC: World Bank, 2008, pp. 9–11
  7. ↑ "Political priority, economic gamble". The Economist. April 4, 2015
  8. ↑ Economic Zones in the ASEAN (PDF), United Nations Industrial Development Organization, 2015, p. 26
  9. ↑ "India's Special Economic Zones: A Primer". india-briefing.com. 25 Apr 2018.
  10. ↑ "Utilizing Development Zones in China". china-briefing.com.
  11. ↑ "Development Zones in Vietnam". vietnam-briefing.com.
  12. ↑ "The Guide to Understanding Vietnam's Industrial Zones". vietnam-briefing.com. 7 Aug 2017.
  13. ↑ "Development Zones Across ASEAN". aseanbriefing.com.
  14. ↑ "Thailand's Special Economic Zones – Opportunities for Investment". aseanbriefing.com. 12 Apr 2018.
  15. ↑ "The Philippine Economic Zone Authority – Incentives and Assistance". aseanbriefing.com. 8 May 2017.
  16. ↑ "Indonesia's Growing Special Economic Zones – Opportunities and Challenges". aseanbriefing.com. 24 Aug 2018.

Further reading

  • Chee Kian Leong, (2007) A Tale of Two Countries: Openness and Growth in China and India, Dynamics, Economic Growth, and International Trade, DEGIT Conference Paper pdf
  • Chee Kian Leong, (forthcoming) Special economic zones and growth in China and India: an empirical investigation, International Economics and Economic Policy. link
  • Thomas Farole, (2011) Special Economic Zones in Africa: Comparing Performance and Learning from Global Experiences, Washington, DC, World Bank
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