Export Processing Zones Essay

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Export processing zones (EPZs) are specific geographic  locations,  physical  sites, business  premises, buildings and/or assigned localities that  have special tax, tariff, or investment incentives and customs (duty) regimes in order to promote  export-oriented industry and transactions. Traditionally, EPZs include locations that  house special economic  zones, free trade zones, free ports, custom zones, commercial free zones, and bonded  facilities/warehouses. Not exclusively limited to a specified geographic area or fenced enclave, EPZs can  also include  single-company,  single-industry,  or single-commodity  zones,  as well as technology/science parks, logistics centers,  specific areas dedicated to agriculture,  aquaculture,  and horticulture, and, in some instances, even tourist resorts and passenger transport vessels.

EPZs were originally established  with the intention of supporting developing countries by providing enhanced  employment  opportunities and increased access to  foreign capital. EPZs initially segregated the concentration of expertise in the higher economically developed countries to the more technical/scientific areas, while the less economically developed countries   focused  on  more  labor-intensive   areas. EPZs are often found in jurisdictions where there are geographic or logistic advantages, or where production inputs are comparatively inexpensive—such as labor, raw materials, energy, or physical space—and/ or where tax or tariff incentives and existing regulatory environment are favorable for investment. Activities that  can take place within  EPZs include the manufacture of goods and services, production, processing, assembling, trading, repair, reconditioning, reengineering, and/or packaging/re-packing/ labeling of export products or services.

EPZs usually offer infrastructure of a higher standard than that available in a respective domestic economy. Electronics, textiles, clothing, and footwear were the popular industries  initially established in EPZs; however, the product  and service mix today can include almost  any sector  and can transform  over time as a respective  country’s economic,  industrial,  and social development changes. With the increase in traded services export and the proliferation  of technical and scientific expertise export, EPZs around the world are counting  in greater  numbers  zones concentrating on biotechnology, financial services, information technology, and information/electronic data processing.

An EPZ, depending  upon  the country,  legislative environment,  existing free trade agreements, and relevant jurisdictions, can be established by the public, private, joint sector, or by local, state, or national governments. Initially established by governments, there is a growing trend toward the development of EPZs by private organizations, which tend to offer higher-quality facilities. Firms located in EPZs can usually access, procure, or import duty-free goods from external sources, or from other EPZs, as long as the final product  or  service is exported.  Incentives  are provided for the purpose  of the eventual export  of a good or service. Incentives vary country to country and zone to zone, but can range from tax holidays, duty-free export  and  import,  staff training  and  employment subsidies, and free repatriation of profits to the provision of facilities, infrastructure, and exemptions from local labor laws. To qualify for incentives, there  are normally criteria imposed such as level of investment, industry  or industry  sector, local content  inputs,  or levels of local employment.

EPZs are  generally  viewed today  as a competitive method  to attract  both  foreign investment  and increase local employment opportunities. In Asia, cities like Hong Kong and Singapore have established themselves as both regional export gateways as well as significant global transshipment centers  through the provision of special customs  regimes for export processing  and  transshipment.  In  North  America, one particular permutation of the EPZ has been seen on the Mexican side of the U.S.-Mexico border, where maquiladoras have emerged as a convenient method for North American firms to access the comparatively cheaper labor and energy costs of neighboring  Mexico. A maquiladora  or maquila is a production facility, normally bonded premises, that imports materials and equipment on a duty-free and tariff-free basis for either manufacturing or final assembly, and then reexports the finished or assembled product.  A maquiladora facility is often matched  by a “twin” production plant or logistics center across the border.

The history of EPZs goes back to the earliest days of cross-border trade, where special areas were often set aside for the barter and exchange of goods, and were often regulated by customs, practices, rules, and laws that were separate from the surrounding area. In more modern  times, the establishment  of the first export oriented  zone occurred  in Spain in 1929. However, it was not until the 1970s that the EPZ concept  gained true global popularity with zones established, initially, in the  developing  economic  regions  and  nations  of Asia, Latin America, the Caribbean, and Africa. Since the 1970s, the number and type of EPZs, and the number of hosting countries,  have expanded  rapidly, and are becoming  increasingly popular  in former  Soviet bloc countries in eastern and central Europe.

EPZs can be viewed as a positive or negative outcome of globalization. On one side of the argument, the  development  of EPZs can be seen as a way to attract   foreign  investment,   increase  exports,  support   comparatively   rapid  economic   development, and enhance a country’s strategic trading role. On the negative side, EPZs can be perceived as exclusive sites and  sources  of human,  resource,  and  environmental exploitation  that  offer limited direct  benefit to a country or its people.

Bibliography:   

  1. Magnus Blomstrom and Ari Kokko, “The Economics   of  Foreign   Direct   Investment   Incentives,” NBER Working Papers 9489 (National Bureau of Economic Research, 2003);
  2. Nathalie Bouché, Social Impact Assessment (SIA) of Koh Kong Industrial/Export Processing Zone Project (UNDP Cambodia, 2005);
  3. International Labor Organization,  “Export  Processing  Zones,”  ilo.org (cited March  2009);
  4. S. Kariuki and N. J. Smith, “Are Export Processing Zone (EPZ) Employers Gender  Sensitive? An Analysis  of  Gender   Employer–Employee   Labour  Relations in Kenyan Garment EPZs,” Journal of Social Development (v.16, 2004);
  5. William Milberg, “Exporting Processing Zones, Industrial Upgrading and Economic Development: A Survey,” SCEPA Working Papers 2007-10 (Schwartz Center for Economic Policy Analysis, New School University, 2007);
  6. V. Sannassee, “Employment Creation  and  Skill Diffusion  by Multinationals   and  Foreign  Joint  Ventures in the Mauritian  Export Processing Zone,” Journal-Textile Institute (v.98/2, 2007);
  7. Peter G. Warr, “Export Processing Zones—The Economics of Enclave Manufacturing,” Working Papers in Trade and Development, No. 88/5 (Research School of Pacific Studies, Australian National  University, 1988);
  8. World Economic  Processing  Zones  Association, www.wepza.org (cited March 2009);
  9. Salma Chaudhuri Zohir, Role of Dhaka Export Processing Zone: Employment and Empowerment (BIDS, 2008).

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