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.

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

The United States has long applied special economic rules to its outlying territories for the purpose of economic development. Section 936 corporate tax exemptions for Puerto Rico began with Operation Bootstrap in the 1940s and ended in 2006.^[6] The federal minimum wage for U.S. territories has in the past been lower than in the states, and as of 2024, American Samoa is still adjusting upward to the nation-wide minimum.^[7]

Modern SEZs appeared from the late-1950s in industrial countries. The first was in Shannon Airport in County Clare, Ireland.^[8] 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.^[9]^: 50–51 These zones attracted investment from multinational corporations^[1] and allowed export-oriented Chinese businesses to respond quickly to demand in foreign markets.^[9]^: 50 China continues to maintain Special Economic Zones and certain open coastal areas. Most of China's SEZs are located in former treaty ports and therefore have symbolic significance in demonstrating a "reversal of fortunes" in China's dealings with foreigners since the century of humiliation.^[9]^: 51 Researcher Zongyuan Zoe Liu writes that "[t]he success of these cities as 'red' treaty ports represented another step in China's overall reform and opening-up plan while legitimizing the leadership of the CPC over the Chinese state and people."^[9]^: 51

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.^[10] 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).^[10] The Forum on China-Africa Cooperation promotes these SEZs heavily.^[10]

As of at least 2024, there is a trend of southeast Asian countries to develop and increase their SEZs.^[11]^: 55 Since 2015, Thailand developed ten SEZs.^[11]^: 55 As of 2024, Indonesia has 13 SEZs, the Philippines has 12 SEZs, and Cambodia has 31 SEZs.^[11]^: 55

Types

The term special economic zone^[12]^[13] can include:^[1]^[14]

World Bank special economic zone types^[5]
Type	Objective	Size	Typical Location	Typical Activities	Markets
FTZ	Support trade	<50 hectares (120 acres)	Port of entry	Entrepôts and trade related	Domestic, re-export
EPZ (traditional)	Export manufacturing	<100 hectares (250 acres)	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 (250 acres)	None	Manufacturing, processing	Export, domestic
Free port/SEZ	Integrated development	>1,000 hectares (2,500 acres)	None	Multi-use	Internal, domestic, export
Urban enterprise zone	Urban revitalization	<50 hectares (120 acres)	Urban/rural	Multi-use	Domestic

Challenges

SEZs do not differ from other facilities in industrializing economies. As with any technique administered used by a globalized economy there are oversights by actors that are not domestic. Transnational criminal organizations and terrorist groups have taken advantage of Special Economic Zones and their lack of regulations.^[15]

References

^ ^a ^b ^c ^d "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.
^ ^a ^b Woolfrey, Sean (2013). "Special economic zones and regional integration in Africa" (PDF). Trade Law Center. Retrieved 25 May 2014.
^ "Goldman Sachs says reforms to create 110 mn jobs for economy in 10 yrs". Business Today. 29 March 2014.
^ Watson, Peggy (23 July 2012). "Sackings expose the harsh reality of Poland's junk jobs". The Guardian.
^ ^a ^b "Zone Definition", Special Economic Zone: Performance, Lessons Learned, and Implication for Zone Development, Washington DC: World Bank, 2008, pp. 9–11
^ Zadia M. Feliciano; Andrew Green (August 2017). "US Multinationals in Puerto Rico and the Repeal of Section 936 Tax Exemption for U.S. Corporations". National Bureau of Economic Research. doi:10.3386/w23681.
^ Federal Minimum Wage in American Samoa by Industry
^ "Political priority, economic gamble". The Economist. 4 April 2015
^ ^a ^b ^c ^d Liu, Zongyuan Zoe (2023). Sovereign Funds: How the Communist Party of China Finances its Global Ambitions. The Belknap Press of Harvard University Press. doi:10.2307/jj.2915805. ISBN 9780674271913. JSTOR jj.2915805.
^ ^a ^b ^c 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.
^ ^a ^b ^c Han, Enze (2024). The Ripple Effect: China's Complex Presence in Southeast Asia. New York, NY: Oxford University Press. ISBN 978-0-19-769659-0.
^ 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.
^ Masaev S. Destruction of the Resident Enterprise in the Special Economic Zone with Sanctions. Publisher: IEEE. 2019
^ Economic Zones in the ASEAN (PDF), United Nations Industrial Development Organization, 2015, p. 26, archived from the original (PDF) on 30 September 2020, retrieved 16 September 2016
^ Latin American Special Economic Zones and Their Impacts on Regional Security (Report).

External links

[WorldBank2011-1] "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.

[Tralac2013-2] Woolfrey, Sean (2013). "Special economic zones and regional integration in Africa" (PDF). Trade Law Center. Retrieved 25 May 2014.

[BusinessToday-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.

[WorldBank2009-5] "Zone Definition", Special Economic Zone: Performance, Lessons Learned, and Implication for Zone Development, Washington DC: World Bank, 2008, pp. 9–11

[6] Zadia M. Feliciano; Andrew Green (August 2017). "US Multinationals in Puerto Rico and the Repeal of Section 936 Tax Exemption for U.S. Corporations". National Bureau of Economic Research. doi:10.3386/w23681.

[7] Federal Minimum Wage in American Samoa by Industry

[economist.com-8] "Political priority, economic gamble". The Economist. 4 April 2015

[:33-9] Liu, Zongyuan Zoe (2023). Sovereign Funds: How the Communist Party of China Finances its Global Ambitions. The Belknap Press of Harvard University Press. doi:10.2307/jj.2915805. ISBN 9780674271913. JSTOR jj.2915805.

[:0-10] 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.

[:Han-11] Han, Enze (2024). The Ripple Effect: China's Complex Presence in Southeast Asia. New York, NY: Oxford University Press. ISBN 978-0-19-769659-0.

[12] 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.

[13] Masaev S. Destruction of the Resident Enterprise in the Special Economic Zone with Sanctions. Publisher: IEEE. 2019

[14] Economic Zones in the ASEAN (PDF), United Nations Industrial Development Organization, 2015, p. 26, archived from the original (PDF) on 30 September 2020, retrieved 16 September 2016

[15] Latin American Special Economic Zones and Their Impacts on Regional Security (Report).

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