An
export processing zone can be described as "a relatively small geographically separated area within a country, the purpose of which is to attract export-oriented industries, by offering them especially favourable investment and trade conditions.
EPZs are, in effect,
export enclaves within which special conditions apply:
- Special investment incentives and trade concessions;
- Exemption from certain kinds of legislation;
- Provision of all physical infrastructure and services necessary for manufacturing activity — roads, power supplies, transportation facilities, low-cost/rent buildings."
(Dicken P.,
Global Shift, New York: Guilford Press, 2003, p. 179)
"In order to attract FDI,
EPZs are designed as tax free havens without standard national social or environmental regulation."
(Ravenhill, J.,
Global Political Economy, New York: Oxford University Press, 2005, p. 333)
Why Set up EPZs?
According to a study by the International Confederation of Free Trade Unions (Perman, 2004), countries set up
EPZs in the hope of attracting investment, creating employment and generating foreign exchange earnings.
Countries also hope that foreign direct investment will promote the transfer of technologies and skills ("backward linkages") to industries outside the zones.
(adapted from Perman, S.,
Behind the Brand Names: Working Conditions and Labour Rights in Export Processing Zones, International Confederation of Free Trade Unions, 2004, visited 2009-06-22)
Incentives
Firms are offered a range of financial incentives to invest in these zones. Research from the
World Bank describes some of the common features used to attract investment capital to
EPZs:
International Confederation of Free Trade Unions, 2004:
- Duty-free imports of raw and intermediate materials and capital goods for export production
- Streamlining of government red tape, allowing "one-stop" shopping for permits and investment applications
- Flexibility in labour laws, exemptions from national legislation in some zones
- Generous, long-term tax concessions, such as waivers of value added tax
- Above average communications and infrastructure (compared to elsewhere in the host country) and sometimes utility or rental subsidies
Types of EPZs
The ICFTU's report (Perman 2004) lists many types of
export processing zones, including special economic zones, bonded warehouses, science parks and free ports.
Many
EPZs have evolved from fenced-in spaces, such as ports and warehouses specializing in manufacturing for export, to single-factory or single-industry zones.
EPZs have also developed from initial assembly and processing work to a wide range of businesses, including high tech industries, tourist resorts and financial centres. Most activity is still low-tech and low-skill, with production concentrated in textiles, clothing and electronics.
Historical Background
Export processing zones are not new. Barcelona has had a successful free trade zone for nearly a hundred years. The Shannon Free Zone, on the west coast of Ireland, has been in operation since 1958 and generates exports of €2.5 billion each year. Starting in the 1970s, however, an increasing number of countries began setting up zones in the hope of attracting foreign investment and increasing employment. There has been a rapid growth in the number of zones set up over the last three decades, from just a handful in 1970 to over 3000 in 2002. At the same time, employment in these zones leapt from a few thousand in 1970 to just under 42 million in 2004. Three-quarters of the EPZ workforce is employed in China, which has some 30 million workers in over 2,000 different zones.
(adapted from Perman, S.,
Behind the Brand Names: Working Conditions and Labour Rights in Export Processing Zones, International Confederation of Free Trade Unions, 2004, visited 2009-06-22)
Where Are EPZs Located?
"Some 90 per cent of all
EPZs in the developing countries are located in Latin America, the Caribbean, Mexico and Asia. […]
Within developing countries,
EPZs have been located in a variety of environments. Some have been incorporated into airports, seaports or commercial free zones or located next to large cities. Others have been set up in relatively undeveloped areas as part of a regional development strategy."
(Dicken P.,
Global Shift, New York: Guilford Press, 2003, p. 179)
In industrialized countries, the terms "work zone" and "enterprise zone" are used to define regions to which business activity is attracted through a significant reduction of business costs and government regulation.