Special economic zone

A special economic zone (SEZ) is an area in which the 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 increasing trade balance, employment, increased investment, job creation and effective administration. To encourage businesses to set up in the zone, financial policies are introduced. These policies typically encompass investing, taxation, trading, quotas, customs and labour regulations. Additionally, companies may be offered tax holidays, where upon establishing themselves in a zone, they are granted a period of lower taxation.

Not to be confused with Exclusive economic zone.

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]

Definition

The definition of an 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 or administration; eligibility for benefits based upon physical location within the zone; separate customs area (duty-free benefits) and streamlined procedures."[5]

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.[6] Some tax-free jurisdictions such as the Cayman Islands offer technology companies a way to keep their IP offshore in a Special Economic Zone (see Cayman Enterprise City).

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] China continues to maintain Special Economic Zones and certain open coastal areas.

Numerous African countries have set up SEZs in connection with China,[2] including over the period 1990 to 2018 establishing SEZs in Nigeria (two), Zambia, Djibouti, Kenya, Mauritius, Mauritania, Egypt, and Algeria.[7] Generally, the Chinese government takes a hands-off approach, leaving it to Chinese enterprises to work to establish such zones (although it does provide support in the form of grants, loans, and subsidies, including support via the China Africa Development Fund).[7] The Forum on China-Africa Cooperation promotes these SEZs heavily.[7]

Types

The term special economic zone[8][9] can include:[1][10]

  • Free-trade zones (FTZ)
  • Export processing zones (EPZ)
  • Free zones/ Free economic zones (FZ/ FEZ)
  • Industrial parks / industrial estates (IE)
  • Free ports
  • Bonded logistics parks (BLP)
  • Urban enterprise zones

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

Type [5] 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

See also

References
  1. "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. 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. 29 March 2014.
  4. Watson, Peggy (23 July 2012). "Sackings expose the harsh reality of Poland's junk jobs". The Guardian.
  5. "Zone Definition", Special Economic Zone: Performance, Lessons Learned, and Implication for Zone Development, Washington DC: World Bank, 2008, pp. 9–11
  6. "Political priority, economic gamble". The Economist. 4 April 2015
  7. Murphy, Dawn C. (2022). China's rise in the Global South : the Middle East, Africa, and Beijing's alternative world order. Stanford, California: Stanford University Press. p. 177. ISBN 978-1-5036-3060-4. OCLC 1249712936.
  8. УПРАВЛЕНИЕ ОСОБЫМИ ЭКОНОМИЧЕСКИМИ ЗОНАМИ СУБЪЕКТА РФ Масаев С.Н. В сборнике: XIII Всероссийское совещание по проблемам управления ВСПУ-2019 Труды. Под общей редакцией Д.А. Новикова. 2019. С. 1773–1778.
  9. Masaev S. Destruction of the Resident Enterprise in the Special Economic Zone with Sanctions. Publisher: IEEE. 2019
  10. Economic Zones in the ASEAN (PDF), United Nations Industrial Development Organization, 2015, p. 26

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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