Special economic zone

"SEZ" redirects here. For the airport, see Seychelles International Airport.
Not to be confused with Exclusive 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

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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

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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 

The Economic impacts of SEZ

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Special Economic Zones (SEZs) have a significant impact on the economies where they are established, offering several key benefits that contribute to economic growth and development. One of the most important effects is the attraction of Foreign Direct Investment (FDI). By offering tax breaks, streamlined regulations, and enhanced infrastructure, SEZs provide a favorable environment for foreign companies looking to invest. This influx of capital can generate substantial economic activity, including job creation within the zones and in related sectors such as logistics, transportation, and services.

SEZ’s can lead to growth in Gross Regional Product (GRP) per capita, reflecting an increase in the economic output of the region. Similarly, they can contribute to higher personal income levels and attract more FDI projects, which bring in both capital and expertise. These economic improvements can contribute to higher living standards for the local population.

In addition to attracting investment, SEZs are crucial for generating employment. The businesses that establish themselves in these zones require workers, leading to an increase in jobs for the local population. This can, in turn, result in higher income levels and better living standards for people in the surrounding areas. However, it is important to note that the positive economic effects of SEZs do not always translate into positive social impacts. For instance, despite the economic growth they bring, SEZs may not always lead to a significant reduction in unemployment rates, as some regions may experience a mismatch between job creation and local labor market needs.

SEZs also play a vital role in boosting exports. Many companies operating in these zones focus on manufacturing goods for international markets, helping to increase a country’s exports, which can improve the trade balance and generate foreign exchange earnings.[12]

Types

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The term special economic zone[13][14] can include:[1][15]

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

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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.[16]

See also

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References

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  1. ^ 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. Archived (PDF) from the original on 4 March 2016. Retrieved 25 May 2014.
  2. ^ a b Woolfrey, Sean (2013). "Special economic zones and regional integration in Africa" (PDF). Trade Law Center. Archived (PDF) from the original on 19 September 2016. Retrieved 25 May 2014.
  3. ^ "Goldman Sachs says reforms to create 110 mn jobs for economy in 10 yrs". Business Today. 29 March 2014. Archived from the original on 29 June 2016. Retrieved 20 July 2016.
  4. ^ Watson, Peggy (23 July 2012). "Sackings expose the harsh reality of Poland's junk jobs" Archived 21 May 2017 at the Wayback Machine. The Guardian.
  5. ^ a b "Zone Definition", Special Economic Zone: Performance, Lessons Learned, and Implication for Zone Development, Washington DC: World Bank, 2008, pp. 9–11, archived from the original on 16 September 2016, retrieved 16 September 2016
  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". Working Paper Series. National Bureau of Economic Research. doi:10.3386/w23681. Archived from the original on 19 September 2024. Retrieved 19 September 2024.
  7. ^ "Federal Minimum Wage in American Samoa by Industry". Archived from the original on 29 September 2024. Retrieved 19 September 2024.
  8. ^ "Political priority, economic gamble" Archived 2 March 2018 at the Wayback Machine. The Economist. 4 April 2015
  9. ^ 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.
  10. ^ 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.
  11. ^ 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.
  12. ^ Sinenko, Olga; Mayburov, Igor (2017). "Comparative analysis of the effectiveness of special economic zones and their influence on the development of territories". International Journal of Economics and Financial Issues. 7 (1): 115.
  13. ^ УПРАВЛЕНИЕ ОСОБЫМИ ЭКОНОМИЧЕСКИМИ ЗОНАМИ СУБЪЕКТА Archived 8 April 2022 at the Wayback Machine 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.
  14. ^ Masaev S. Destruction of the Resident Enterprise in the Special Economic Zone with Sanctions Archived 26 June 2020 at the Wayback Machine. Publisher: IEEE. 2019
  15. ^ 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
  16. ^ Latin American Special Economic Zones and Their Impacts on Regional Security (Report). Archived from the original on 10 December 2023. Retrieved 10 December 2023.

Further reading

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  • 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
  • Jarosław M. Nazarczuk, Stanisław Umiński, (2019) Foreign Trade in Special Economic Zones in Poland, UWM w Olsztynie, Olsztyn link pdf
  • Xiao, F., Zhou, Y., & Huang, Y. (2023). Old Wine in a New Bottle: Understanding the Expansion of the Shenzhen Special Economic Zone in China. Journal of Urban Planning and Development, 149(4), 02523001.
  • Masaev, S., (2019) "Destruction of the Resident Enterprise in the Special Economic Zone with Sanctions," 2019 Twelfth International Conference "Management of large-scale system development" (MLSD), pp. 1-5, doi: 10.1109/MLSD.2019.8910997. link
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