inputs and materials- guideline on how to successfully implement special economic zones in lao pdr

8/12/2019 Inputs and Materials- Guideline on How to Successfully Implement Special Economic Zones in Lao PDR

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Regional Economic Cooperation and Integration in Asia

INPUTS AND MATERIALS

Guideline

How to Successfully Implement Special Economic Zones in Lao PDR – A Global and Chinese Best Practice Approach



Imprint

Published by the

Deutsche Gesellschaft für

Internationale Zusammenarbeit (GIZ) GmbH

Registered offices

Bonn and Eschborn, Germany

Regional Economic oo!eration and Integration in "sia

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Text

Ina chmitt

$he findings and conclusions eA!ressed in this documentation are entirely those of the authors= $hey do not necessarily re!0

resent the 8ie> of the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) or further organising !arties= $he

information !ro8ided is >ithout >arranty of any 9ind=

#n behalf of the German 4ederal 6inistry for Economic oo!eration and De8elo!ment (B6Z)




Contents

List of Abbreviations ..................................................................................................................................... i

Boxes & Tables ............................................................................................................................................... ii

I. Introduction ................................................................................................................................................ 3 2. Lao PDR’s National !" trate#$ % tatus uo' Pros(ects and )*allen#es ........................... +

2.1. Status Quo: Special Economic Zones in Lao PDR .............................................. .............................................. ..........

2.2. !"erall Issues o# SEZ Programme ........................................... .............................................. ........................................... $

2.%. &uture SEZ Directions and 'ain (oals as Em)edded in t*e + t* &i"e ,ear Socio-Economic

De"elopment Plan ........................................................................................................................................................................ 1

3. ,ariet$ of (ecial !cono-ic "ones ..................................................................................................

%.1. SEZs / A 'atter o# De#inition ............................................. .............................................. .............................................. . 12

%.2. 0!ne Si e Does ot &it All3 / 45pes o# SEZ ................................................... .............................................. .............. 16

%.2.1. &ree 4rade Zone 7Commercial &ree Zone8 ...................................................................................................... 1

%.2.2. 4raditional E9port Processing Zone .................................... .............................................. ................................. 1$

%.2.% 5)rid E9port Processing Zone .............................................. .............................................. ................................. 21

%.2.6 &reeport ........................................................................................................................................................................... 22

%.2.; Enterprise Zone< Empo=erment< >r)an &ree Zone .............................................. ........................................ 26

%.2. Single &actor5 E9port Processing Zone ..................................... .............................................. ........................... 2

/. !"s fro- an !cono-ic Pers(ective % 0unctions and 1b ectives ......................................... 2

6.1 EPZ / Impact on ational ?el#are ................................................................................................................................ 2$

6.2 Cost-@ene#it Anal5sis .......................................................................................................................................................... %1

6.% E9port Increase and Di"ersi#ication .............................................. .............................................. ................................. %;

6.6 Emplo5ment (eneration and Impro"ement o# Li"ing Standards .................................................................. . %

6.; 4ec*nolog5 4rans#er and uman Capital De"elopment .......................................................... ........................... 6

6. LinBages to t*e Domestic Econom5 ............................................... .............................................. ................................. 6%

+. )ase tud$4 *en5*en as Best Practice 6odel ............................................................................. /7

;.1 Em)eddedness o# SEZs in C*ina s !pen Door Polic5 ............................................. ............................................... 6

;.2 C*inese SEZs / De#inition< Concept and !) ecti"es .......................................... .............................................. ....... 6+

;.% S*en *en SEZ.......................................................................................................................................................................... 6

;.%.1 Legal &rame=orB< Institutional Design and Regulati"e Regime ................................... .......................... 6$

;.%.2 &actors o# Success ...................................................................................................................................................... ;%

7. )onclusions % Polic$ I-(lications ................................................................................................... 7

Literature ...................................................................................................................................................... 7+

8I" 9Re#ional !cono-ic )oo(eration and Inte#ration in Asia :R)I;<=Pro#ra--e ............

Publications b$ R)I .................................................................................................................................... 2



i Regional Economic Cooperation and Integration in Asia

List of Abbreviations

A !" AFa)a Special Economic Zone

A !"A AFa)a Special Economic Zone Aut*orit5

)!" C*icago Empo=erment Zone

)0" Colon &ree Zone

!"!))) EZGEC Coordinating Council

0DI &oreign Direct In"estments

0IA &acilit5 #or In"estment Climate Ad"isor5 Ser"ices 7o# t*e ?orld @anB (roup8

0P &reeport

0T" &ree 4rade Zone

8PA !" (uangdong Pro"incial Administration o# Special Economic Zones

>=1 -odel ecBsc*er-!*lin model?I)A Hapan International Cooperation Agenc5

IL1 International La)our !rgani ation

@!P" arac*i E9port Processing Zone

Lao PDR Lao People s Democratic Repu)lic

LD) Least De"eloped Countr5

LR6) Long-term marginal costs

N) !" ational Committee #or Special Economic Zone in Lao PDR

PPP Pu)lic-Pri"ate Partners*ip

!" Special Economic Zone

=N) !" Secretariat to t*e Lao ational Committee #or Special Economic Zone

!" S*en *en Special Economic Zone

T!P" 4raditional E9port Processing Zone

N >nited ations

N)TAD >nited ations Con#erence on 4rade and De"elopment

A" ?ide Area Zones

B ?orld @anB

!P"A ?orld E9port Processing Zone Association



Regional Economic Cooperation and Integration in Asia ii

Boxes & Tables

Box 'ain Structural &eatures o# a Zone 1;

Box 2 E9ample &ree 4rade Zone / Colon &ree Zone< Panama 1

Box 3 arac*i E9port Processing Zone in PaBistan 2

Box / &reeport AFa)a Special Economic Zone 2%

Box + C*icago Empo=erment Zone 2;

Box 7 0Encla"e 'odel3 o# EPZs %2

Box ?orBers in S*en *en< 1$ / 1$ ;

Table Special and Speci#ic Zones in Lao PDR

Table 2 'ost Common 45pes o# SEZ 1

Table 3 Cost-@ene#it Structure o# EPZs %2

Table / Incenti"e Sc*eme o# S*en *en SEZ in t*e 1$ s ;2

Table + um)er o# Contract Conclusions Including &DI in S*en *en ;6

Table 7 um)er o# Contract Conclusions =it* &oreign In"estors in S*en *en ;6

Table &oreign In"estment in S*en *en )5 Economic Sector ;;

Table C E9port Jolume and (ro=t* in S*en *en ;;



% Regional Economic Cooperation and Integration in Asia

I. Introduction

„ [...] Growth was not a passive, trickle-down strategy for helping the poor. It

was an active, pull-up strategy instead. It required a government that would

energetically take steps to accelerate growth, through a variety of policies in-

cluding uilding infrastructure such as roads and ports and attracting foreign

funds.!

"#agdish $hagwati, %&&'( 1

E9port gro=t* and di"ersi#ication t*roug* integration into t*e international econom5 *a"e

)ene#itted a rising num)er o# de"eloping economies. 2 @ased on t*e neoclassical economic as-

sumption t*at increased e9port acti"it5 leads to *ig*er economic gro=t*< e9port-oriented de-

"elopment strategies *a"e upli#ted t*eir de"elopment status accordingl5. % Prominent success#ul

e9amples include:

• 4*e so-called Asian 0tigers3 Repu)lic o# orea< 4ai=an< Singapore and ong ong<=*ose e9port-led strateg5 started in t*e 1$ s<

• Sout*-East Asian nations liBe 'ala5sia< Indonesia and 4*ailand< =*ic* )egun in t*e1$+ s<

• #ollo=ed )5 Jiet am< Cam)odia< and< as an outstanding e9ample< t*e People s Repu)lico# C*ina during t*e 1$$ s and 2 s<

• @anglades* and India in Sout* Asia<

• in Latin America Costa Rica and C*ile<• and in A#rica @ots=ana< 'auritius and 4unisia.

Amongst t*e a#orementioned countries< e9port promotion policies pla5ed in most )ut not all

cases a crucial role in sustaining long-term gro=t* rates )5 #ostering seFuences o# in"estment<

inno"ation< and po"ert5 reduction< t*us ena)ling t*eir economies to pass t*roug* a transition

#rom dependenc5 on primar5 goods production to "ital manu#acturing e9porters. 4

1@*ag=atti< Hagdis*: In De#ense o# Capitalism< !9#ord 2 6< p. ;6.2@elloc< 'arianna: Sur"e5 o# t*e Literature on Success#ul Strategies and Practices #or E9port Promotion )5 De"elop-

ing Countries< in: International (ro=t* Centre< ?orBing Paper 11G 26 7Hune 2 118< p. %.3 rueger< Anne !.: 4rade Policies in De"eloping ations< in: and)ooB o# International Economics< ?as*ington 1$ ;<

p. ;1$-; $ 7p. 2 84> C4AD: E9port Competi"eness and De"elopment in LDCs / Policies< Issues and Priorities #or Least De"eloped

Countries #or Action During and @e5ond > C4AD KII< e= ,orB and (ene"a 2 < p. 1.



Regional Economic Cooperation and Integration in Asia 6

!ne 0"e*icle3 #or acti"e participation in t*e international trade s5stem< and t*ere#ore #or out-

=ard-oriented e9port dri"en gro=t*< is setting-up special economic ones 7SEZ8. 5 !"er t*e past

% 5ears< t*e success o# a num)er o# SEZs in de"eloping countries *as inspired ot*er de"eloping

countries to turn to SEZs as a =a5 o# maBing t*eir de"elopment strategies more out=ard-

oriented. o=e"er< de"eloping countries *a"e *ad "aried results =it* t*is strateg5: Some SEZs*a"e emerged as d5namic engines o# gro=t*< =*ile ot*ers *a"e created little )ene#it< and turned

out to )e net drains on go"ernment resources. Suc* contrasting outcomes demonstrate t*e need

#or #urt*er e9amination into t*e #actors t*at determine t*e success or ot*er=ise o# suc* ones. 6

4*e Lao People s Democratic Repu)lic 7Lao PDR8 is one o# t*ose countries< =*ic* recentl5< in

t*e 5ear 2 11< adopted a national SEZ strateg5. Against t*e )acBground o# Lao s on-going e##orts

to en*ance its national SEZ strateg5< t*e primar5 o) ecti"e o# t*e *ere presented stud5 is to

*a"e a close looB at t*e success #actors and pit#alls o# international SEZ e9perience in general

and t*e C*inese case S*en *en in particular< su)seFuentl5 deri"ing polic5 implications #or suc-

cess#ull5 esta)lis*ing SEZs in Lao PDR.

4*e paper is structured as #ollo=ing: C*apter t=o =ill pro"ide an o"er"ie= o# Lao s SEZ strateg5<

its accomplis*ments< and )ottlenecBs. C*apter t*ree =ill scrutini e t*e SEZ concept< its de#ini-

tions< and "arious real t5pes in practice. @ased on t*e pre"ious #indings< c*apter #our =ill dra=

insig*ts #rom t*e "arious strands o# =orld=ide academic and practical SEZ literature in order to

s*ed lig*t on t*e underl5ing economic concept as =ell as potential polic5 implications #or

ac*ie"ing SEZ speci#ic polic5 o) ecti"es. @ased on a literature re"ie= and pre"iousl5 conducted

e9pert inter"ie=s< c*apter #i"e =ill anal5se t*e polic5 measures and institutional design o# t*e

C*inese SEZ S*en *en as a regional )est practice model. C*apter si9 =ill com)ine t*e #indings<

and deri"e essential polic5 aspects< =*ic* need to )e considered in Lao s course o# setting-up

SEZs.

5,uan< Hing-dong and Eden< Lorraine: E9port Processing Zones in Asia< in: Asian Sur"e5< Jolume %2< um)er 1171$$28< pp. 1 2 -1 6; 7p. 1 2 8.

6@iggs< 45ler: Assessing E9port Suppl5 Constraints / 'et*odolog5< Data< 'easurement< &rame=orB paper #or t*eAERC Colla)orati"e Researc* Pro ect on E9port Suppl5 Response Capacit5 Constraints in A#rica< A#rican EconomicResearc* Consortium< airo)i 2 +< p. 1 .



; Regional Economic Cooperation and Integration in Asia

2. Lao PDR’s National !" trate#$ % tatus uo' Pros(ects and C)allen#es

@eginning =it* t*e introduction o# t*e e= Economic 'ec*anism in 1$ < and *ence imple-

mentation o# re#orm policies< Lao PDR is still #acing a gradual trans#ormation #rom a strictl5

planned econom5 to a more marBet )ased s5stem. ?*ile t*e countr5 *as made considera)le

progress inso#ar< current re#orm aims #urt*er li)erali ation o# t*e national economic s5stem<

creation o# a #acilitating pri"ate sector en"ironment and stimulation o# international trade and

in"estment. 7

As part o# t*e countr5 s endea"our to en*ance t*e in"estment and )usiness climate )5 attract-

ing #oreign in"estment< generating emplo5ment< and di"ersi#5ing t*e production )ase< t*ere#ore

ena)ling t*e countr5 to o"ercome t*e status as least developed country 7LDC8< Lao s go"ernment

made t*e implementation o# Special and Speci#ic Economic Zones one o# its strategic tasBs. 8

!##iciall5< t*e national SEZ strateg5 is outlined in t*e 0De"elopment Strateg5 #or Special and

Speci#ic Zone 7SEZ8 in t*e Lao PDR< 2 11/2 2 3. It sets out t*e #rame=orB as =ell as #uture di-

rections #or SEZ de"elopment and polic5 content until 2 2 . !t*er SEZ related legal acts in-

clude:0La= on (o"ernment o# t*e Lao PDR3 7 o: 2G A< . %.2 %8< 0La= on In"estment Pro-

motion3 7 o: 2G A< . +.2 $8< 0Resolution o# Standing Committee o# t*e ational Assem)l5

on t*e Endorsement t*e Decree on Special and Speci#ic Economic Zones in Lao PDR3 7 o: 6+GSC<

2 .1 .2 1 8< 0Decree on Special and Speci#ic Economic Zones in Lao PDR3 7 o: 66%GP'<

2 .1 .2 1 8 and on t*e 0Proposal Letter o# t*e C*airman o# ational Committee #or Special and

Speci#ic Economic Zone 7 o: G CSEZ< ;. 6.2 1 8.

Em)edded in t*e long-term 0Se"ent* &i"e-,ear ational Socio-Economic De"elopment Plan

72 11-2 1;83< Lao s SEZ polic5 / as set out )5 t*e a#orementioned strateg5 paper o# t*e leading

aut*orit5 National )o--ittee on (ecial !cono-ic "one in Lao PDR :N) !"; / stri"es to

pursue #i"e core macroeconomic o) ecti"es:

• Contri)uting to rapid socio-economic de"elopment<

• Integrating t*e Lao econom5 in regional and international marBets<

• Promoting economic re#orm )ased on marBet mec*anism<

• @uilding industrial #oundations<

7@ertelsmann 4rans#ormationsinde9 7@4I8: L ndergutac*ten / JolBsrepu)liB Laos< 2 12< p. 1;#.84*e Secretariat to t*e ational Committee #or Special and Speci#ic Economic Zone: De"elopment Strateg5 #or Special

and Speci#ic Economic Zone in t*e Lao PDR< 2 11 / 2 2 <*ttp:GG===.sncse .go".laGimagesGLegalDocumentsGse Mde"elopmentMstrateg5Meng.pd#< p. i.




• 'oderni ing t*e econom5 )5 trans#orming land into capital 9

2.*. tatus uo+ (ecial !cono,ic "ones in Lao PDR

4*e national one programme =as launc*ed )5 a SEZ #easi)ilit5 stud5 pro ect along t*e 2 nd Lao-

4*ai &riends*ip @ridge in Sa"annaB*et pro"ince in cooperation =it* Hapan International Coop-

eration Agenc5 7HICA8 in 2 < =*ic* led to t*e appro"al o# Lao s #irst e9perimental economic

one Sa"an-Seno SEZ in 2 2. 4oda5< it co"ers ten appro"ed SEZs and se"eral more =*ic* are

still in t*e earl5 planning stage 7see ta)le 18. 10 In order to *a"e a clear understanding o# t*e

ac*ie"ements and issues o# t*ese ones< t*ree alread5 e9isting ones< =*ic* are according to t*e

Secretariat to t*e Lao ational Committee #or Special Economic Zone 7S- CSEZ8 most pro-

gressed 11 < =ill )e discussed )elo=.

Table *. (ecial and (ecific "ones in Lao P.D.R

No "one Location 1b ective tatus Develo(er

A((roved

1 Sa"an-Seno SEZ Sa"annaB*etpro"ince

Industr54radeSer"iceLogistics

Appro"al2 2

Lao (o"ern-ment

2 @oten @eauti#ulLand SEZ

Luangnamt*apro"ince

Logistics4radeCommercial4ourism

Appro"al2 1

PR C*ina

% (olden 4riangleSEZ

@oBea pro"-ince

4ourism4radeSer"ice

Appro"al2 1

PR C*ina

6 P*ouB*5o SEZ *ammouanepro"ince

4radeSer"iceIndustr5

Appro"al2 1

Lao (o"ern-ment

; Jientiane Industrialand 4rade SEZ

Jientianecapital

Industr54radeSer"ice

Appro"al2 11

PR C*ina74ai=an8

; Jientiane Industrialand 4rade SEZ

Jientianecapital

Industr54radeSer"ice

Appro"al2 11

PR C*ina74ai=an8

$Prime 'inister s !##ice Lao PDR: Decree on Special Economic Zone and Speci#ic Economic Zone< Jientiane !cto)er2 1 < p. 6.

1 4*e Secretariat to t*e ational Committee #or Special and Speci#ic Economic Zone 7S- CSEZ8: De"elopment Strate-g5 #or Special and Speci#ic Economic Zone in t*e Lao PDR< 2 11 / 2 2 <*ttp:GG===.sncse .go".laGimagesGLegalDocumentsGse Mde"elopmentMstrateg5Meng.pd#< p. 6.

11 I)id< p. 16.



+ Regional Economic Cooperation and Integration in Asia

Longt*an* Jienti-ane SEZ

Jientianecapital

4ourismSer"ice

Appro"al2 12

-

+ Dongp*os5 SEZ Jientianecapital

Ser"iceCommerceLogistic

Appro"al2 12

-

Sa5set*a De"elop-ment SEZ Jientianecapital Industr54rade Appro"al2 12 -

$ 4*atluang LaBe SEZ Jientianecapital

Industr54ourism

Appro"al2 12

-

1 4*aB*eB SEZ *ammouanepro"ince

4radeSer"ice

Appro"al2 12

-

0easibilit$ studies :status 2 2;

11 am*euang C*ecBPoint Zone

Ka5a)ul5pro"ince

4radeSer"ice

- -

12 oua59one Zone Jientianecapital

Ser"ice4ourism

- -

1% 4*atluang LaBe Jientianecapital

4radeSer"ice

- -

16 Culture (ardenZone 7Dong P*os58

Jientianecapital

4radeSer"ice

- -

1; e= 4o=n De"el-opment Zone

ongping

Jientianecapital

Ser"ice4ourism

- -

1 Speci#ic Economic

Zone #or Eco-4ourismKiengB*ouang 'aiDistrict

KiengB*ouang

pro"ince

Ser"ice

4ourism

- -

1+ 'a*ant*iSip*an-done Zone

C*ampasaBpro"ince

Special EconomicZone

- -

1 @ola"enPlateu Zone C*ampasaBpro"ince

4radeSer"ice

- -

1$ Jangtao Zone7KongmeB8

C*ampasaBpro"ince

4radeSer"ice

- -

2 &ocal Point Ji-engB*am-4*asaat

@oliB*am9a5pro"ince


- -

21 ongB*ang Zone uap*anpro"ince


- -

22 ua59a5 Point@ridge Zone

@oBeo-pro"ince

Ser"ice4ourism

- -




Esta)lis*ed in Septem)er 2 %< avan= eno !" comprises o# ++ *ectares and is geograp*i-

call5 located along Road o. $ in Sa"annaB*et pro"ince. Its main economic #ocus lies on attract-

ing in"estment #or production< trade and ser"ices along t*e East-?est Economic Corridor 12 <

=*ic* is a transport corridor linB #rom ort*-East 4*ailand t*roug* Lao PDR to Da ang Port in

Jiet am. >ntil 2 12< in#rastructure #acilities #or =ater and electricit5 suppl5 as =ell as roads*ad )een partl5 constructed and 1 companies *ad settled do=n in t*e one. o=e"er< accord-

ing to t*e S- CSEZ s assessment< progress regarding #urt*er one de"elopment still #aces se"-

eral pro)lems< especiall5 related to re-compensation o# land costs< and t*e de"eloper s ina)ilit5

to raise t*e amount o# #unds as agreed in t*e contract. E"entuall5< t*ese #actors led to t*e inter-

ruption o# t*e construction process. 13

Boten Beautiful Land !" *as )een set-up as )order trade one =it* t*e goal to )e trans-

#ormed into a trade< in"estment and entertainment centre area. Primar5 #unded )5 in"estors

#rom t*e People s Repu)lic o# C*ina< t*e >nited ingdom< ong ong< 'acao< t*e Russian &ed-

eration< Slo"enia< Sout* orea< and 4*ailand< in#rastructure pro ects< suc* as a =are*ouse cen-

tre< an integrated distri)ution centre< retail stores< a num)er o# *otels< sta## dormitories< an en-

tertainment centre< restaurants as =ell as electricit5< =ater suppl5 and telecommunication s5s-

tems< roads and ot*er #acilities< *a"e )een completed. o=e"er< since esta)lis*ment in 2 1 <

operations on t*e one mainl5 #ocused on casino operations< =*ic* solel5 lacB in sustaina)le

de"elopment approac*. Due to a num)er o# incidents< international relations in t*e one *a"e

)een negati"el5 a##ected. &urt*ermore< de#iciencies in coordination )et=een t*e pri"ate and

pu)lic sector in regards to la)our regulations< and t*e inclusion o# t*e surrounding econom5<are pre"ailing. 14

4*e initial decision to trans#orm 4on* P*eung district in @oBeo pro"ince into a special de"el-

opment one *ad )een made more t*an a decade ago. Internationall5 recogni ed as 0drug one3<

t*e o"erall aim =as to de"elop t*e region in a sustaina)le manner< t*ere#ore en*ancing its repu-

tation. o=e"er< a#ter 5ears o# standing still =it*in t*e implementation process< t*e region re-

mained as an underde"eloped and remote area. e"ert*eless< in April 2 +< t*e Lao go"ern-

ment and @urma-'acaolandou L4D. Co *ad signed a contract to de"elop t*e Asian 4riangle

(olden Land integrated tourism site. Su)seFuentl5< in &e)ruar5 2 1 < t*e area *ad )een up-graded to )e trans#ormed into 8olden Trian#le !" . Ac*ie"ements inso#ar include: Completed

in#rastructure pro ects )5 t*e de"eloper< suc* as an entertainment comple9< one *otel< si9 dor-

12 I)id< p. .1%S- CSEZ: i)id< pp. 16-1$.16 I)id< pp. -$.



$ Regional Economic Cooperation and Integration in Asia

mitories< a )ricB #actor5< a small airport as =ell as electricit5< =ater and telecommunication

suppl5 s5stems. e9t to t*e )uild-up o# in#rastructure in t*e one< t*e de"eloper also pro"ided

#inancial support #or t*e construction o# a road #rom am eung to 'om "illage and 1 sc*ools

in #our ort*ern pro"inces. ,et< despite smoot* in"estment operations on t*e side o# t*e de"el-

oper< t*e one is still #acing di##iculties. Amongst ot*ers< t*ese include social pro)lems< =*ic*=ere created )5 t*e entertainment site< e"entuall5 leading to an en"ironment percei"ed as un-

sa#e< a lacB o# coordination and implementation in regards to la)our polic5 issues< as =ell as t*e

#ailure in creating economic linBages to areas surrounding t*e one. 15

2.2. -verall Issues of !" Pro#ra,,e

4*e reasons #or t*e per#ormance gap o# Lao s SEZ programme range / according to S- CSEZ s

o=n statements / #rom institutional pro)lems< suc* as a lacB o# resol"e in terms o# conception<

e9ecution< and responsi)ilit5 o# SEZ aut*orities< to implementation issues< =*ic* include in es-

sence t*e interruption o# one constructions due to insu##icient de"eloper )udgets< as =ell as

legal and land related issues. &urt*ermore< t*e t*ree alread5 constructed ones did not succeed

in esta)lis*ing linBages =it* t*e surrounding econom5< or in *a"ing a su)stantial impact on t*e

emplo5ment rate o# Lao citi ens due to de"eloper s pre#erence to emplo5 #oreign sta##. 16

In sum< underl5ing issues #or t*e a#orementioned de#ects can )e summari ed as #ollo=ing 17 :

• SEZ de"elopment is regarded as a ne= e9perience #or t*e go"ernment.

• A certain proportion o# national and local go"ernment representati"es lacB compre*en-si"e understanding o# t*e concept.

• Land identi#ication and allocation #or t*e initial set-up o# ones *ad )een inappropriate.

• Limited or insu##icient go"ernment #unds #or crucial in#rastructure pro ects< suc* asroad s5stems< telecommunication< electricit5 and =ater suppl5 s5stems< as =ell as re-compense o# land use rig*ts.

• LacB o# Fuali#ied sta## #or t*e positions =it*in t*e SEZs.

• De#icient super"ision< monitoring< and e"aluation procedures.

• Strategic anal5sis o# geograp*ical< en"ironmental and ot*er #actors #or t*e initial imple-mentation o# one programmes *ad )een insu##icient.

• LacB o# ci"il societ5 s understanding and participation in and around t*e SEZs.

15 I)id< pp. $-1 .16 I)id< pp. 1 -1+.17 I)id< pp. 1+-1 .




2. . /uture !" Directions and 0ain 1oals as !,bedded in t)e t)/ive 3ear ocio4!cono,ic Develo(,ent Plan

As set out in t*e directions and main tasBs o# t*e current + t* &i"e ,ear Economic De"elopment

Plan< Lao s national SEZ programme is supposed to pla5 a strategic role in regional de"elopment

and po"ert5 reduction. 4*ere#ore< t*e go"ernment seeBs to pursue a polic5 course o"er t*e #ol-

lo=ing 5ears< =*ic* is designated to #oster t*e de"elopment o# SEZs at geograp*icall5 #a"our-

a)le locations along regional corridors and )order ones< suc* as Sa"annaB*et-Seno< Dansa"an*<

Jientiane capital< ua59a5-4onp*eung< enet*ao< @oten< and ong*at. 18

?it*in t*is polic5 #rame=orB< priorit5 =ill )e gi"en to #urt*er de"elop alread5 e9isting SEZs<

and to create an ena)ling )usiness climate )5 setting-up additional ones. eig*)ouring coun-

tries liBe PR C*ina< 4*ailand< Jiet am< as =ell as ot*er ASEA mem)er states are t*erein re-

garded as Be5 sources #or marBets and #oreign in"estment. Amongst ot*er targeted sectors< t*e

primar5 #ocus o# Lao s SEZ strateg5 =ill )eat t*is point e9port-processing industries 19 :

• Boten !" s*all #unction as a commercial e9port centre< in =*ic* e9ports s*ould )e cus-tomi ed to meet t*e demands o# C*inese and ot*er #oreign marBets.

• Ton(*eun# !" =ill )e turned into an all-round speci#ic economic one #or e9port in-dustries< commerce< #inance< and tourism.

• avan= eno !" is supposed to )ecome an economic cooperation centre #or e9port in-dustries< commerce< #inance< ser"ices< and modern tec*nolog5.

• @enet*ao' Non#*at' @*a-Eeut*' T*aEeE' Dansavan* < and ot*er areas s*all )ecome

)order economic cooperation areas and )order trade centres to attract in"estors #romSout*east Asia and ot*er regions to manu#acturing e9port products< de"eloping lig*t in-dustries< and producing *ouse*old goods #or t*e domestic marBet.

• SEZs in P*ouEeua' DarEtaorE' DaEc*eun#' and P*ouvon# are supposed to #unction asintegral part o# t*e Cam)odia< Laos< and Jiet am 7CLJ8 0triangle de"elopment area3.

18 +t* &i"e ,ear Plan< p. 1 6.19 I)id< pp. 1+ -1+2.



11 Regional Economic Cooperation and Integration in Asia

. 5ariet$ of (ecial !cono,ic "ones

“ )ell designed *pecial +conomic ones have proven to e a remarka le tool

for growth and o creation around the world. osts in /sia, especially hina,

are rising and there is much talk of millions of la our intensive firms looking

for new regional locations.0

"1heodore 2oran, %&3%( 20

Promotion o# #oreign commerce )5 means o# setting up special economic ones is a centuries-

old polic5 concept pursued )5 "arious nations all o"er t*e glo)e. 21 e"ert*eless< alt*oug* toda5

t*e set-up o# t*e #irst modern Special Economic Zone 7SEZ8 / S*annon Airport 71$; 8 in Ireland

/ dates )acB more t*an ; 5ears< t*e economic polic5 tool gains rene=ed popularit5. Since t*e

earl5 1$ s< politicians and academics aliBe *a"e discussed on t*e )ene#its and limits o# SEZs to

attract #oreign capital< increase glo)al and regional trade s*ares< generate emplo5ment< and

t*ere#ore BicBstart economic gro=t*. 22 4*is trend )ecomes especiall5 clear =*en *a"ing a looB

at t*e glo)al distri)ution o# SEZ programmes o"er t*e last 2 5ears. In )ot* de"eloped and de-

"eloping countries< t*e concept *as )een increasingl5 propagated< =*ile at t*e same time adapt-

ing to t*e polic5 goals and economic conditions o# eac* countr5. 23 a"e t*ere )een 1+ ones in

6+ countries in 1$ N t*e International La)our !rgani ation s 7IL!8 data)ase recorded %<;

ones in 1% countries 2 . 24

4o *a"e a )etter understanding o# t*e concept as =ell as o# t*e underl5ing economic o) ecti"es<

=*ic* maBe SEZs attracti"e #or go"ernments< t*e #ollo=ing section =ill scrutini e t*e polic5 tool

in detail. 4*e #irst su)-section pro"ides an o"er"ie= o# t*e "arious approac*es to de#ine SEZs

since t*e earl5 1$ s. Su)seFuentl5< t*e second su)-section o##ers a compre*ensi"e description

o# currentl5 implemented t5pes o# SEZs =orld=ide.

20 'ann< 4*eodore: >sing Special Economic Zones to Dri"e Economic De"elopment< in: CDI Roundta)le< 2 12 7p. 118.21 Stolten)erg< Cl5de D.: C*ina s Special Economic Zones / 4*eir De"elopment and Prospects< in: Asian Sur"e5< Jolume

26< um)er 71$ 68< pp. %+- ;6 7 % 8.22 &arole< 4*omas: Special Economic Zones / ?*at *a"e =e learned < in: J!K online Edition< Septem)er 2 11<

*ttp:GG===."o9eu.orgGarticleGspecial-economic- ones-=*at-*a"e-=e-learned23 'adani< Dorsati: A Re"ie= o# t*e Role and Impact o# E9port Processing Zones< ?as*ington DC 1$$$< p. 12.24 @o5enge< Hean-Pierre Singa: IL! Data)ase on E9port Processing Zones< IL! ?orBing Paper< 2 +< p. 1.




.*. !"s % A 0atter of Definition

As Dorsati 'adani and ot*ers *a"e emp*asi ed in t*eir studies< =*en discussing SEZs< a "ariet5

o# terminologies appear and are used interc*angea)l5 t*roug*out t*e academic literature. 25

4*ere#ore< generall5 speaBing< a consensus as *o= to la)el t*is p*enomenon does not e9ist. 26

@ut< in principal< as elena Ho*annson pointed out< t*e de#initions onl5 di##er slig*tl5 =*ile t*e

general underl5ing concept is )asicall5 t*e same. 27

4*e causes #or t*e 4multiplicity of forms of economic 5ones0 are< according to Claude @aissac< t*e

outcome o# a num)er o# #actors< suc* as 28 :

• 4*e necessit5 to distinguis* )et=een t5pes o# ones t*at #eature di##erences in #orm and#unction.

• Jariances in economic terminolog5 among countries.

• 4*e desire o# one promoters to distance t*eir product #rom t*e competition.• 4*e outcome o# multiple translation processes.

ence< *e concludes: 46efinitions vary across countries and institutions, and evolve continuously

as new types of 5ones are developed and older types disappear or are adapted. /ny attempt at a

comprehensive definition of economic 5ones must e sufficiently road to encompass the ewilder-

ing array of past, present, and future 5ones, and yet sufficiently precise to e7clude those that do not

display the essential structural features that make a 5one a 5one.0 29 4*us< in order to deri"e a

"alid de#inition #or glo)all5 distri)uted SEZs toda5< t*e #ollo=ing e"olutionar5 o"er"ie= o# SEZ

de#initions since t*e 1$ s =ill ser"e as t*eoretical #oundation< illustrating t*e essential #ea-

tures.

SonBo is*itateno de#ined SEZs in t*e 1$ s )rie#l5 4as an area where enterprises are treated

more preferentially than in other areas in relation to such matters as ta7 rate and scope of opera-

tions in order to attract foreign capital and advanced technology for modernisation.0 30 =an-,iu

?ong and Da"id C*u< on t*e ot*er *and< de#ined t*em as 4areas involved in the esta lishment of

modern manufacturing plants inside an industrial estate, y offering suita le package of invest-

25 'adani< Dorsati: i)id< p. 1%.26 Da)our< a)il 'd.: O&ree 4rade Zones in t*e A#termat* o# t*e >rugua5 Round / E9perience o# Selected !IC 'em)er

Countries< in: Hournal o# Economic Cooperation< Jolume 2 < Issue 671$$$8< pp. 1-%% 7p. %8.27 Ho*annson< elena: 4*e Economics o# E9port Processing Zones Re"isited< in: De"elopment Polic5 Re"ie=< Jolume

12< um)er 6 71$$;8< pp. % +-6 2 7p.% +8.28 @aissac< Claude: @rie# istor5 o# SEZs and !"er"ie= o# Polic5 De)ates< in: &arole< 4*omas: Special Economic Zones

in A#rica / Comparing Per#ormance and Learning #rom (lo)al E9perience< ?as*ington DC< 2 11< pp. 2%-;% 7p. 268.29 I)id.30 is*itateno< SonoBo: C*ina s Special Economic Zones / E9perimental >nits #or Economic Re#orm< in: International

and Comparati"e La= Quarterl5< um)er %271$ %8< pp. 1+;-1 ; 7p. 1+ 8.



1% Regional Economic Cooperation and Integration in Asia

ment incentives to oth foreign and domestic entrepreneurs.0 31 Hici ?ang and Ho*n @rad)ur5 *ad

pro"ided a #urt*er de#inition< pointing out t*at 4speciali5ed trading and processing 5ones, includ-

ing duty-free 5ones, are a special class of economic area designed y the government [8]. In es-

sence [it] is a geographically defined area within which lower ta7es prevail, fewer commercial

restrictions are in effect, and less government intervention in the economy is evident.0 32

During t*e main de)ate on SEZs in t*e $ s< @ert*old @usc* )roadl5 descri)ed t*em as 4gener-

ally geographically or functionally defined territories within a national economy, which follow a

different logic and regulation in regards to the manufacturing of goods and production of services

compared to other parts of the country.0 33 A #urt*er commonl5 accepted de#inition in t*e 1$$

s*ad )een pro"ided )5 Hoac*im A*rens and Astrid 'e5er @audecB: 4*+ s are geographically or

functionally limited parts of an economy in which rules and other institutions concerning the pro-

duction and the distri ution of goods and services differ from those in the rest of the economy.

1hese special institutions are reali5ed in order to promote and favour economic activity in a spe-

cific area. Generally, they offer oth financial incentives, such as lower ta7es and tariffs, and su si-

dies as well as the su stantial deregulation of the legal and administrative framework or the pro-

vision of legal privileges.0 34

In institutional literature toda5< t*e #ocus lies on a more )asic and generic term o# SEZs. In a

report< pu)lis*ed )5 t*e ?orld @anB in 2 < (oB*an ABinci and Hames Crittle #inel5 de#ined

t*em as 4one tool in a portfolio of mechanisms commonly employed to create o s, generate e7-

ports, and attract foreign investment, through the provision of incentives, streamlined procedures,

and custom- uilt infrastructure.0 35 According to t*eir assessment: 41he principles incorporated in

the asic concept of a special economic 5one include :

• (eograp*icall5 delimited area<

• >suall5 p*5sicall5 secured 7#enced-in8<

• Single managementGadministration<

• Eligi)ilit5 #or )ene#its )ased upon p*5sical location =it*in t*e one<

31?ong< =an-,iu and C*u< Da"id: E9port Processing Zones and Special Economic Zones as (enerators o# Economic

De"elopment / 4*e Asian Perspecti"e< in: (eogra#isBa Annaler. Series @< uman (eograp*5< Jolume < um)er 171$ 68< pp. 1-1 7p. 18.

32 ?ang< Hici and @rad)ur5< Ho*n .: 4*e C*anging Industrial (eograp*5 o# t*e C*inese Special Economic Zones< in:Economic (eograp*5< Jolume 2< um)er 6 71$ 8< pp. % +-%2 7p. % 8.

33 @usc*< @ert*old: OSonder=irtsc*a#ts onen als Instrument der S5stemtrans#ormation< in: @eitr ge ur ?irtsc*a#ts-und So ialpolitiB< Jolume % 71$$28< p. .

34 A*rens< Hoac*im and 'e5er-@audecB< Astrid: Special Economic Zones / S*ortcut or Rounda)out ?a5 4o=ardsCapitalism < in: Intereconomics< Jolume % < um)er 271$$;8< pp. +-$ 7p. 8.

35 &IAS: Special Economic Zones / Per#ormance< Lessons Learned< and Implications #or Zone De"elopment< ?as*ing-ton DC 2 < p. ;1.




• Separate customs area 7dut5 #ree )ene#its8 and streamlined procedures.3 36

In 4*omas &arole s t*oroug* stud5 on SEZs =orld< on t*e ot*er *and< *e emp*asised t*at 4spe-

cial economic 5ones are spatially delimited areas within an economy that function with adminis-

trative, regulatory and often fiscal regimes that are different "typically more li eral( than those of

the domestic economy. 9perating through a variety of different forms.0 37

4aBing t*e a#orementioned de#initions into account< a s5m)iotic compre*ensi"e =orBing de#ini-

tion o# SEZ includes t*e #ollo=ing essential #eatures:

1. Hust one instrument in a port#olio o# polic5 options.

2. Designed to #oster and #acilitate economic acti"it5.

%. Encompass a speci#ic delimited area / geograp*icall5 or #unctionall5.

6. 'anaged )5 a single administration.

;. (o"erned )5 a special regulator5 regime.

- Rules and ot*er institutions di##er to t*e rest o# t*e econom5

- Deregulated administrati"e #rame=orB

- Less go"ernment inter"ention

- Legal pri"ileges

. Can o##er pre#erential #inancial in"estment incenti"es.

+. 'a5 allo= #or t*e manu#acturing o# goods andGor t*e production o# ser"ices.

. Comprise streamlined procedures.$. !##er custom-)uilt in#rastructure.

.2. 6-ne i7e Does Not /it All8 % T$(es of !"

?*ile< according to Claude @aissac 7see )o9 18< t*e )asic structural #eatures o# SEZs< suc* as 718

a speci#ic regulator5 regime< 728 a dedicated go"ernance structure< and 7%8 t*e design o# eit*er

industrial or mi9ed-used sites< remain constant< t*e5 mig*t "ar5 to a certain e9tent #rom case to

case. 38 LiBe=ise< 4*omas &arole concluded in *is e9tensi"e re"ie= o# % 5ears o# glo)al SEZ e9-

36 I)id< p. $.37 &arole< 4*omas: Special Economic Zones in A#rica / Comparing Per#ormance and Learning #rom (o)al E9perience<

?as*ington DC 2 11< p. 1+.38 @aissac< Claude: i)id< p. 2;.



1; Regional Economic Cooperation and Integration in Asia

perience: 4[1he] special economic 5one concept has evolved over time, resulting in a large variety

of 5ones, with differing o ectives, markets, and activities.0 39

Still, from a global perspective, the most commonly distributed variants of zones in the cur-

rent era encompass: 0ree trade 5ones' traditional and *$brid ex(ort (rocessin# 5ones'

free (orts' enter(rise 5ones' urban free 5ones' sin#le factor$ and ex(ort (rocessin# 5ones

7*ig*lig*ted in ta)le 28 .40 Nevertheless, in practice it is not always easy to distinguish be-

tween these types of zones, so that an element of judgement might be necessary. In some

cases, zones may even represent a mixed type, falling in between categories. 41

39 &IAS: i)id< p. 1 .40 I)id.41 &arid< ada: 4o=ards @est Practice (uidelines #or t*e De"elopment o# Economic Zones< Contri-)ution to t*e 'inis-

terial Con#erence )5 ?orBing (roup 1< 'E A-!ECD In"estment Programme< o"em)er 2 $<*ttp:GG===.oecd.orgGmenaGin"estmentG66 ; ;.pd#.

Box *+ 0ain tructural /eatures of a "one

1. Zones are< primaril5< #ormall5 delimited portions o# t*e national territor5 and< se-condaril5< legal spaces pro"ided =it* a set o# in"estment< trade< and operating rules

t*at are more li)eral and administrati"el5 e##icient t*an t*ose pre"ailing in t*e resto# t*e national territor5. Zones are t*ere#ore de#ined )5 a s(ecific re#ulator$ re=#i-e . 4*is regime ma5 )e contained in one or se"eral dedicated la=s or t*roug* aset o# measures contained in a num)er o# te9ts.

2. 4*e administration o# t*e regime usuall5 reFuires a dedicated #overnance struc=ture < centrali ed or decentrali ed. 4*e attri)utes o# t*is structure "ar5 according tot*e nature o# t*e one regime< t*e pre"alent administrati"e culture< t*e num)er o#e9isting ones< t*e role o# t*e pri"ate sector in de"eloping and operating ones< andman5 ot*er #actors. 4*e purpose o# t*is structure is =*at matters: It is to ensure e#-#icient management o# t*e regime and ensure t*at in"estors )ene#it #rom its pro"i-sions.

%. Zones are usuall5 pro"ided =it* a p*5sical in#rastructure supporting t*e acti"ities o#t*e #irms and economic agents operating =it*in t*em. 4*e in#rastructure usuall5 in-cludes real estates< roads< electricit5< =ater< and telecommunications. 4*e in#rastruc-ture is usuall5 composed o# industrial or -ixed=use activit$ (arEs and Be5 trans-port in#rastructure connecting t*e one to its sources< marBets and economic "icini-t5. E"en in countries =*ere ones are legal spaces< industrial or mi9ed-use acti"it5parBs usuall5 e9ist to *ost #irms.

7E9tract #rom @aissac< Claude: i)id< p. 2;8




.2.*. /ree Trade "one 9Co,,ercial /ree "one:

According to a)il Da)our< 0&ree 4rade Zones3 7&4Z8< also Bno=n as 0Commercial &ree Zones3<

are 4designated areas, physically or administratively located outside the national customs terri-

tory, in which unrestricted trade is permitted with the rest of the world0. 42 C*aracteristic #or t*is

"ariant o# SEZ< in =*ic* emp*asi e is gi"en on trans-s*ipment and trade related acti"ities< is

t*at merc*andise products can )e customs dut5-#ree mo"ed into and out o# its territor5< Bept in

=are*ouses #or a certain period o# time< and re-pacBed #or re-e9port as =ell as trans-s*ipment.

>suall5< t*is t5pe o# one is located =it*in port areas and at ot*er ma or transportation *u)s<

connected to rail=a5s or main roads. Essentiall5< operations =it*in t*e one are limited to

commercial acti"ities< =*ic* aim at #acilitating import-dependent e9port industries< and are not

t*oug*t o# as #ocal areas #or industrial manu#acturers ser"ing domestic marBets or e9porting

t*eir products. 43

42 Da)our< a)il 'd.: i)id< p. 6.43 I)id.

Box 2+ !xa,(le /ree Trade "one % Colon /ree "one' Pana,a

Zone Li)re de Colon< commonl5 Bno=n as 0Colon &ree Zone3 7C&Z8< *ad )een esta)lis*ed

in 1$6 as an autonomous institution =it*in Panama s urisdiction. Starting =it* ten )usi-

nesses and a geograp*ical area ; *ectares< C&Z currentl5 co"ers %< )usinesses on a

sur#ace encompassing o# 1 ; *ectares. @eing t*e second largest &4Z =orld=ide< t*e one

is regarded as one o# Panama s main economic pillars.

6ana#e-ent Bod$4

C&Z is go"erned )5 a )oard o# directors< an e9ecuti"e committee< and a general manager.

4*e )oard o# directors consists o# go"ernment representati"es and pri"ate sector actors.

Amongst ot*ers< pu)lic Be5 mem)ers include representati"es o# t*e 'inistr5 o# Commerce

and Industr5< t*e 'inistr5 o# Econom5 and &inance< as =ell as t*e President !##ice.

1b ectivesF6ission4

Panama s go"ernment *ad set up C&Z to accomplis* t*ree main o) ecti"es: 718 &ostering

economic moderni ation< 728 creating a large-scale *u) #or streamlined regional commer-

cial acti"ities< and a)o"e all< 7%8 attracting #oreign in"estors in order to generate emplo5-

ment opportunities #or Panama s "ast la)our #orce.



1+ Regional Economic Cooperation and Integration in Asia

Sources: *ttp:GG===. olicol.go).pa< *ttp:GGdmce. onali)redecolon.go).pa<

*ttp:GG===.colon#reetrade one.com

P*$sical )*aracteristics4

Strategicall5 located at t*e Cari))ean entrance o# Panama Canal< t*e one acts as a gate #or

t*ree ma or Atlantic ports and one in t*e Paci#ic< pro"iding access to s*ipping lines to t*e

American *emisp*ere< Europe< Asia< A#rica< and Australia.

!li#ible Activities4

In C&Z< eligi)le economic acti"ities centre around entrep t and trade< including =are*ous-

ing< s*o=casing< and trans-s*ipment #or a "ariet5 o# commercial goods< suc* as electron-

ics< clot*ing< p*armaceutical< and ot*er products. &urt*ermore< it pro"ides )usiness op-

portunities #or trade related ser"ices.

Incentives

• 4a9 e9emptions on imports andre-e9ports

• o corporate ta9 #or companies

• Di"idends paid on pro#its #rom#oreign trade operations and#rom direct sales are not su) ectto a di"idend ta9

• An5 incoming merc*andisestored in or lea"es t*e #ree one#or a #oreign countr5 is e9empted#rom ta9es< c*arges< or an5 t5peo# tari##




Sources: &IAS: i)id< p.1 N Da)our< a)il 'd.: i)id< p. %%N Engman< 'ic*ael< !nodera< !samu and Pinali< Enrico: i)id< p. 1;

Table 2+ 0ost Co,,on T$(es of !"Develo(-ent ob2ectives P*$sical c*ar=

acteristics

!li#ible activities Incentives 6arEets

0ree Trade"one :)o-=-ercial 0ree"one;

• Support trade• &acilitating o# imports

Ports o# entr5 • Entrep t andtrade-related ac-ti"ities

• ?are*ousing• PacBaging• 4rans-s*ipment

• E9emption #rom import Fuotas• Rein"ested pro#its =*oll5 ta9 #ree

• Do• Re-

Traditional!x(ort Proc=essin# "one

• E9port manu#acturing• De"elopment o# e9port

industr5

Encla"e orindustrial parB

• Lig*t industr5• 'anu#acturing• !t*er processing

• Pro#its ta9 a)atement and regulator5 relie#• E9emption #rom #oreign e9c*ange controls• &ree repatriation o# pro#its• 'a9. 1; 5ears e9emption on all ta9es

• 'oste9p

>$brid !x(ortProcessin#

"one

• E9port manu#acturing• De"elopment o# e9port

industr5

Encla"e orindustrial parB

• Lig*t industr5• 'anu#acturing• !t*er processing

• Pro#its ta9 and regulator5 relie#< see 4raditionalEPZ

• E9p• Do

ma

0ree(ort • De"elopment o# tradingregimeGcentre

• Di"ersi#ication o# eco-nomic )ase

• &acilitation o# trade andimports

Entire cit5 orurisdiction

• 'ulti-use• 4rade ser"ice• Industr5• @anBing• !t*ers

• Simple )usiness start-up• 'inimal ta9 and regulator5 restraints• &ree repatriation o# capital< pro#its and di"idends• Pre#erential interest rates

• Do• Inte• E9p

ma

!nter(rise"one' !-(o=Ger-ent'Arban 0ree"one

• >r)an re"itali ation• De"elopment o# S'Es in

depressed areas

Distressedur)an or ruralareas

• 'ulti-use • Simpli#ied )usiness registration• Local ta9 a)atement• Reduction o# licensing reFuirements• (o"ernment mandated li)eral on *iring and #iring

• Do

in#le 0actor$!x(ort Proc=essin# "one

• E9port manu#acturing• De"elopment o# e9portindustr5

Countr5-=ide • Lig*t industr5• 'anu#acturing

• !t*er processing

• Pro#its ta9 and regulator5 relie#< see 4raditionalEPZ

• E9pma



1$ Regional Economic Cooperation and Integration in Asia

.2.2. Traditional !x(ort Processin# "one

Hason A))ott de#ined traditional e9port processing ones 74EPZ8 as 4e7port enclaves within

which special economic concessions apply including an e7tensive package of incentives and veryoften e7emptions from certain kinds of legislation which do not apply outside the 5ones.0

44 De-

signed to #acilitate t*e de"elopment o# e9port industries< 4EPZs normall5 encompass clearl5

delimited industrial estates< in =*ic* e9tensi"e industrial in#rastructure and ser"ices are de-

signed to #acilitate t*e manu#acturing sector. 45 Amongst ot*er #eatures< incenti"es usuall5

include: Lo=-costGrent )uildings< roads< po=er supplies< as =ell as transport #acilities. 46

Zororo 'uranda emp*asi ed in *is =orB t*at t*e most common t5pe o# 4EPZ is )5 #ar t*e

industrial parB one< =*ic*< despite p*5sical in#rastructure incenti"es< en o5s compre*ensi"e

polic5 inter"entions. Inter"ention pacBages usuall5 contain #iscal incenti"es< =*ic* ma5 co"ercustom dut5 relie#s #rom e9port ta9es and imported ra= materials< as =ell as so-called 0ta9

*olida5s3< andGor non-#iscal incenti"es< suc* as t*e #reedom to emplo5 #oreign e9perts in su-

per"isor5 or tec*nical positions as =ell as t*e guaranteed rig*t to =it*dra= eFuipment and

pro#its at an5 time.47

44A))ott< Hason: E9port Processing Zones and t*e De"eloping ?orld< in: Contemporar5 Re"ie=< Jolume 2+ < um-)er 1;+ 71$$+8< pp. 2%2-2% 7p. 2%68.

45 usago< 4aBa5os*i and 4 annatos< Za#iris: E9port Processing Zones / A Re"ie= in eed o# >pdate< Social Protec-tion Paper< um)er $ 2 71$$ 8< 4*e ?orld @anB< ?as*ington DC.

46?arr< Peter (.: E9port Promotion "ia Industrial Encla"es / 4*e P*ilippines @ataan E9port Pro-cessing Zone< in:4*e Hournal o# De"elopment Studies< Jolume 2%< um)er 2 71$ +8< pp. 22 -261 7p. 22%8.

47 'uranda< Zororo: SeeBing Competeti"e Ad"antage in a Deepening Crisis / An In"estigation o# Zim)a)=e s E9portProcessing Zones< in: Hournal o# A#rican @usiness< Jolume ;< um)er 272 68< pp. ;%- $ 7p. ; 8.




Box .+ ;arac)i !x(ort Processin# "one in Pa<istan

A#ter #ollo=ing a long pat* o# import su)stitution< PaBistan s go"ernment attempted to

re"erse t*e trend )5 ad usting its de"elopment and industrialisation strateg5 to a moree9port oriented polic5 #rame=orB )5 li)erali ing t*e trade regime )eginning #rom t*e

1$ s. Part o# t*e li)erali ation attempt =as a nation=ide EPZ programme. In 1$ 1< ara-

c*i E9port Processing Zone 7 EPZ8 *ad )een t*e #irst one to )e esta)lis*ed under t*e

ne=l5 introduced regime.

1b ectivesF6ission4

In order to create o) opportunities #or PaBistan s la)our #orce< #oster tec*nological pro-

gress< and attract #oreign direct in"estments< t*e main de"elopment o) ecti"es o# EPZare 18 acceleration o# t*e national pace o# industrialisation and 28 increase o# e9port "ol-

ume. Accordingl5< it is EPZ aut*orit5 s mission e"er since4[to] mo ili5e and promote

utilisation of the nation:s resources for social and economic development of the country0 )5

creating an ena)ling )usiness en"ironment #or in"estors< =*o seeB to set-up inno"ati"e

and am)itious e9port-oriented pro ects.


EPZ *ad )een set up ne9t to Land*i Industrial Area< =*ic* is 1 Bilometres a=a5 #romQuaid-e-A am International Airport< 2 Bilometres #rom Port Quasim< and %; Bilometres

#rom t*e recentl5 moderni ed arac*i Seaport. Additionall5< it is =ell connected to t*e

national *ig*=a5 net=orB. ConseFuentl5< t*e strategic maritime and continental location

o##ers )usiness #rom A#rica< America< Europe< &ar East< and 'iddle East access to t*e di-

"erse marBets o# Central Asian countries.


EPZA is #ocussing on #i"e priorit5 sectors< in =*ic* companies can in"est: ig*-tec* indus-

tr5< gem and e=eller5< so#t=are< in#ormation tec*nolog5 )ased industries< and processed

engineering.




Sources: AB*tar< 'o*ammad ani#: An E"aluation o# arac*i E9port Processing Zone / A Preliminar5

In"estigation< in: PaBistan De"elopment Re"ie=< Jolume 62 72 68< Issue um)er 6< pp. $2+-$6 7p.

$2 8< *ttp:GG===.ep a.go".pB< *ttp:GG===.paBmission-uB.go".pB

.2. =$brid !x(ort Processin# "one

According to 4*omas &arole< *5)rid EPZs represent a su)-di"ided "ariant o# traditional EPZs<

)ecause t*is Bind o# one is usuall5 separated into t=o parts. !ne area is a more general one<=*ic* is open #or all industries< independent o# =*et*er t*e5 are e9port oriented or not. 4*e

ot*er area constitutes a detac*ed EPZ< usuall5 #enced-in and designed #or registered e9port-

oriented EPZ-enterprises. 48 In compliance =it* o)ser"ations made )5 t*e ?orld @anB< t*is

Bind o# *5)rid one is pre#erred )5 man5 Latin American< t*e ma orit5 o# East European< as

=ell as )5 a num)er o# Asian countries. ?*ile in Asian countries< #or instance t*e P*ilippines

and 4*ailand< EPZs are reFuired to constitute a #enced-in area =it*in t*e *5)rid one< man5

countries in Latin America< suc* as 'e9ico and Costa Rica< on t*e contrar5 allo= EPZ-

registered enterprises to )e located ne9t to companies< =*ic* are registered under di##erent

48&IAS: i)id< p. 1 .

Incentives

• &reedom #rom national importrestrictions

• Relie# #rom dou)le ta9ations su)-ect to )ilateral agreement

• Dut5 #ree imports o# mac*iner5<eFuipment and material

• &reedom #rom national importrestrictions

• &ree mo"ement o# capital • o minimum limit #or in"est-ment

• Relie# #rom national #oreign e9-c*ange control regulations

• o sales ta9 on electricit5 andgas )ills

• !)soleteGold mac*iner5 can )esold in PaBistan s domestic mar-

Bet a#ter pa5ment o# applica)leduties and ta9es

• Production oriented la)our la=are solel5 regulated )5 t*e au-

t*orit5




regimes.49 !ne prominent e9ample o# suc* a *5)rid one is Lat ra)ang Industrial Estate in

4*ailand. 50

.2.> /ree(ort

In *is ela)orated o"er"ie= o# "ar5ing SEZ t5pes< Claude @aissac pointed out t*at t*e &IAS clas-

si#ication o# 0&reeports3 7&Ps8 could )e misleading. C*aracteri ed as most compre*ensi"e t5pe

o# SEZ< &Ps usuall5 incorporate #ar-reac*ing economic regions across di##erent political enti-

ties< encompassing )ot* economic acti"ities o# ur)an and rural areas o# t*e *ost econom5.

4*ere#ore< instead o# &P< *e proposed to use t*e ?orld E9port Processing Zone Association s

7?EPZA8 classi#ication o# 0?ide Area Zones3 7?AZ8.51 ?AZs usuall5 capture a geograp*ic

area< =*ic* surpasses a total si e o# 1< *ectares< incorporating a residential population.52

45picall5< t*e5 allo= #or an unlimited "ariet5 o# economic acti"it5< ranging #rom retail sales to

tourism< and pro"ide a )road set o# )ene#its and incenti"es. 53

In t*e past< mostl5 )ecause o# t*e cost )ene#its and ease o# securit5< ?AZs =ere designated as

cit5 states< suc* as ong ong< Singapore or 'acau< as =ell as islands< #or instance La)uan in

'ala5sia or @atam in Indonesia. Recentl5< *o=e"er< t*e trend is ?AZs are )eing )uilt =it*in

t*e )oundaries o# t*e mainland o# t*e *ost econom5< especiall5 in PR C*ina. 4*e underl5ing

reasons )e*ind t*is de"elopment are< on t*e one *and< tec*nological ad"ancement o# custom

controls< and< on t*e ot*er *and< t*e o"erall o) ecti"e to ac*ie"e a deeper integration o# ?AZs

and t*e domestic marBet. 54

49S*aB5a< 'alliBa and 'cLinden< (erard: Dut5 and 4a9 Relie# and Suspension Sc*emes #or Impro"ing E9port Com-

petiti"eness / A Re#erence and Learning 4oolBit< 4*e ?orld @anB / International 4rade Department< ?as*ing-ton DC< 2 $< p. 21.

50Due to insu##icient sources a"aila)le in Englis* language< t*e one s speci#ic c*aracteristics cannot )e descri)ed att*is point.

51@aissac< Claude: i)id< p. 2$-% .52?EPZA 4a)le o# Zone Countries< in: ?EPZA !nline Plat#orm< *ttp:GG===.=ep a.orgGa c.*tml< accessed

2 . $.2 1%.53?ool#re5< Sean: Special Economic Zones and Regional Integration in A#rica< 4RALAC ?orBing Paper< um)er 1%

72 1%8< p. %.54S*aB5a< 'alliBa and 'cLinden< (erard: i)id< p. 21.




Box >+ /ree(ort A?aba (ecial !cono,ic "one

Inaugurated in 2 1< AFa)a Special Economic Zone 7ASEZ8 in Hordan is regarded as good

e9ample #or ?AZ ones. La)elled )5 t*e go"erning ASEZ Aut*orit5 as so-called 0multi-modal transportation *u)3< =*ic* is c*aracteri ed as li)erali ed< lo= ta9< dut5-#ree< and

multi-sector de"elopment one respecti"el5< it o##ers di"erse in"estment opportunities #or

entrepreneurs.

6ana#e-ent Bod$4

ASEZ is go"erned )5 an administrati"el5 and #inanciall5 autonomous institution< =*ic* is

called 0AFa)a Special Economic Zone Aut*orit53 7ASEZA8. ASEZA is responsi)le #or )ot*

t*e conceptuali ation and implementation o# management regulations as =ell as o# de"el-opment strategies. Consisting o# si9 ministerial-le"el commissioners< eac* go"erning

)oard mem)er is responsi)le #or one area o# operational or regulator5 acti"it5.

1b ectivesF6ission4

According to its commissioner s o=n statement: 4*e AFa)a Special Economic Zone is a

=orld class )usiness *u) and leisure destination on t*e Red Sea andT acts as a de"elop-

ment dri"ing #orce #or Hordan t*at impro"es t*e Fualit5 o# li#e and prosperit5 #or t*e com-

munit5 t*roug* sustaina)le de"elopment . Accordingl5< t*e one =as designed as suc* to718 attract in"estment )5 creating a glo)all5 competiti"e )usiness en"ironment< 728 im-

pro"e t*e communit5 s Fualit5 o# li#e and prosperit5< and 7%8 insure continuous economic

de"elopment.


Strategicall5 located at t*e Red Sea< ASEZA s*ares )orders =it* Eg5pt< Israel< and Saudi

Ara)ia. It co"ers a geograp*ical territor5 o# %+; BmU< =*ic* stretc*es across t*e entire

Hordanian coastline< co"ering seaports as =ell as one international airport.


ASEZ o##ers a "ariet5 o# in"estment opportunities< co"ering )usiness sectors liBe tourism<

ser"ices< and industr5 7detailed list at *ttp:GG===. ordanin"estment.com8.




Source: *ttp:GG===.aFa)a one.com

.2.@ !nter(rise "one' !,(o er,ent' rban /ree "one

0Enterprise3< 0Empo=erment3< and 0>r)an &ree Zones3 all #ollo= common economic polic5

o) ecti"es. @5 ser"ing t*e purpose o# #ostering t*e de"elopment o# small and medium enter-

prises< t*e5 are designed to re"itali e t*e econom5 o# depressed municipals. >suall5< industri-

ali ed countries use t*is speci#ic regional de"elopment tool. 55 'ost prominentl5< incenti"e

sc*emes include simpli#ied )usiness registration procedures< ta9 incenti"es< and a more li)-

eral go"ernment mandate on la)our la=s. 56

55 'il)erg< ?illiam and Amengual< 'att*e=: Economic De"elopment and ?orBing Conditions in E9port ProcessingZones / A Sur"e5 o# 4rends< ?orBing Paper< IL! 2 < p. 6.

56A*rens< Hoac*im and 'e5er-@audecB< Astrid: i)id< p. $.

Incentives

• &lat ;V income ta9 on net pro#ite9emption #rom annual land and)uilding ta9es on utili ed prop-

ert5

• E9emption #rom ta9es on distri-)uted di"idends and pro#its

• Dut5-#ree import o# goods incommercial Fuantities #rom t*enational customs territor5 ando"erseas

• o #oreign eFuit5 restrictions onin"estments

• o #oreign currenc5 restrictions • &ull repatriation o# pro#its andcapital

• Streamlined la)our and immi-

gration procedures

• 1 V #oreign o=ners*ip

• >p to + V #oreign la)our • A"aila)ilit5 o# land #or lease orsale




Box @+ C)ica#o !,(o er,ent "one

Introduced in 1$$;< t*e C*icago Empo=erment Zone 7CEZ8 is one o# t*e a=arded cities

under t*e #ederal empo=erment onesGenterprise communities programme. 4*e pro-gramme constitutes a t*ree-tier go"ernment strateg5 / #ederal< state and local le"el /

comprising o# partners*ips #or stimulating social de"elopment and social gro=t* in dis-

tressed ur)an centres and rural parts o# t*e >nited States.

6ana#e-ent Bod$4

4*e cit5 go"ernment o# C*icago is responsi)le #or operating as =ell as implementing t*e

programme. A state agenc5 called 0EZGEC Coordinating Council3 7EZECCC8 *as )een as-

signed as leading aut*orit5 #or one de"elopment< distri)ution o# #unding and a=ardingpro ects. EZECCC consists o# %$ mem)ers< =*ic* represent communities in t*e one< )usi-

nesses< as =ell as o##icials #rom all t*ree go"ernment le"els and related neig*)our*oods.

1b ectivesF6ission4

!##ering a "ariet5 o# in"estment incenti"es #or )usinesses< =*ic* are located =it*in t*e

)oundaries o# t*e one< CEZ targets at tacBling po"ert5 and *ig* unemplo5ment rates< )5

seeBing to re"itali e t*e econom5.


?it* a com)ined population o# 1$$<$% citi ens and a geograp*ical sur#ace co"ering %

sFuare Bilometres< CEZ co"ers t*irteen communities and neig*)our*oods on t*e =est and

sout* side o# C*icago.




Sources: *ttp:GG===.cit5o#c*icago.org< *ttp:GGportal.*ud.go"< *ttp:GGeconomics-#iles.pomona.edu

.2. in#le /actor$ !x(ort Processin# "one

Single &actor5 E9port Processing Zones are a su)-t5pe o# traditional EPZs. 4*e5 #ollo= a com-

para)le logic and incenti"e sc*eme< )ut are onl5 designed to ser"e t*e needs o# indi"idual

enterprises. >suall5< t*is Bind o# one is not located in dedicated areas< )ut is rat*er set-up

regardless o# t*e location. 57

57 'uc*linsBi< Peter: Special Economic Zones / A Polic5 4ool in Searc* o# a e= Agenda < in: Carter< Connie andarding< Andre=: Special Economic Zones in Asian 'arBet Economies< e= ,orB 2 11< pp. 1;-%+ 7p. 1+8.

Incentives

• CEZ s incenti"e sc*eme includes

ta9 relie#s liBe =age credits< de-ductions and in"estment stimuli

• Annual ta9 credit o# up to W%<#or emplo5ees< =*o li"e and=orB in CEZ

• 4a9 credit o# up to W2<6 #or

eac* ne= emplo5ee aged 1 to%$ 5ears old< =*o =orBs andli"es in CEZ

• Allo=s )usiness o=ners to re-co"er all or parts o# certainpropert5 costs up to a speci#iclimit

• Allo=s CEZ )usinesses to rollo"-er certain gains #rom Fuali#iedCEZ asset sales

•

Lo= interest CEZ #acilit5 )ondsare issued )5 local or a nationalgo"ernments CEZ )usiness inorder to #inance Fuali#ied onepropert5

•

Quali#ied Zone Academ5 @ondsallo= state or local go"ernmentsto issue no interest )onds to0Fuali#ied one academics3 inCEZ




>. !"s fro, an !cono,ic Pers(ective % /unctions and -b ectives

4In this current era of glo alisation, e7port promotion is seen as an impor-

tant policy for economic growth in developing countries. ;arious measures

are eing adopted to promote e7port competitiveness y governments in

these countries. /s a policy means of achieving this goal, the concept of e7-

port processing 5ones "+< s( has gained noticea le significance in recent

years.0

"/rahdna /ggarwal, %&&=( 58

4*e accessi)le SEZ literature< dealing =it* di"erse aspects and attri)utes o# "arious national

one programmes and t*eir respecti"e positi"e and negati"e impacts on o"erall economic

de"elopment o# *ost economies< is di"erse and mani#old. Considered as 4 eing among the pri-

mary forces of e7port-oriented growth in recent decades0 59 , SEZs =ere / and still are / regarded

)5 a large num)er o# countries as an important economic polic5 tool. 60 Discussions a)out

ones started at a time o# structural c*ange in t*e glo)al economic en"ironment. It is consid-

ered as conseFuence o# s*i#ts #rom import su)stitution policies to e9port-oriented gro=t*

strategies in man5 de"eloping countries. 61 As a p*enomenon o# t*is trend< Latin American<

Cari))ean< Asian and< to a lesser e9tent< A#rican countries set-up national SEZ programmes<

conseFuentl5 emerging as *ost countries #or an e9tensi"e num)er o# ones =orld=ide. 62

Considered #rom an economic perspecti"e< t*e #oals < =*ic* go"ernments tr5 to ac*ie"e )5

implementing national SEZ strategies< mig*t slig*tl5 di##er #rom case to case. o=e"er< ac-

cording to Hoac*im A*rens and Astrid 'e5er-@audecBas as =ell as o# R. 4*amara aBs*i< t*e

primar5 o) ecti"e o# one strategies is to attract #oreign in"estment in order to:

• Increase and di"ersi#5 e9ports.• Create o)s and raise li"ing standards.• 4rans#er impro"ed tec*nolog5 to local econom5 and impro"e *uman resources.

58Aggar=al< Arad*na: Per#ormance o# E9port Processing Zones / A Comparati"e Anal5sis o# India< Sri LanBa and@anglades*< Regional Council #or Researc* on International Economic Relations 7CRIER8 ?orBing Paper< um-)er 1;; 72 ;8< p. 1.

59 arunaratne< C*andana and A)a5aseBara< As*ani: Impact o# EPZs on Po"ert5 Reduction and 4rade &acilitation inSri LanBa< > ESCAP AR4 e4 ?orBing Paper< um)er 1%6 7!cto)er 2 1%8< p. .

60I)id.61AB*tar< 'o*ammad ani#: An E"aluation o# arac*i E9port Processing Zone / A Preliminar5 In"estigation< in:

4*e PaBistan De"elopment Re"ie=< Jolume 62< um)er 6 72 %8< pp. $2+-$6 7p. 2+$8.62Hauc*< er)ert: E9port Processing Zones and t*e Quest #or Sustaina)le De"elopment / A Sout*ern A#rican Pers-

pecti"e< in: En"ironment and >r)ani ation< Jolume 16< um)er 1 72 28< pp. 1 1-11% 7p. 1 28.




• Create )acB=ard and #or=ard linBages. 63

!"er t*e 5ears< a Fuite e9tensi"e amount o# researc* #rom academic and institutional circles

aliBe emerged. 4*eir studies o##er insig*t into economic d5namics< )ene#icial e##ects as =ell as

t*e pit#alls o# national SEZ programmes< t*us anal5sing t*e potential and actual impact as a

polic5 measure #or nurturing economic de"elopment in de"eloping countries. In general dis-

course< t*ree t5pes o# literature / descripti"e case studies< t*eoretical anal5sis< and cost-

)ene#it anal5sis / primaril5 #ocusing on EPZs 64 < can )e distinguis*ed.65

Largel5 conducted )5 international organi ations and )odies suc* as ?@< IL!< t*e !rganisa-

tion #or Economic Co-operation and De"elopment 7!ECD8< and "arious >nited ations 7> 8

agencies<descri(tive case studies account #or t*e ma or s*are o# pu)lis*ed pieces. 4*ese

=orBs pro"ide ela)orated assessments o# SEZ related pro)lems and issues< suc* as conceptu-

ali ation< implementation< and o"erall per#ormance.T*eoretical anal$sis < t*e second t5pe o#

researc*< positions SEZs along t*e standard ecBsc*er-!*lin 7 -!8 paradigm o# trade and

production< =*ic* *as )een de"eloped in 1$1$ )5 Eli ecBsc*er and #urt*er ela)orated )5

@ertil !*lin in 1$% . It treats traded commodities as )undles o# t*e #actors la)our and capital<

and t*ere#ore anal5ses SEZs in t*e glo)al economic s5stem #rom a perspecti"e o# indirect #ac-

tor ar)itrage. 66 Estimating t*e costs and )ene#its o# SEZs< t*e t*ird strand o# literature / cost=

benefit anal$sis / predominantl5 #ocuses on t*e calculation o# its net returns in comparison

=it* t*ose o# a *5pot*etical situation in =*ic* no one e9ists. 'ain anal5tical components

include< amongst ot*ers< #oreign e9c*ange earnings< emplo5ment< tec*nolog5 trans#er< pro#its

and losses< set-up costs< and ta9es.

@5 dra=ing insig*ts #rom t*e a#orementioned strands o# academic and practical researc*< t*e

#ollo=ing c*apter =ill anal5se and discuss SEZ programmes =orld=ide in order to deri"e pol-

ic5 suggestions #or t*e Lao national SEZ strateg5 in accordance =it* its set o) ecti"es:

• Integrating t*e Lao econom5 in t*e regional and international marBets )5 increasingand di"ersi#5ing e9ports.

63A*rens< Hoac*im and 'a5er-@audecB< Astrid: i)idN 4*amara aBs*i< R: Promotion o# Social Dialogue in EPZs inSout* Asia / S5nt*esis o# Countr5 E9periences< in: !)erai< S.< Si"ant*iran< A. and JenBata Ratnam: La)our Issuesin E9port Processing Zones in Sout* Asia / Role o# Social Dialogue< IL!< (ene"a 2 1< pp. 1 -6 .

64As alread5 re#erred to in c*apter 1< t*e classi#ications in regards to SEZs are not al=a5s clearl5 distinguis*ed andused interc*angea)l5. e"ert*eless< researc* during t*is time mainl5 #ocused on ones< =*ic* =ere designed tocreate #a"oura)le e9port conditions #or producers and ma5 t*ere#ore #all under t*e categories traditional EPZor *5)rid EPZ.

65Amira*madi< oos*ang and ?u< ?eiping: E9port Processing Zones in Asia< in: Asian Sur"e5< Jolume %;< um)er$ 71$$;8< pp. 2 / 6$ 7p. 2$8.

66Amira*madi< oos*ang and ?u< ?eiping: i)id< p. % .




• Contri)uting to a rapid social-economic de"elopment )5 generating emplo5ment<t*ere#ore impro"ing li"ing standards.

• 'oderni ing t*e econom5 t*roug* tec*nolog5 trans#er and *uman capital de"elop-ment.

• &ostering regional and local de"elopment.• Economic s5stem trans#ormation to=ards a more marBet-dri"en mec*anism.

Since t*e ma or target #or Lao s national SEZ strateg5 is at t*is stage t*e e9port processing

industr5< #ollo=ing sections =ill pro"ide an o"er"ie= on glo)al )est practices in success#ull5

setting-up EPZs. Particular #ocus =ill )e gi"en to t*eir potential impact on t*e national =el#are

o# *ost economies< costs and )ene#it anal5sis as =ell as t*eir prospecti"e impact on national

e9ports< emplo5ment< tec*nolog5 trans#er< *uman capital< and linBages =it* t*e domestic

econom5.

>.* !P" % I,(act on National Eelfare

4*eoretical anal5sis o# EPZs onl5 consists o# a limited num)er o# pro#ound anal5tical =orBs.

@5 and large< pu)lis*ed studies *a"e soug*t to address t=o central Fuestions. &irst< researc*-

ers *a"e attempted to assess =*et*er #oreign capital in"estment 5ields *ig*er =el#are gains in

an EPZ t*an in ot*er parts o# t*e domestic econom5. Second< t*e =el#are o# *ost nations *as

)een compared )e#ore and a#ter setting-up EPZs under t*e assumption t*at #oreign direct

in"estments 7&DI8 =ould not *a"e taBen place in t*e a)sence o# ones. 67

4*e #irst attempt to anal5se =el#are implications o# EPZs =as made )5 oic*i amada in 1$+6.

@5 using t*e )asic ecBsc*er-!*lin 7 -!8 model< in =*ic* a non-pro*i)iti"e import ta9 pro-

tects t*e capital-intensi"e commodit5< *e came to t*e conclusion t*at &DI )ot* in t*e EPZ and

t*e national econom5 *a"e a =el#are decreasing e##ect. is #indings indicate t*at< due to t*e

attracti"eness o# increased capital< EPZs e9tensi"el5 a)sor) la)our #rom t*e national econom5.

ConseFuentl5< t*e output o# t*e la)our-intensi"e commodit5 in t*e domestic econom5 de-

clines< =*ile< at t*e same time< t*e output o# t*e capital-intensi"e commodit5 in t*e EPZ rises<

e"entuall5 intensi#5ing t*e tari##-induced distortion and reducing domestic =el#are. 68

67HenBins< 'auricio< EsFui"el< (erardo and LarraXn @.< &elipe: E9port Processing Zones in Central America< a"ardInstitute #or International De"elopment< De"elopment Discussion Paper< um)er 6 71$$ 8< p. 11.

68 amada< oic*i: An Economic Anal5sis o# Dut5-&ree Zone< in: Hournal o# International Economics< um)er 1%71$ 28< pp. 6;- 6.



Regional Economic Cooperation and Integration in Asia %

In 1$ 2< Carl amilton and Lars S"ensson corrected and e9tended amada s pre"ious =orB<

s*o=ing t*at *is conclusion in regards to t*e relati"e impact o# &DI on t*e national econom5

and EPZs =as not accurate. >sing t*e same standard -! model< t*e5 o)ser"ed t*at amada s

#indings =ere dependent on t*e *5pot*esis t*at t*e la)our-intensi"e commodit5 =as onl5

produced outside o# t*e EPZ. According to t*eir #indings< &DI *a"e a negati"e =el#are impactregardless o# t*e location. e"ert*eless< t*e5 concluded t*at t*e =el#are reducing e##ect o# &DI

in an EPZ is relati"el5 stronger t*an on t*e domestic econom5. 69

Consolidating t*e seemingl5 contradicting #indings o# t*e a#orementioned =orBs< ar-,iu

?ong s researc* in 1$ indicated t*at )ot* studies used dissimilar assumptions concerning

=*at Bind o# good =as produced in t*e one< =*at good =as used to repatriate #oreign and

domestic production #actors< and i# ta9es =ere imposed on pa5ments. A crucial #inding o#

?ong s =orB =as t*at =el#are le"els associated =it* &DI in EPZs and in t*e domestic econ-

om5 do not di##er as long as t*e production in an EPZ is #ocused on one good and i# t*is good isalso utili ed #or #actor repatriation.70

Alt*oug*< ?ong s #indings s*o=ed t*at &DI in EPZs is not in#erior to #oreign in"estment in t*e

domestic econom5< t*e assumption t*at EPZs *a"e a negati"e =el#are e##ect on t*e *ost econ-

om5 *ad )een uncontested until t*e )asic -! #rame=orB =as #urt*er ela)orated. a 'i5a-

ga=a #or e9ample 71 e9tended t*e standard model later on )5 constructing a t*eoretical

#rame=orB< =*ic* comprised t*ree #actors / land< la)our and capital / and t*ree goods / t=o

t5pes o# industrial commodities and #ood. In t*e initial stage o# *is researc* model< a countr5

onl5 #ocused on producing one industrial good and #ood. 4*en< in order to di"ersi#5 t*e do-

mestic industr5< t*e go"ernment introduces an EPZ and o##ers speci#ic su)sidies to #oreign

companies accordingl5. 'i5aga=a s #indings s*o=ed t*at under distincti"e conditions / t*at is<

i# t*e e9port su)sid5 is smaller t*an t*e import ta9< and i# t*e impact o# t*e su)sid5 is larger

on t*e output o# t*e alread5 produced industrial commodit5 t*an on t*e output o# t*e di"ersi-

#5ing production / EPZs mig*t *a"e a =el#are increasing e##ect. e"ert*eless< *is =orB also

69

amilton< Carl and S"ensson< Lars: !n t*e ?el#are E##ects o# A 0Dut5-&ree Zone3< in: Hournal o# International Eco-nomics< Jolume 1%< um)er 1-2 71$ 28< pp. 6;- 6.70?ong< ar-,iu: International &actor 'o"ements< Repatriation and ?el#are< in: Hournal o# International Economics<

Jolume 21< um)er %-6 71$ 8< pp. %2+-%%;.71!t*er pu)lis*ed =orBs< =*ic* also used "ariances o# t*e e9tended standard -! model and su)seFuentl5 came to

similar conclusions< include: ,oung< Leslie and 'i5aga=a< a : >nemplo5ment and t*e &ormation o# Dut5 &reeZones< in: Hournal o# De"elopment Economics< Jolume 2 < um)er 2 71$ +8< pp. %$+-6 ;N C*aud*uri< Datta andAd*iBari< Smita: &ree 4rade Zones =it* arris-4odaro >nemplo5ment / A ote on ,oung-'i5agi=a< in: Hournalo# De"elopment Economics< Jolume 61< um)er 1 71$$%8< pp. 1;+-1 2N Din< 'usle*-du: E9port ProcessingZones and @acB=ard LinBages< in: Hournal o# De"elopment Economics< Jolume 6%< um)er 2 71$$68< pp. % $-% ;.



%1 Regional Economic Cooperation and Integration in Asia

indicated t*at EPZs are a onl5 a 0second )est3 polic5 c*oice< )ecause *is #indings =ere onl5

"alid under t*e assumption t*at t*e prior e9isting tari##-induced marBet distortion could not

)e remo"ed completel5< and t*at EPZs are t*ere#ore acting as counter"ailing distortion in-

duced )5 su)sidies. 72

o=e"er< as 'auricio HenBins and colleagues emp*asi ed< t*e discussed t*eoretical =orBs on

=el#are e##ects o# EPZs *a"e certain limitations. &irst o# all< t*e impact o# distri)ution issues on

national =el#are *ad not )een gi"en consideration in t*eir researc*. Secondl5< t*eir ap-

proac*es are static and lea"e aside important net )ene#its< suc* as emplo5ment and la)our

impro"ement< gradual tec*nolog5 trans#er and learning e##ects #or domestic companies< as

=ell as t*e ad"antages o# out=ard orientation. 73

>.2 Cost4Benefit Anal$sis

?*en anal5sing t*e per#ormance o# EPZ programmes< it is important to recall t*e o) ecti"es<

=*ic* go"ernments seeB to ac*ie"e )5 introducing national one strategies. !"erall< #i"e as-

pired core )ene#its are =ort* mentioning: Emplo5ment generation< accumulation o# #oreign

e9c*ange earnings< attraction o# #oreign capital and tec*nolog5< increase and di"ersi#ication o#

e9ports< as =ell as linBages )et=een local )usinesses and EPZ industries. o=e"er< setting-up

EPZs also generates costs< =*ic* can )e signi#icant. 4*ese include in#rastructure e9penses<

pu)lic ser"ice su)sidies< suc* as electricit5 or pre#erential credit rates< as =ell as t*e admini-

stration o# production sites. 74

Peter ?arr is a pioneer in t*e #ield o# cost-)ene#it anal5sis. e conducted e9tensi"e researc*

on EPZs in Indonesia< t*e Repu)lic o# orea< 'ala5sia< and t*e P*ilippines during t*e 1$ s )5

comparing t*e results o# *is case studies =it* *5pot*etical results )ased on t*e assumption

t*at no one e9ists.75 A#ter using a so-called 0encla"e approac*3 to s*o=case t*e general im-

pact o# an EPZ on t*e domestic econom5 7illustrated in )o9 8< *e su)seFuentl5 e9amined dis-

72 'i5aga=a< a : A Reconsideration o# t*e ?el#are Economics o# a &ree-4rade Zone< in: Hournal o# International

Economics< Jolume 21< um)er %-6 71$ 8< pp. %%+-; .73HenBins< 'auricio< EsFui"el< (erardo and LarraXn @.< &elipe: i)id< p. 1%.74I)id< p. 16.75Pu)lis*ed =orBs include #or e9ample: ?arr< Peter: E9port Promotion "ia Industrial Encla"es / 4*e P*ilippine s

@ataan E9port Processing Zone< in: 4*e Hournal o# De"elopment Studies< Jolume 2%< um)er 2 71$ +8< pp. 22 -261N ?arr< Peter: E9port Processing Zones and 4rade Polic5< in: &inance and De"elopment< Jolume 2 < um)er2 71$ $8< pp. %6-% .



Regional Economic Cooperation and Integration in Asia %2

tincti"e components o# costs and )ene#its #or t*e *ost econom5. According to *is assessment<

go"ernments need to consider eig*t aspects 7*ig*lig*ted in ta)le %8 =*en setting-up an EPZ. 76

Source: ?arr< Peter: i)id< p. + .

Source: ?arr< Peter: i)id< pp. ++- 1.

In academic discourse< forei#n exc*an#e earnin#s #rom EPZ acti"ities en o5 particular atten-

tion< assuming t*at t*e5 =ould *a"e a positi"e impact on national =el#are. o=e"er< as ?arr

emp*asi ed< #oreign e9c*ange earnings #rom #oreign EPZ companies s*ould merel5 )e re-

garded as transactions )et=een t*ese companies and companies a)road< and do not *a"e a

direct e##ect on t*e domestic =el#are. 4*e underl5ing logic is< t*at 4regardless of the difference

76?arr< Peter: E9port Processing Zones / 4*e Economic o# Encla"e 'anu#acturing< in: 4*e ?orld @anB !)ser"er<Jolume 6< um)er 1 71$ $8< pp. ;- 7p. +8.

Box + 6!nclave 0odel8 of !P"s

Table .+ Cost4Benefit tructure of !P"s Accordin# to Earr

@ene#its Costs

&oreign e9c*ange earnings >se o# electricit5

Emplo5ment Domestic )orro=ing

4ec*nolog5 trans#er 4a9es

Purc*ase o# domestic ra= material andcapital goods De"elopment and recurrent costs



%% Regional Economic Cooperation and Integration in Asia

etween a firm>s officially declared e7ports and imports, the corresponding amount of foreign

e7change remains the property of the firm itself 3.77 !ne aspect t*oug*< =*ic* s*ould )e taBen

into account< is t*e net )ene#it o# #oreign e9c*ange con"ersion into t*e national currenc5 #or

=age pa5ments and purc*ases o# domestic goods. I# t*e national central )anB s e9c*ange rate

e9ceeds t*e actual "alue o# t*e domestic currenc5< t*e domestic "alue-added o# t*e currenc5con"ersion constitutes a positi"e net )ene#it #or domestic =el#are. 78

@5 emp*asi ing to seeBe-(lo$-ent =*en esta)lis*ing EPZs< a go"ernment s polic5 c*oice

re#lects t*e assumption t*at t*ere)5 created additional =el#are )ene#its out=eig* t*e oppor-

tunit5 costs. In general t*oug*< it is a comple9 undertaBing to assess t*e distinct opportunit5

costs. Con"entionall5< pa5ments in t*e one are eFui"alent to or slig*tl5 e9ceeding t*e =age

le"els in t*e rest o# t*e domestic econom5. Consistent =it* ?arr s #indings *o=e"er< estimat-

ing t*e =el#are opportunit5 costs 7so-called 0s*ado= price38 o# semisBilled and unsBilled la-

)our implies t*at t*ese =ages are lo=er. e"ert*eless< =*en taBing sBill trans#er o# EPZ em-plo5ment into account< t*e picture mig*t c*ange. A pro)lem< =*ic* arises in t*is conte9t< is

t*e e9act estimation o# t*e actual "alue o# en*ancing la)our sBills. 79

Alt*oug*< t*e actualtransfer of tec*nolo#$ "aries #rom case to case< administrators o# ones

and academics aliBe agree t*at t*ere ma5 )e signi#icant =el#are )ene#its to t*e national econ-

om5. Especiall5 in "ie= o# managerial practices and processes o# Fualit5 control< researc*

#indings indicate t*at local middle managers could o)tain considera)l5 *ig*er salaries a#ter

)eing emplo5ed in t*e EPZ. 80

In general< go"ernments seeB to encourage #oreign EPZ companies to (urc*ase do-estic

raG -aterials' inter-ediate in(uts and ca(ital #oods #rom t*e domestic marBet. o=e"er<

as local capital goods and ra= materials are usuall5 contested )5 imported su)stitutes< t*e net

=el#are )ene#it o# t*ose purc*ases is dependent on t*e relation )et=een import ta9 on su)sti-

tutes and t*e domestic prices. 81 As ?arr summari ed *is #indings: 4)hen +< firms receive a

re ate from the host government equivalent to the duty that would have een paid on these im-

ported inputs, there is no net welfare effect from their purchases y +< firms.0 82

77I)id< p. ++.78I)id.79I)id< pp.+ -+$.80I)id< p. +$.81I)id< p. .82I)id< pp. +$- .



Regional Economic Cooperation and Integration in Asia %6

EPZ companies< in particular te9tile and garment manu#acturers< *a"e a *ig* usa#e of elec=

tricit$ . 4*ere#ore< in order to estimate t*e cost-)ene#it structure o# esta)lis*ing an EPZ< a

t*oroug* cost-)ene#it anal5sis *as to taBe into account a comparison o# t*e electricit5 tari##

rates =it* calculations o# t*e long-term marginal costs 7LR'C8 o# t*e additional po=er sup-

pl5.83

e concludes t*at 4if the average tariff e7ceeded the ?@2 , the electricity used y +< firms would entail a net ta7 A or, in the reverse case, a net su sidy.0 84

Do-estic borroGin# onl5 *as an impact on t*e net =el#are o# a *ost countr5 i# domestic

capital marBets are restricted and interest rates are *eld do=n. In suc* a case< 4the implication

is that the domestic output forgone as a result of additional orrowing y "foreign( +< firms

e7ceeds the compensation received from them in interest and principal repayment0. 85 4*e out-

come =ould )e< t*at t*e opportunit5 costs o# t*e )orro=ed capital =ould surpass t*e actual

marBet price< t*ere#ore creating a negati"e =el#are e##ect.86

Since companies< =it* "er5 #e= e9ceptions< =ould not *a"e mo"ed to t*e countr5 in t*e a)-

sence o# EPZs<taxes constitute a clear net )ene#it #or t*e domestic =el#are. 4*e ma orit5 o#

companies are #oreign< and< according to ?arr s inter"ie=s =it* managers< 4few would have

invested in the host country without the +< incentives0. 87 e"ert*eless< *e added< too generous

ta9 *olida5s can distort t*e positi"e impact. 88

Develo(-ent and recurrent costs create t*e )iggest s*are o# direct costs< including t*e es-

ta)lis*ment o# t*e one site as =ell as necessar5 in#rastructure around it< its maintenance< and

administration cost.89

,et< it is important to add to ?arr s researc* #indings #rom t*e 1$ st*at< according to a more recent ?orld @anB pu)lication< an important #eature o# current one

o=ners*ip arrangements and de"elopment approac*es are t*e increasing num)er o# ones<

=*ic* are de"eloped< o=ned< and operated )5 t*e pri"ate sector. e5 #actors )e*ind t*is trend

are< on one side< t*e impression t*at pri"ate ones ac*ie"e a )etter per#ormance t*an t*e ma-

orit5 o# pu)lic ones< and< on t*e ot*er side< t*e general lacB o# pu)lic #inancial resources #or

one esta)lis*ment. 4*us< #ormall5 institutionali ed pu)lic-pri"ate partners*ip approac*es

83I)id< p. .84I)id.85I)id.86I)id.87I)id.88I)id.89I)id< p. 1.



%; Regional Economic Cooperation and Integration in Asia

*a"e ser"ed as catal5st to reduce net cost and #acilitate one de"elopment. 90 E9amples< =*ic*

=ere taBen into account in t*e report< include 91 :

• Pu)lic pro"ision o# o##-site in#rastructure and #acilities as an incenti"e #or pri"ate#unding o# on-site in#rastructure and #acilities.

• Assem)l5 o# land parcels =it* secure titles and de"elopment rig*ts )5 t*e go"ernment#or lease to pri"ate one de"elopment groups< de"elopment o# )etter landuseGo=ners*ip la=s and regulations< as =ell as t*e adoption o# en#orcea)le oningand land use plans.

• @uild-operate-trans#er and )uild-o=n-operate approac*es o# on-site and o##-site onein#rastructure and #acilities< =it* go"ernment guarantees andGor #inancial support.

• Contracting pri"ate management #or go"ernment o=ned ones< or lease o# go"ern-ment one assets )5 a pri"ate operator.

• EFuit5-s*i#ting arrangements in =*ic* case a pri"ate contract manager o# a go"ern-ment one can e9ercise a purc*ase option once pre-de#ined per#ormance le"els *a"e)een reac*ed.

>. !x(ort Increase and Diversification

As Adrian ?ood and ot*ers emp*asi ed< in t*e current era< in =*ic* *ig* international capital

mo)ilit5 ampli#ies t*e rele"ance and impact o# geograp*ic c*aracteristics in determining t*e

composition o# comparati"e ad"antages and location o# production sites 92 < international trade<

as a catal5st #or economic gro=t* and po"ert5 reduction< taBes a prominent place in de"elop-

ing countr5 s economic polic5 c*oices.93

Studies< suc* as o# Ann arrison and AndrYs RodrXgue -Clare #or e9ample< 5ield insig*t t*at

go"ernment inter"entions designed to #oster e9port promotion generate *ig*er =el#are )ene-

#its t*an ot*er #orms o# inter"ention. 94 ence< EPZs / as an inter"ening polic5 tool / can< in

accordance =it* ?illiam 'il)ergand 'att*e= Amengual s #indings< *a"e an impressing im-

pact on a countr5 s e9port per#ormance.95 o=e"er< as Hamie 'cCallum pointed out< t*e posi-

90I)id< p. 1 .91

I)id< pp. 1 -1$.92?ood< Adrian and @erge< ersti: E9porting 'anu#acturers: uman Resources< atural Resources and 4rade Poli-c5< in: Hournal o# De"elopment Studies< um)er %+ 71$$+8< pp. %;-;$ 7%+8N ?ood< Adrian: !penness and ?ageIneFualit5 in De"eloping Countries / 4*e Latin American C*allenge to East Asian Con"entional ?isdom< in:?orld @anB Economic Re"ie=< um)er 11 71$$+8< pp. %%-;+ 7p. % 8.

93 arunaratne< C*andana and A)a5aseBara< As*ani: 4*e Impact o# EPZs on Po"ert5 Reduction and 4rade &acilita-tion in Sri LanBa< prepared #or AR4 e4 Con#erence on Empirical and Polic5 Issues o# Integration in Asia and t*ePaci#ic< 1-2 o"em)er 2 12< Colom)o< Sri LanBa< p. +.

94 arrison< Ann and RodrXgue -Clare< AndrYs: 4rade< &oreign In"estment< and Industrial Polic5 #or De"elopingCountries< ational @ureau o# Economic Researc* 7 @ER8 ?orBing Paper< um)er 1;2 1 7August 2 $8< p. +;.

95 'il)erg< ?illiam and Amengual< 'att*e=: i)id< p. 11.




ti"e long-term impact o# EPZs on a countr5 s economic de"elopment is depended on t*e go"-

ernment s a)ilit5 to sei e #oreign demand and direct resources to areas o# *ig*er producti"it5

accordingl5.96

4*e underl5ing economic logic o# *is statement is related to t*e a#orementioned ecBsc*er-

!*lin model o# #actor proportion< according to =*ic* countries trade =it* one anot*er< )e-

cause t*e5 *a"e dissimilar #actor endo=ments in regards to t*e ratios o# capital to la)our.

ence< a countr5 s*ould concentrate on producing and e9porting goods o# =*ic* it can e9ten-

si"el5 maBe use o# its production #actor ad"antages. 4*ere#ore< countries t*at *a"e relati"el5

lo= la)our costs =ill speciali e in la)our-intensi"e productions =*ile de"eloped industrial

countries =ill #ocus on producing capital-intensi"e goods. ConseFuentiall5< it is anticipated

t*at dissimilar #actor endo=ments in t*e glo)ali ed trade regime create promising de"elop-

ment perspecti"es and opportunities #or industrial countries< emerging economies< and de"el-

oping countries aliBe.97

According to ?@ s glo)al report on SEZs in 2 <4+< s account for a significant share of

manufactured e7port in most regions0. 98 In 2 ; #or e9ample< one programmes in "arious

countries generated a large e9port s*are< in man5 cases ena)ling *ost economies to di"ersi#5

t*eir e9port structure #rom lo=-"alue primar5 goods dependence to more "alue-added manu-

#acturing e9ports:

• Latin A-erica4 icaragua 7+$.6 V8< t*e Dominican Repu)lic 7++ V8 and Panama7 + V8.

• Asia and t*e Pacific4 @anglades* 7+;. V8< Sri LanBa 7 +.1V8< t*e P*ilippines 7+ .2V8and PaBistan 7; .%V8.

• 6iddle !ast and Nort* Africa4 Le)anon 7% .%V8< @a*rain 7 .$V8 and 'orocco7 1V8.

• ub= a*aran Africa4 (*ana 722.6V8< 'adagascar 7 V8 and 'auritius 7%6.6V8. 99

In empirical literature< as ?illiam 'il)erg and 'att*e= Amengual *ad pointed out< 4e7ports

are a main focus of most +< studies, since they are a stated o ective of +< policy0. 100 Dorsati

'adani #or e9ample< illustrated in 1$$$ t*e 6auritian EPZ success in increasing e9ports and

96 'cCallum< Hamie .: E9port Processing Zones / Comparati"e Data #rom C*ina< onduras< icaragua and Sout*A#rica< IL! ?orBing Paper< um)er 21 72 118< p. 16.

97Rogall< olger: Au en*andelst*eorien / Jorteile der (lo)alisierung< in: Rogall< olger: JolBs=irtsc*a#tsle*re #[rSo ial=issensc*a#tler< pp. %11-%22 7p. %1$8.

98&IAS: i)id< p. %;.99I)id.100 'il)erg< ?illiam and Amengual< 'att*e=: i)id.< p.11.



%+ Regional Economic Cooperation and Integration in Asia

promoting e9port di"ersi#ication. Esta)lis*ed in 1$+1 as a go"ernment response to unsuccess-

#ull5 implemented policies o# import su)stitution< EPZs *ad )5 1$$; contri)uted to a total

s*are o# %V o# gross e9ports and a ratio o# 6 V o# net e9ports. Pre"ious e9port reliance on

garment production *ad )een di"ersi#ied to more #ull pacBage productions. 101 e concluded

su)seFuentl5: 41he 2auritian success is due to the coming together of all necessary elementsand policies required for flourishing the +< s. 1he incentive 4package0 was attractive. 1here was

an a undant and educated pool of la our availa le. 1he government was sta le, provided

stream-lined services, and interfered minimally0. 102

In 2 ;< Arad*na Aggar=al conducted a comparati"e EPZ per#ormance anal5sis on t*e coun-

tries India< Sri LanBa< and @anglades*< scrutini ing crucial #actors #or success#ul e9port and

one per#ormance in Sout* Asia. Empiricall5 e9amining t*e determinants o# "ariations in e9-

port per#ormance and in"estment< s*e dre= in *er cross-countr5 comparison t*e conclusion

t*at 4countries wishing to take advantage of the opportunities provided y 5ones will have to put

together a co-ordinated package of incentives, infrastructure and good governance0. 103 o=e"er<

*er #indings also suggested t*at some #actors are relati"el5 more central t*an ot*ers. ?*ile

#or e9ample t*e si e o# an EPZ *ad no su)stantial impact on one per#ormance< t*e p*5sical

in#rastructure connecting t*e one to t*e rest o# t*e domestic econom5 is *ig*l5 rele"ant. 104

4*ere#ore ne9t to good go"ernance and appropriate incenti"es< one o# t*e most crucial #actors

o# e9port per#ormance< =*ic* *as )een identi#ied in *er =orB< is t*e location o# ones and

in#rastructure #acilities. Locating an EPZ in a strategic position< suc* as close to ma or cities<

airports and ports< *as a positi"e impact on )ot* e9port per#ormance and in"estment. &ur-t*ermore< t*e producti"it5 o# ones *ad )een a##ected )5 t*e )roader economic and institu-

tional conte9t o# t*e *ost countr5. !nl5 t*e o"erall impro"ement o# t*e in"estment climate can

ensure long-term one success. 105

101 'adani< Dorsati: i)id< p. +6.102 I)id< p. +;.103 Aggar=al< Arad*na: i)id< p. %.104 I)id.105 I)id< p. 6.




>.> !,(lo$,ent 1eneration and I,(rove,ent of Livin# tandards

49ne of the most important o ectives of many developing nations when set-

ting up +< in their domestic territory is the generation of employment.0

"2auricio #enkins( 106

As *ig*lig*ted in t*e industrial de"elopment report o# > ID! in 2 $: 0In de"eloping coun-

tries =it* relati"el5 *ig* le"els o# unemplo5ment< EPZs mig*t represent an e##icient mec*a-

nism #or reducing t*e economic and social )urden o# large pools o# unemplo5ed people.3 107 In

academic literature< studies suc* as o# Premac*andra At*uBorala< also pro"ed t*at EPZ com-

panies ma5 *a"e a signi#icant impact on t*e emplo5ment rates o# t*e *ost economies< and t*at

it is dou)t#ul i# t*e *ost economies could *a"e generated suc* emplo5ment rates and income

increases =it*out setting-up one programmes. 108 Especiall5 in Asia< EPZs ac*ie"ed out-

standing emplo5ment generation per#ormance =it* orea and 4ai=an / alongside =it* Indo-

nesia< 'ala5sia< 4*ailand and t*e P*ilippines / as outstanding e9amples. 109 o=e"er< t*ere

are also countries in =*ic* EPZ de"elopment and e9pected emplo5ment e##ects *a"e not suc-

ceeded / especiall5 on t*e A#rican continent. er)ert Hauc*< #or instance< pointed out t*e dis-

tinct #ailures o# Sout*ern A#rican EPZs to generate emplo5ment and income increases. 110 An-

ot*er illustrati"e case =ould )e en5a< =*ere t*e go"ernment spent millions o# dollars on its

EPZ programme =it*out ac*ie"ing a su)stantial impact on domestic emplo5ment rates. 111 4*e

underl5ing pro)lems in t*ese cases *a"e )een attri)uted to t*e o"erall one design< =*ic*

lacBed in appropriate incenti"e sc*emes< location site< as =ell as good go"ernance practices<and not to speci#ic emplo5ment regimes as suc*. 112

!ne aspect< =*ic* is particular prominent in t*e literature on EPZs and emplo5ment genera-

tion is t*e dominant ratio o# #emale =orBers in ones. 'an5 studies #ound t*at EPZs empo=-

106 HenBins< 'auricio: Economic and Social E##ects o# E9port Processing Zones in Costa Rica< IL! ?orBing Paper<

um)er $+ 72 ;8< p. 1+.107 > Industrial De"elopment Report 2 $ / @reaBing In and 'o"ing >p: e= Industrial C*allenges #or t*e @ottom

@illion and t*e 'iddle-Income Countries< p. +2.108 At*uBorala< Premac*andra: &oreign Direct In"estment and 'anu#acturing #or E9port in a e= E9porting Coun-tr5 / 4*e Case o# Sri LanBa< in: 4*e ?orld Econom5< Jolume 1 < um)er 6 71$$;8< pp. ;6%-; 6 7p. ; 8.

109 C*aud*uri< 'rinal: 4*e Role o# &ree 4rade Zones in Emplo5ment Creation and Industrial (ro=t* in 'ala5sia< in:IL!: E9port Processing Zones and Industrial Emplo5ment in Asia / Papers and Proceedings o# a 4ec*nical?orBs*op< AR4EP< Asian Emplo5ment Programme< @angBoB 1$ 6< pp. $-$6 7p. + 8.

110 Hauc*< er)ert: i)id< p. 11 .111 Rol#e< Ro)ert< ?ood=ard< Douglas and agira< @ernard: &ootlose and 4a9 &ree / Incenti"e Pre#erences in e-

n5an E9port Processing Zones< in: A#rican Hournal o# Economics< Jolume +2< um)er 6 72 68< pp. + 6- + 7p.+ 8.

112 See Rol#e et al. and Hauc*.



%$ Regional Economic Cooperation and Integration in Asia

ered =omen )5 increasing =orB opportunities< t*ere#ore ena)ling t*em to upli#t t*eir relati"e

status and sel#-determination in t*eir #amilies and societ5. 113

Al)eit "arious e9isting e9amples =it* good records o# emplo5ment generation ac*ie"ed )5

means o# =ell-designed EPZs< Aradna Aggar=al emp*asi ed in *er t*oroug* =orB on em-

plo5ment< po"ert5 reduction< and *uman de"elopment e##ects o# EPZs t*at 0employment gen-

eration itself does not ensure human development and poverty alleviation. rucial questions are

whether employment in +< s results in higher wages, etter working conditions, and higher lev-

els of living.0 114

Especiall5 =orBing conditions in EPZs *a"e )een critici ed e9tensi"el5. !pponents o# t*is

"ie= condemn t*e =idespread in#ringement o# la)our rig*ts< suc* as o"erl5 long =orBing

*ours< emplo5ment uncertaint5< insu##icient =orBing conditions< and application o# pressure

to #ul#il deadlines< e"entuall5 depleting *uman capital.115

!t*er critics denounce la)our e9ploi-tation in ones in @anglades*116 < India117 or Sri LanBa118 . IL!< =*ic* *as )een monitoring t*e

per#ormance o# EPZs #or more t*an t=ent5 5ears no=< *as issued "arious pu)lications o"er

respect o# la)our principles and rig*ts< commenting on< amongst ot*er #ailures< legal restric-

tions on trade union rig*ts< lacB o# en#orcement o# la)our legislation< and a)sence o# =orBer s

organi ations representation in EPZs as 4undermining the a ility of 5ones to upgrade skills,

improve working conditions, and enhance productivity.0 119 Super"isor5 )odies o# IL! *a"e e"er

since pu)licl5 condemned discrepancies )et=een rati#ied con"entions and o##icial EPZ prac-

tices in regards to t*e rig*t to organi e and oin organi ations 7e9amples: @anglades*< Do-

113 e5 er< oeleen: Daug*ters in Industr5 / ?orB< SBills and Consciousness o# ?omen ?orBers in Asia< Asian and

Paci#ic De"elopment Centre< uala Lumpur< 1$ N Dunn< Leit*: Education o# ?omen ?orBers in t*e Carri)eanE9port Processing Zones / C*allenges and !pportunities< in: La)our Economics< um)er $ 71$$68N i)ria<

a li: Culture< Social Class< and Income Control in t*e Li"es o# ?omen (arment ?orBers in @anglades*< in:(ender and Societ5< Jolume $< um)er % 71$$;8< pp.2 $-% $.

114 Aggar=al< Arad*na: Impact o# Special Economic Zones on Emplo5ment< Po"ert5 and uman De"elopment< In-dian Council #or Researc* on International Economic Relations 7ICRIER8 ?orBing Paper< um)er 1$6 72 +8< p.1 .

115

P*illips< (ar5 and Ka)a< Hant ie: 4*e ?orBers\ Stor5 / La)our Rig*ts Jiolations at udson\s @a5 Suppl5 &actoriesin Lesot*o< Et*nical 4rading (roup 7E4A(8< Canada 2 2.116 ossain< Ismael: E9port Processing Zones in @anglades* and Industrial Relations< in: !)eroi< A.S.< Si"anant*iran<

A. and JenBataRatnam< C.S: La)our Issues in E9port Processing Zones in Sout* Asia / Role o# Social Dialogue<IL!< e= Del*i 2 1< pp. 6 - .

117 De=an< Ritu: Et*ics o# Emplo5ment and E9ports / ?omen in E9port Processing >nits in India< in: !)eroi< A.S.<Si"anant*iran< A. and JenBataRatnam< C.S: i)id< pp. 221-2+%.

118 ettiarac*c*i< 4riest: Some Aspects o# Social Pro)lems Related to E9port Promotion< in: >ni"ersit5 o# Colom)oRe"ie=< Jolume 1 71$$18< pp. 62-;$.

119 IL!: Emplo5ment and Social Polic5 in Respect o# E9port Processing Zones 7EPZs8< Committee on Emplo5mentand Social Polic5< 2 t* Session< (ene"a 2 %< p.+.




minican Repu)lic< ami)ia< igeria< PaBistan< 4ogo8< t*e rig*t to striBe 7Panama< 4urBe58< and

collecti"e )argaining rig*ts 7@anglades*< Dominican Repu)lic< Panama< 4urBe58.120

>.@ Tec)nolo#$ Transfer and =u,an Ca(ital Develo(,ent

46eveloping countries may consider technology transfer as a ase for devel-

oping their technology capa ility implying that the capa ility required is

eyond adapting the technologies to suit the local situation. Bowever, it is

postulated that not every transfer process can e e7pected to upgrade the

technology capa ility of the receiver.0

"Cartiko <utranto, %&&D( 121

According to li#e c5cle *5pot*esis< t*e li#e span o# an EPZ can )e di"ided into t*ree de"elop-

ment stages. Accordingl5< its impact on tec*nolog5 trans#er and *uman capital de"elopment

=ill depend on t*e current p*ase o# li#e c5cle t*at ones are in. In t*e initial p*ase o# national

economic de"elopment< an EPZ is usuall5 c*aracteri ed )5 assem)l5-t5pe< la)our-intensi"e<

and lo=-sBill productions. Crucial contri)utions o# t*e one to t*e national econom5 onl5 con-

tain generation o# emplo5ment and reduction o# po"ert5 )5 pro"iding income opportunities

#or untrained =orBers and to t*ose =*o are at t*e lo=er end o# income distri)ution. 122 Along-

side #urt*er national economic de"elopment< an EPZ =ill enter t*e second stage< in =*ic*

tec*nolog5 trans#er and *uman capital de"elopment e##ects set-o##. 'ore ad"anced industries

=ill enter t*e one< using more sop*isticated production processes and ad"anced tec*nolo-gies< t*ere#ore creating a demand #or *uman capital and sBill upgrading. 4*e #urt*er an EPZ

progresses< t*e *ig*er =ill )e t*e s*are o# comple9< sBill< and tec*nolog5 intensi"e operations.

E"entuall5< leading to t*e t*ird stage< in =*ic* tec*nolog5 parBs and clusters =ill replace an

EPZ.123

o=e"er< as arima !mar and ?illiam Stoe"er s stud5 on t*e role o# tec*nolog5 and *uman

capital #ormation in EPZs *as s*o=n< t*e li#e c5cles o# EPZs are not an automatism.4Increasing

amounts of training and technology upgrading are necessary in order to move into production of

120 I)id.121 Putranto< artiBo< Ste=art< Don and 'oore< (ra*am: International 4ec*nolog5 4rans#er and Distri)ution o#

4ec*nolog5 Capa)ilities: 4*e Case o# Rail=a5 De"elopment in Indonesia< in: 4ec*nolog5 and Societ5< Jolume 2;72 %8< pp. 6%-;% 7p. 668.

122 Aggar=al< Ara*dna 72 +8: i)id< p. 1;.123 I)id< p. 1 .




more sophisticated products.0 124 According to t*eir results< pre"iousl5 e9isting *uman capital<

sBill training< and tec*nological capa)ilities in t*e *ost countr5 s industries mattered #or t*e

magnitude and intensit5 o# tec*nological progress in EPZs: 4)hile most +< s are capa le of

generating foreign e7change earnings and employment, relatively few have een a le to gradu-

ate into more mature stages of the +< life-cycle. [...] *kill development funds, vendor develop-ment, satellite relations and a focus on education have all een vehicles of local investment in

human capital that have led to technological upgrading. 125

&urt*ermore< as Andre= Sc*ranB *as s*o=n in *is =orB on product-c*ain approac*es in EPZs<

=*ic* =ere specialised in apparel production< not onl5 t*e pre-e9isting *uman capital #ounda-

tion is a crucial aspect un#olding tec*nological progress and sBill #ormation e##ects< )ut also

t*e c*oice o# t*e industrial nic*e. e concluded: 4/fter all, the returns to a given economic ac-

tivity are a function of the num er of suppliers availa le as well as their positions in the relevant

chains, and the !choice! of chain is therefore no less important than the !choice! of position in

the chain.0 126

Com)ining )ot* aspects< domestic *uman capital endo=ment and industrial c*oice< C*andra

et al. *ig*lig*ted in t*eir cross-countr5 and industr5 127 researc* on crucial institutional struc-

tures and policies< =*ic* ena)led countries to acFuire< adapt and disseminate tec*nologies to

impro"e t*eir e9port competiti"eness: 41echnological learning is a comple7 process ecause

several of its elements are 4tacit0 A or em odied deeply in people or organi5ations. 2aking good

use of new technologies requires the deli erate uilding of such tacit capa ilities "information,

skills, interactions and routines( to handle technology. 128 According to t*eir #indings< in order

#or a countr5 to attain sta)le gro=t* rates and ac*ie"e *ig*er le"els o# de"elopment< 4getting

it right in each case can e attri uted largely to appropriate synchroni5ation of elements of in-

dustry-specific policies with the institutions necessary to motivate learning among e7porters0. 129

124 !mar< arima and Stoe"er ?illiam: 4*e Role o# 4ec*nolog5 and uman Capital in t*e EPZ Li#e-c5cle< in: 4rans-national Corporations< Jolume 1+< um)er 1 72 8< pp. 1%%-1;$ 7p. 16%8.

125

I)id< p. 1;2.126 Sc*ranB< Andre=: Read5-to-?ear De"elopment &oreign In"estment< 4ec*nolog5 4rans#er< and Learning )5?atc*ing in t*e Apparel 4rade< in: Social &orces< Jolume %< um)er 1 72 68< pp. 12%-1; 7p. 16;8.

127 Sample o# ten industries in si9 countries: India: so#t=are industr5 and agriculture 7mai e and grapes8< C*ile:salmon and =ine production< en5a: #loriculture< 'ala5sia: electronics< palm oil and related products< 4ai=an:electronics< and >ganda: #is*er5 e9ports. All =ere at t*e initial stage de"eloping countries t*at success#ull5adapted ne= tec*nologies to catc* up =it* de"eloped countries in a particular industr5.

128 C*andra< Jandana and ol"alli< S*as*i: 4ec*nolog5< Adaption< and E9ports / o= Some De"eloping Countries(ot It Rig*t< in: 4ec*nolog5< Adaption< and E9ports / o= Some De"eloping Countries (ot It Rig*t< 4*e ?orld@anB< ?as*ington DC 2 < pp. 1-6+ 7p. 8.

129 I)id< p. 1%.




C*andra et al. di##erentiated t=o Binds o# learning< =*ic* lead to tec*nological capa)ilit5 de-

"elopment: technological mastery < =*ic* ena)les companies to use simple production tec*-

nologies< andtechnological deepening < =*ic* leads to tacBling more comple9 tasBs< t*ere#ore

#ostering progress #rom tec*nological adaptation to inno"ation. 130 According to t*eir assess-

ment< trans#er o# tec*nolog5 t*roug* #oreign in"estment alone leads in most o# t*e cases onl5to tec*nolog5 master5< )ut not deepening. !nl5 i# t*e sBill )ase in t*e *ost countr5 is alread5

e9panding and local supplies are impro"ing< #oreign companies ma5 in"est in upgrading local

capa)ilities. 4)ithout host country policies to develop local capa ilities, foreign company-led

e7ports are likely to remain technologically stagnant, leaving developing countries una le to

progress eyond the assem ly of imported components.0 131

E"en t*oug*< t*e e9tent to =*ic* t*e #ollo=ing measures =ere used "aried amongst t*e si9

countries and ten industries< C*andra et al. disco"ered certain common polic5 instruments<

institutional arrangement< and special #eatures< =*ic* =ere "ital #or upgrading local capa)ili-ties tec*nological catc*-up:

• Reasonabl$ conducive -acro=econo-ic environ-ent4 Sta)le real e9c*ange rateand modest in#lation.

• Pro(ert$ ri#*ts and rule of laG4 ?it*out e9ception< propert5 rig*ts =ere preser"edand pla5ed an important role in attracting ' Cs =it* ne= tec*nologies to producee9port-Fualit5 goods.

• Industr$ s(ecific tar#etin#4 Institutional arrangements< =*ic* #acilitated tec*nologi-cal learning< =ere s*aped )5 t*e socioeconomic importance o# t*e industr5 to t*eeconom5.

• )o--on #oal tar#etin#4 E9port-led de"elopment< #oreign e9c*ange accumulation ore9port gro=t*.

• Political vision4 Speci#ic industries en o5ed strong political commitment to tec*nolo-gical adaption.

• ReGardin# Ginner' abandonin# losers4 urturing o# relati"el5 #ast gro=ing indus-tries t*roug* direct or indirect pu)lic assistance to adapt ne= tec*nologies andac*ie"e e9porta)ilit5< penali ing poor per#ormers )5 letting t*em #all out o# e9portcompetition.

• Private sector led develo(-ent4 4*e pri"ate sector =as t*e dri"er o# e9ports and)ene#iciar5 o# tec*nological learning< =*ile go"ernments pla5ed a #acilitating role.

130 I)id< p. .131 I)id< p. 1$.




• )o-(etition4 (o"ernments "alued competition among domestic and #oreign compa-nies< multinational corporations 7' Cs8 =ere gi"en special pri"ileges 7o#ten as incen-ti"es8 in most o# t*e industries.

• Public *u-an ca(ital develo(-ent4 In"estments in *uman capital and sBill de"el-opment *a"e )een critical to t*e de"elopment o# all studied industries< maBing t*e di#-#erence )et=een replicate rat*er t*an )u5 #oreign tec*nologiesN especiall5 in t*e ser-"ice and manu#acturing sectors< success depended on *a"ing a suppl5 o# =ell trainedengineers and ot*er tec*nical and managerial sBills. 132

>. Lin<a#es to t)e Do,estic !cono,$

41he activities of +< s are e7pected to create at least some ackward link-

ages etween them and the rest of the economy and accelerate industriali-

5ation growth in the host country. 1here are two main types of such link-

agesE utili5ation of domestic raw material inputs and su contracting ar-rangements with domestic firms.0

"1ayakoshi Cusago and afiris 15annatos, 3FF ( 133

In researc* circles< it *as )een =idel5 acBno=ledged t*at #or EPZs to add to sustaina)le eco-

nomic de"elopment t*e5 =ould need to )e linBed to t*e domestic econom5 / esta)lis*ing so

called 0)acB=ard linBages3. As 'auricio HenBins put it concisel5: 41he strength of ackward

linkages etween +< s and the rest of the domestic economy seems to play an essential role in

determining whether, and to what e7tent, the host nation enefits from opening +< s. Hor e7am-

ple, y purchasing inputs in the domestic economy, +< enterprises may increase overall demand

for domestically produced goods and services, such as raw materials, intermediates, supplies,

equipment, utilities, as well as maintenance, anking, insurance and construction services.0 134

o=e"er< according to ?illiam 'il)erg and 'att*e= Amengual s "alid o) ection< t*e underl5-

ing issue o# EPZs is t*at< in*erentl5< t*e5 resist suc* linBs. 4*e5 emp*asi ed correctl5:4Hor

one, +< s are generally created precisely to attract foreign firms ecause domestic firms are not

competitive internationally and are not a le to generate foreign e7change. 1hus, from the start,

domestic firms are generally ehind in their capacity to provide low-cost, high quality inputs to production in +< . *econd, +< s are generally defined y an allowance of duty-free imports of

132 I)id< p. 1;-%6.133 usago< 4aBa5os*i and 4 annatos< Za#iris: E9port Processing Zones / A Re"ie= in eed o# >pdate< 4*e ?orld

@anB< Social Protection Discussion Paper< um)er $ 71$$ 8< p. 12.134 HenBins< 'auricio 72 ;8: i)id< p. 26.




material inputs. on-+< firms cannot import inputs duty free.0 135 4*ere#ore< pre#erential go"-

ernment incenti"es #or EPZ companies and #oreign #irms =*ic* *a"e =ell-esta)lis*ed contacts

to input producers #rom a)road e9pose national companies to a cost disad"antage. According

to Dorsati 'adani E 41he tariff free inputs for the firms in the 5one act as import su sidies com-

peting against domestic input production and discouraging creation of ackward linkages.0 136

Still< de"eloping linBages =it* t*e domestic econom5 is not generall5 ruled out. Sout* orea s

'asan EPZ #or instance is a good e9ample o# de#ining success )5 connecting EPZs to t*e rest o#

t*e domestic econom5 t*roug* )uilding a di"erse industrial )ase outside o# t*e ones. In t*is

case< input purc*ases #rom t*e domestic econom5 increased #rom 1%V in 1$+2 to %2V in

1$ 6< remaining at *ig* le"els t*roug*out t*e s. 137

E9amples liBe Sout* orea and ot*ers o##er some promising polic5 implications on *o= go"-

ernments can success#ull5 esta)lis* )acB=ard linBages =it* t*e national econom5. Case stud-ies *a"e re"ealed t*at linBages are oug*t to )e greater under certain conditions< suc* as:

• *en !P" activit$ focuses on -ore *i#*=tec* sectors suc* as electronics rat*ert*an loG=tec* sectors suc* as a((arel. 4*is insig*t is dra=n #rom t*e East Asian e9-perience< =*ere a num)er o# countries used electronics productions in EPZs to slo=l5)uild e9ports and linBages to t*e domestic econom5 7Ann arrison and AndrYsRodrXgue -Clare< 2 $8138 .

• *en t*e do-estic -arEet si5e is lar#er. Si e implies not onl5 t*e e9istence o# adomestic marBet< )ut also t*e a)ilit5 to support large-scale production and a large in-#rastructure. Andre= Sc*ranB 72 68139 emp*asi ed t*e #actor in discussing 'e9ico se9port success and to ela)orate t*e di##iculties o# )uilding linBs to t*e domestic econ-om5 =*en t*e econom5 is small and lacBs t*e potential #or di"ersit5 t*at linBages can)ring.

• *en t*e baseline level of industrial develo(-ent of t*e econo-$ is *i#*er.Dorsati 'adani 71$$$8 140 pointed out t*at t*e creation o# )acB=ard linBages seemslargel5 conditional on t*e industrial )ase o# t*e nation. In countries =*ic* did not al-read5 en o5 a solid industrial )ase and adopted EPZs to encourage t*ese linBages and#oster a domestic industrial )ase< some linBage occurred< t*oug* it =as spott5 and in-consistent< =it* #irm ones complaining o# t*e poor Fualit5 or t*e incompati)ilit5 o#local inputs.

135 'il)erg< ?illiam and Amengual< 'att*e=: i)id.< p. 2 .136 'adani< Dorsati: i)id< p. 2 .137 4aBa5os*i< usagoand 4 annatos< Za#iris: i)id< p. 12.138 arrison< Ann and RodrXgue -Clare< AndrYs: i)id.139 Sc*ranB< Andre=: i)id.140 'adani< Dorsati: i)id.




• *en t*e state is -ore activist and focused on econo-ic develo(-ent Git* t*ecusto-s area t*at is outside t*e 5one. 4*is point emerges not onl5 in t*e discussiono# East Asian e=l5 Industriali ed Countries< )ut also in t*e cases o# t*e DominicanRepu)lic< Costa Rica< and 'auritius. 4*ese states acti"el5 pursued an industrial polic5t*at in"ol"ed care#ul management o# EPZs and gradual de"elopment o# domestic a)-

sorpti"e capacit5. Claude @aissac 72 118141

#or instance emp*asi ed in *is anal5sis o#'auritius not onl5 management o# t*e domestic econom5< )ut also care#ul administra-tion o# t*e EPZ itsel#. 4*e 'auritian go"ernment capa)l5 managed costs and encour-aged domestic o=ners*ip o# EPZ #irms< =*ic* created greater integration o# t*e EPZ=it* t*e *ost econom5.

141 @aissac< Claude: i)id.




@. Case tud$+ )en7)en as Best Practice 0odel

4 hinas ro ust economic performance ... should e a source of inspiration

for other developing countries. ...[Its] e7perience shows in the most concrete

terms that developing countries can and do enefit from economic openness

and integration. ... 9f course, not all countries can e as fortunate as hina

and e endowed with a market that represents nearly a quarter of human-

ity. $ut this was not the only reason ehind hina:s success. *i5e matters in

economic development, ut it is not everything. hina:s success today is di-

rectly attri uta le to its unfailing commitment to wide-reaching domestic

reform aimed at moderni5ation and growth4

"*upachai <anitchpakdi, GeneralsekretJr K 1/6, %&&D( 142

In academic literature and pu)lications o# international organi ations aliBe< t*e People s Re-

pu)lic o# C*ina s SEZ programme is regarded as outstanding e9ample o# *o= to success#ull5

implement ones. 4*ere#ore< t*e #ollo=ing case stud5 =ill e9emplaril5 anal5se t*e speci#ic

c*aracteristics and polic5 measures o# S*en *en SEZ in (uangdong pro"ince. Set-up as one o#

C*ina s #irst SEZs in t*e eig*ties< toda5 S*en *en ser"es as most success#ul e9ample o# t*e

region.143 It passed t*roug* an impressing trans#ormation process #rom a little #is*ing "illage

into a #louris*ing ur)an metropolis< generating an e9port "olume o# 6 )illion >S-Dollars< %

)illion >S-Dollars o# #oreign direct in"estment< and % million o)s in 2 %.144

Since t*e Lao go"ernment is still in t*e initial stages o# setting-up ones< particular #ocus =ill

)e gi"en to t*e "er5 )eginnings during t*e 1$ s. @ased on e9pert inter"ie=s and pu)lis*ed

=orBs< t*e particular #eatures regarding t*e o"erall economic re#orm conte9t< implemented

policies< and institutional design =ill )e *ig*lig*ted in order to pro"ide *5pot*eses #or t*e Lao

SEZ strateg5.

@.* !,beddedness of !"s in C)ina’s -(en Door Polic$

In 1$+ < t*e C*inese go"ernment under Deng Kiaoping launc*ed t*e so-called 0open door re-#orms3. It =as a political e9periment< =*ic* =as designed to 4test the efficacy of market-

142 Panitc*paBdi< Supac*ai: OPutting t*e Do*a De"elopment Agenda @acB !n 4racB / =*5 it matters to C*ina< ?4!

and C*ina< @ei ing International &orum< o"em)er 2 %.143 ?ei< (e: Special Economic Zones and t*e Economic 4ransition in C*ina / Economic Ideas Leading to t*e 21 Cen-

tur5< Singapur 1$$$< p. ;.144 &IAS: i)id< p. 6 .




oriented economic reforms in a controlled economy0. 145 ot Bno=ing =*ere t*ese re#orms

=ould lead< t*e go"ernment made t*e decision not to e9pose t*e entire centrall5 planned

econom5< )ut ust certain segments. In Deng Kiaoping s =ords< t*e go"ernment soug*t to

4crossing the river y touching the stones0. 146 An integral part o# t*is approac* =as setting-up

strategic SEZs< =*ic* ser"ed as e9perimental la)oratories #or marBet )ased policies and insti-tutions. 4*ere#ore< as 'alini 4antri put it< t*e articulation o# t*e SEZ polic5 in C*ina was 4of

special significance among the various measures introduced y the 6eng Liaoping Government,

to li eralise the e7ternal sector of the hinese economy.0 147

?it*in t*e set re#orm course< in Hul5 1$+$ t*e central go"ernment decided t*at t*e pro"inces

(uangdong and &u ian s*ould taBe a leading role in opening up to t*e outside =orld and im-

plement 4special policies and measures0. 148 @5 August 1$ < S*en *en< Z*u*ai< and S*antou in

(uangdong pro"ince =ere designated as SEZs #ollo=ed )5 Kiamen in &u ian pro"ince in !cto-

)er 1$ . 4*e term 0SEZ3 =as selected a#ter lengt*5 semantic discussion and intellectual de-)ate< =it* SEZs )eing conceptuali ed as a comple9 o# related economic acti"ities and ser"ices

rat*er t*an uni-#unctional entities. 149

@.2 C)inese !"s % Definition' Conce(t and -b ectives

According to o##icial C*inese de#inition< SEZs are geograp*icall5 delimited areas< in =*ic* a

minimum o# )ureaucratic control is supposed to #acilitate cooperation =it* #oreign compa-

nies.150 4*e5 4shall encourage foreign citi5ens, overseas hinese, compatriots from Bong Cong

and 2acao and their companies and enterprises to open factories and set up enterprises and

other esta lishments with their own investment or in oint ventures with our side, and shall pro-

tect their assets, the profits due them and their other lawful rights and interests in accordance

with the law0. 151 In t*is conte9t< SEZs =ere regarded )5 t*e central go"ernment as conduits #or:

• &oreign in"estment

145 Zeng< Douglas Z*i*ua: o= Do Special Economic Zones and Industrial Clusters Dri"e C*ina s Rapid De"elopment<4*e ?orld @anB Polic5 Researc* ?orBing Paper< um)er ;; % 72 118< p. .

146

I)id.147 4antri< 'alini: C*ina s Polic5 #or Special Economic Zone< in: India Quarterl5< Jolume < um)er % 72 128< pp.2%1-2; 7p. 2%18.

148 ,eung< ,ue-man< Lee< Hoanna and ee< (ordon: C*ina s Special Economic Zones at % < in: Eurasian (eograp*5and Economics< Jolume ; < um)er 2 72 $8< pp. 222/6 7p. 22%8.

149 ?ong< =an-,iu: C*ina s Special Economic Zone E9periment / An Appraisal< in: (eogra#isBa Annaler Series @<uman (eograp*5< Jolume $< um)er 1 71$ +8< pp. 2+/6 7p. %28.

150 Dusc*a< ?aldemar: 4ec*nologietrans#er in die JolBsrepu)liB C*ina durc* ?irtsc*a#tsBooperation / @estim-mungsgr[nde< &ormen< Standorte und ?irBungen< am)urg 1$ +< p. 2 1.

151 Regulations on Special Economic Zones in (uangdong Pro"ince< August 1$ < in: Legislati"e A##airs !##ice o# t*eState Council: La=s and Regulations o# t*e People s Repu)lic o# C*ina< @ei ing 2 ;.




• Ad"anced tec*nolog5• 'anagerial e9pertise• Source o# increased emplo5ment• 'anpo=er training. 152

In general< as studies *a"e indicated< t*e C*inese SEZ approac* )ears some similarit5 to EPZs

in )eing delimited areas< in =*ic* pre#erential treatments are o##ered to #oreign in"estors to

attract o"erseas capital and tec*nolog5. o=e"er< as =an-,iu ?ong pointed out< SEZs in

C*ina di##ered #rom EPZs in se"eral important aspects:

• 4*e PRC =as a socialist state =it* a strictl5 planned econom5< =*ile SEZs representeda capitalist concept #rom t*e ?est. 4*ese ones t*ere#ore ser"ed as an important la-)orator5 #or t*e capitalist mode o# production.

• C*inese SEZs are generall5 larger in scale t*an EPZs.• SEZs are< unliBe EPZs< usuall5 compre*ensi"e units< in =*ic* #oreign in"estments are

not con#ined onl5 to manu#acturing< )ut also to real estate de"elopment< tourism< agri-culture and ot*er ser"ices.

• 4*e central go"ernment *as taBen a rat*er #le9i)le approac* )5 allo=ing pre#erentialtreatments to )e gi"en to in"estors setting up )usiness in areas ad acent to )ut outsidet*e )oundaries o# SEZs. 4*is applies< o# course< onl5 to undertaBings t*at t*e C*ineseconsidered to )e important and desira)le.

• In order to #acilitate o"erseas in"estment in t*e SEZs< "arious #orms o# #inancial partic-ipation *a"e )een designed =*ic* include sole proprietors*ip< oint "enture< coopera-ti"e production< intermediate processing and compensation trade. 153

@. )en7)en !"

4*e S*en *en Special Economic Zone 7SSEZ8 =as at t*e top o# C*ina s SEZ *ierarc*5< )eing

t*e largest o# t*e &our ?indo=s . Its long-term strategic goal< as en"isaged )5 t*e central

go"ernment at t*at time< *as )een t*e long-term trans#er o# *ig* tec*nolog5< t*ere#ore ser"ing

as a )ase #or de"eloping ne= tec*nolog5 and ne= products #or consumer industries =it* e9-

port potential. 154

152 &en=icB< Ann: E"aluating C*ina s Special Economic Zones< in: @erBele5 Hournal o# La=< Jolume 2< um)er 271$ 68< pp. %+ -%$+ 7%+ 8.

153 ?ong< =an-,iu and C*u< Da"id: E9port Processing Zones and Special Economic Zones as (enerators o# Eco-nomic De"elopment / 4*e Asian E9perience< in: (eogra#isBa Annaler Series @. uman (eograp*5< Jolume <

um)er 1 71$ 68< pp. 1-1 7p. %8154 Sit< Jictor: C*ina s E9port-!riented !pen Areas / 4*e E9port Processing Zone Concept< in: Asian Sur"e5< Jolume

2 < um)er 71$ 8< pp. 1- +; 7 +18.




@. .* Le#al /ra,e or<' Institutional Desi#n and Re#ulative Re#i,e

Appro"ed #or implementation at t*e 1; t* meeting o# t*e Standing Committee o# t*e &i#t* a-

tional People s Congress in August 1$ < t*e 0Regulations on Special Economic Zones in

(uangdong Pro"ince3 =ere t*e centrepiece o# C*inese SEZ legislation and pro"ided at t*is

time t*e legal #rame=orB #or creation and operation o# SEZs in C*ina.155 4*e #ollo=ing section

=ill *ig*lig*t its particular #eatures.

6ana#in# Aut*orit$4 &rom t*e )eginning< SEZs =ere planned to )e under separate political

aut*orities. In t*e central go"ernment< a special o##ice =as created attac*ed to t*e state coun-

cil. 4*is o##ice =as responsi)le #or maintaining contact =it* t*e aut*orities in @ei ing and in-

ter"ening =*en pro)lems arose #rom #riction =it* ot*er central ministries or state suppl5

companies. 4*is e9tra-ministerial status #or t*e SEZs guaranteed to a great e9tent political

independence and speeded up t*e process o# attracting #oreign capital to t*e ones.156

At t*e pro"incial le"el< SEZs =ere administered and coordinated )5 t*e (uangdong Pro"incial

Administration o# Special Economic Zones 7(PASEZ8.157 Assisted )5 t*e (uangdong Pro"incial

Special Economic Zone De"elopment Compan5158 < a la)our ser"ice compan5< and an Ad"isor5

@oard consisting o# #oreign specialists and rele"ant personage 159 < (PASEZ dealt independentl5

o# t*e pre-e9isting administration o# (uangdong =it* t*e peculiarities o# SEZs. According to

Article 2% o# SEZ regulations< it *ad compre*ensi"e aut*orit5160 to:

• Dra= up de"elopment plans and organi e t*eir implementation.• E9amine and appro"e t*e in"estment pro ects o# in"estors.• andle registration o# industrial and commercial enterprises and land allotment.• Coordinate =orBing relations among t*e )anBing< insurance< ta9ation< customs< #ron-

tier inspection< postal and telecommunications< and ot*er organi ation.• Pro"ide sta## mem)ers and =orBers needed )5 enterprises and protect legitimate

rig*ts and interests o# t*e sta## mem)ers and =orBers.

155

&en=icB< Ann: i)id< p. % .156 !)orne< 'ic*ael: C*ina s Special Economic Zones< !ECD< 1$ p. $ .157 Regulations on Special Economic Zones in (uangdong Pro"ince: i)id< Art. % and Art. 26.158 According to Article 2; o# (uangdong s SEZ regulations< t*e (uangdong Pro"incial SEZ De"elopment Compan5

=as set up to suit t*e e9panding economic acti"ities in t*e ones. Its responsi)ilities included: Raising #undsand *andling trust in"estment )usinesses< operating< or oining in"estors in operating< rele"ant enterprises int*e ones< acting as agent #or in"estors in transactions relating to sales and purc*ases in trade =it* t*e interior<and pro"iding ser"ices #or )usiness discussions.

159 Regulations on Special Economic Zones in (uangdong Pro"ince: i)id< Art. .160 is*itateno< SonoBo: C*ina s Special Economic Zones / E9perimental >nits #or Economic Re#orm< in: Interna-

tional and Comparati"e La= Quarterl5< Jolume %2< um)er 1 71$ %8< pp. 1+;-1 ; 7p. 1++-1+ 8.



Regional Economic Cooperation and Integration in Asia ;

• Esta)lis* educational< cultural< *ealt*< and "arious pu)lic =el#are institutionsN• 'aintain la= and order and protect< in accordance =it* t*e la=< t*e persons and

propert5 against encroac*ment.

4*e Be5 organi ational unit in eac* o# t*e SEZs =as t*e SEZ De"elopment Compan5. It =as a

planning and de"elopment enterprise< as =ell as a negotiations )ureau #or t*e #oreign andC*inese in"estors coming to t*e SEZ. In t*e case o# S*en *en< t*e De"elopment Compan5 *ad

t*e responsi)ilit5 #or locating appropriate C*inese partners #or oint "entures< and seeBing

C*inese capital #or in"estment. It =orBed in tandem =it* t*e municipalit5< =*ic* *ad t*e re-

sponsi)ilit5 #or t*e legal aspects o# de"elopment< and o"ersa= t*e general planning o# t*e

one< in so muc* as t*e planning di"ision o# t*e municipal go"ernment used statistical and

planning departments #or #orecasting resource demand #rom t*e domestic marBet. 161

P*$sical )*aracteristics and Infrastructure4 S*en *en is a su)-pro"incial cit5 o# t*e

(uangdong pro"ince in Sout*ern C*ina. It is located at t*e coast o# Sout* C*ina Sea and is %

Bm a=a5 #rom t*e ong ong Special Administrati"e Region. a"ing )een one o# t*e largest

SEZs< t*e total one area comprised o# %2+ BmU< o# =*ic* $ BmU =ere possi)le sites #or con-

struction pro ects< distri)uted among industrial de"elopment< residential *ousing< )usiness

and administrati"e purposes< scienti#ic< sports< and cultural centres< cit5 gardens and parBs<

and su)ur)an gardens and parBs. 162

Since S*en *en *as )een a relati"el5 unimportant )order cit5 until it got upli#ted to t*e status

o# a SEZ< #or economic de"elopment reFuired in#rastructure needed to )e constructed #rom

scratc*. 4*ere#ore< t*e (uangdong Pro"incial Committee #or t*e Administration o# SEZs =as in

c*arge to carr5 out t*e necessar5 land-le"elling pro ects and "arious pu)lic =orBs< suc* as

=ater and po=er suppl5< drainage< roads< =*ar"es< communications< and =are*ouses / i# nec-

essar5 )5 means o# #oreign in"estment. 163 >ntil 1$$ < amongst ot*ers< #ollo=ing e9emplar5

pu)lic and pri"ate-pu)lic in#rastructure pro ects =ere carried out: 164

• In 1$ ;< t*e construction o# t*e deep-sea port C*i=an *ad )een #inali ed.• In 'arc* 1$ +< t*e construction o# an electric rail=a5 line #rom S*en *en to (uang-

*ou< co"ering 16+ Bm< *ad )een completed< t*ere#ore trans#orming t*e cit5 into oneo# t*e ma or tra##ic unctions )et=een ong ong and (uang *ou< =*ic*< in 1$ +alone< recorded si9 million tra"ellers.

161 Crane< (eorge: 4*e Political Econom5 o# C*ina s Special Economic Zones< e= ,orB 1$$ < p. ;%.162 Stolten)erg< Cl5de: i)id< p. 62.163 Regulations on Special Economic Zones in (uangdong Pro"ince: i)id< Art. ;.164 Sc*r5en< Rainer: ong ong und S*en *en / Ent=icBlungen< Jer#lec*tungen und A)* ngigBeiten< am)urg

1$$2< pp. 1;;-1;$.



;1 Regional Economic Cooperation and Integration in Asia

• Roug*l5 1 roads encompassing a total lengt* o# 2 BmU *ad )een constructed<connecting S*en *en to (uangdong pro"ince and ong ong.

• Pu)lic transportation *ad )een greatl5 e9tended.• ig*=a5 linBs =ere under construction to connect t*e SEZ to t*e East and ?est.

• Se"eral *ar)ours #or passenger transports )et=een ong ong and S*en *en and in-ternational sea lines to Europe< Hapan< and >SA.

• Start o# t*e #irst construction p*ase o# uangtian airport.• !n-going construction o# a nuclear po=er plant to o"ercome electricit5 s*ortages.

!li#ible Activities4 As emp*asi ed in t*e regulations o# SEZs in (uangdong pro"ince: 41he

special 5ones shall provide investors with a scope of operation, create favoura le operating con-

ditions and guarantee them sta le usiness sites. Investors may esta lish, with their own invest-

ment or in oint ventures with our side, all pro ects that have positive significance for interna-

tional economic cooperation and technical e7changes.0 165

Eligi)le )usiness acti"ities included a=ide scope o# sectors< suc* as agriculture< animal *us)andr5< aFuaculture< tourism< *ousing<

construction< researc*< manu#acture in"ol"ing *ig* tec*nolog5< as =ell as ot*er )usinesses o#

common interest to in"estors and to t*e C*inese go"ernment. 166 Produced commodities =ere

supposed to )e sold on t*e e9port marBets< and =ere onl5 allo=ed to enter t*e domestic mar-

Bet i# t*e companies recei"ed appro"al o# (PCASEZ and =ent t*roug* t*e procedure o# cus-

toms duties. 167

Incentives4 4*e incenti"e structure )ecame t*e instrument o# c*oice #or t*e promotion o#

SEZs< t*ere#ore "arious #iscal and non-#iscal incenti"es =ere o##ered 7*ig*lig*ted in ta)le 68<=*ile at t*e same t*e in"estment climate in t*e rest o# t*e *ost econom5 continued to )e e9-

tremel5 restricti"e. Incenti"es o##ered to enterprises< *o=e"er< "aried considering t*e t5pes o#

industries. @eginning #rom 1$ 6< t*e go"ernment *ad made di##erent t5pes o# incenti"es ap-

plica)le to "arious pro ects and particularl5 *ig*er incenti"es =ere gi"en to t*ose oint "en-

tures< =*ic* assured ne= tec*nolog5 trans#ers andGor *ig*er in"estments. 168

165 Regulations on Special Economic Zones in (uangdong Pro"ince: i)id< Art. 6.166 I)id.167 I)id< Art. $.168 4antri< 'alini: i)id< p. 2% .



Regional Economic Cooperation and Integration in Asia ;2

Table >+ Incentive c)e,e of )en7)en !" in t)e *FGHs 169

Land :

Pre#erential treatment =it* respect to:

a8 Duration o# land use<

)8 Costs<c8 Pa5ment met*od according to di##erent t5pes o# )usinesses and usage.

I-(orted #oods :

Import dut5 e9emption #or:• 'ac*iner5<• EFuipment<• Spare parts<• Ra= and semi-processed materials<•

'eans o# transportation<• !t*er capital goods #or production.

!nter(rise inco-e tax :

Income ta9 rate o# 1;VN Special treatment #or enterprises:

a8 esta)lis*ed =it*in t*e #irst t=o 5ears o# t*e one 71$ -1$ 28<

)8 =it* an in"estment o# >SD ; million and a)o"e<

c8 in"ol"ing *ig*er tec*nolog5<

d8 *a"ing a longer period o# capital turno"er<

e8 t*at rein"ests its s*are o# t*e pro#it in t*e one #or a period o# #i"e 5ears or long-

er.Re-ittances :

a8 In"estor pro#it a#ter enterprise income ta9< =ages and salaries< and

)8 Legitimate earnings o# #oreign o"erseas o# o"erseas C*inese and ong ong and'acao =orBers and sta## mem)ers o# enterprises can )e remitted a)roadt*roug* t*e @anB o# C*ina or ot*er )anBs located in t*e one< in accordance =it*t*e pro"ision o# t*e SEZ #oreign e9c*ange control measures.

169 Regulations on Special Economic Zones in (uangdong Pro"ince: i)id< Art. 12 -1 .



;% Regional Economic Cooperation and Integration in Asia

Preferential (rices for do-estic #oods :

Pre#erential prices on domestic goods )ased on e9port prices< using #oreign e9c*ange#or settlement o# accounts:

• 'ac*iner5<• EFuipment<• Ra= materials<• !t*er materials.

@. .2 /actors of uccess

In order to gain insig*t into t*e Fuestions =*et*er and =*5 S*en *en SEZ *as )een a success

in t*e initial ten 5ears a#ter esta)lis*ment< t*e #irst section o# t*is su)-c*apter =ill measure its

output per#ormance in attracting #oreign in"estment< increasing e9ports< generating emplo5-

ment< #ostering tec*nolog5 trans#er< and esta)lis*ing linBages =it* t*e surrounding *osteconom5. Su)seFuentl5< t*e second section =ill discuss t*e particular success #actors o#

S*en *en SEZ polic5 )ased on t*e results o# e9pert inter"ie=s 170 .

170 IntervieG (artner : 18 an# "*ile : Inter alia< #ormer researc* #ello= at Researc* Institute o# t*e C*inese 'inis-tr5 o# Commerce< committee mem)er o# State Industrial Polic5 Ad"isor5 Committee< researc* #ello= o# &oreign4rade and International &inance Researc* Centre o# C*inese Academ5 o# Social SciencesN 28Professor HuHianxian# : E9pert #or economic gro=t*< regional economics< and t*e political econom5 o# institutions and de-"elopment at Sun ,at-sen >ni"ersit5< (uang *ouN and %8 Professor uan i-in# : Deput5 Director< C*ina Cen-tre #or Special Economic Zone Researc* at S*en *en >ni"ersit5.



Regional Economic Cooperation and Integration in Asia ;6

@. .2.* Perfor,ance

0orei#n invest-ent4 As a conseFuence o# t*e a#orementioned generous incenti"e sc*eme<

=*ic* *ad )een o##ered to )usinesses located in t*e one< in"estments )5 #oreign companies

rose steadil5 )eginning #rom 1$ 1. 171

Source: S*en *en Special Economic Zone ,ear)ooBs 1$+$-1$ +< C*ina 4rade and In"estment< Hul5

1$ < in: Sc*r5en< Rainer: i)id< p. 16%.

Accordingl5< starting =it* + eFuit5 oint "entures 7EHJ8< % cooperati"e oint "entures 7CHJ8<

and no companies< =*ic* =ere #ull5 o=ned )5 #oreign in"estors< in 1$+$< S*en *en SEZ ac-

counted )5 1$ + #or a total o# 1< $ EHJs< $ CHJs< and $+ #irms o=ned )5 #oreigners 7see

ta)le ;8. Simultaneousl5< t*e num)er o# contracts< =*ic* *ad )een concluded )et=een C*i-

nese companies and #oreign in"estors< mainl5 #rom ong ong< increased #rom 1+ in 1$+$ to

a total o# <1+$ in 1$ .

Table + Nu,ber of Contract Conclusions it) /orei#n Investors in )en7)en' *F F 4 *FGG

ear Nu-ber ear Nu-ber

1$+$ 1+ 1$ 6 %<% 21$ 6+% 1$ ; 6<+1$ 1 1< ;1 1$ 6<$6+1$ 2 1< %6 1$ + ;<6 ;1$ % 2<;12 1$ <1+$

Source: Sc*r5en< Rainer: i)id< p. 166.

171 Sc*re5en< Rainer: i)id< pp. 162-16%.

Table @+ Nu,ber of Contract Conclusions Includin# /orei#n Direct Invest,ent 9/DI: in )en7)en' *F F4*FG ear Total !Juit$ oint

ventures)oo(erative

oint ventures0ir-s G*oll$ oGned b$forei#n investors

1$+$ %+ + % 1$ %% 6 26 ;1$ 1 + 1% %$ 11$ 2 11 6+ 1$ % 2;% $2 16$ 121$ 6 %%6 1 1%6 12

1$ ; % 2 1$2 +% 1+1$ 226 1;2 6 1$ + %1 2%1 2 1+4otal 1< $ $ 22 $+



;; Regional Economic Cooperation and Integration in Asia

4*e sector =*ic* attracted t*e largest net amount o# #oreign in"estments during t*is p*ase<

=as )5 large t*e industrial sector< accounting #or roug*l5 )illion >S-Dollar )5 1$ . !t*er

sectors< =*ic* en o5ed prominent attention )5 #oreign in"estors< =ere construction< tourism<

and trade and ser"ices.

Table + /orei#n Invest,ent in )en7)en b$ !cono,ic ector 9*F F4*FG :' in *H'HHH D

ector K K KC KC2 KC/ KC7Industr$ 21$ 1< 1; 2< 2 $<$ % %%<6;+)onstruction ;2% 1<11 2<; $ 2<+6+ n.a.Touris- %1 ; 16 1< ; n.a.Trade & ser=vices

122 %66 +% ;<26% $

A#riculture &fis*er$

; 1 22 % 122

Diverse 1 6 1+1 12; 1;<%;

Source: S*en *en Statistical ,ear)ooBs 1$+$ / 1$ +< in: Sc*r5en< Rainer: i)id< p. 166.

!x(ort 8roGt*4 As demonstrated in t*e #ollo=ing #igure< S*en *en s e9port per#ormance *ad

)een Fuite success#ul in its #irst ten 5ears a#ter esta)lis*ment. According to num)ers pro"ided

in ?ei (e s t*oroug* stud5 on C*ina s SEZ programme< SSEZ generated )et=een 1$+$ and

1$ a total e9port gro=t* o# 1$<+ +.6 per cent< accounting #or a total "olume o# around 1<

)illion >S-Dollars 7see ta)le 8. &urt*ermore< SSEZ also made a respecta)le contri)ution to

o"erall C*inese e9ports. 4*e s*are in total national e9ports #rom SSEZ alone< =*ic* accounted

#or o"er ; V o# aggregated e9ports o# all #our SEZs< amounted to appro9imatel5 6.;V in1$ $.172

Table G+ !x(ort 5olu,e and 1ro t) in )en7)en 9*F F4*FGG:

ear ,olu-e of !x(orts:6io. D;

8roGt* of ex(orts : ;K K M Precedin# $ear M

1$+$ $.% 1 . -1$ 11.2 12 . 12 .1$ 1 1+.; 1 +. 1;;.%1$ 2 1 . 1+1.+ $1.;

1$ % 2.% $. %$ .11$ 6 2 ;.6 2< ;2.6 62 .1$ ; ; %.6 < ;;.; 212.%1$ +2;.; +<+$+.$ 12 .

172 Pissula< Petra and L]sc*< Dieter: Special Economic Zones in t*e People s Repu)lic o# C*ina< in: Intereconomics<Septem)erG !cto)er 1$$ < pp. 2;+-2 2 7p. 2 8.



Re

1$ + 1<61%.;1$ 1< 6$.;

Source: ?ei< (e: Special Economic Zo

ing to t*e 21st Centur5 / Jolume ;< Si

4*e )iggest s*are in SSEZ s e9po

total ratio o# +%V in 1$ +< =*ile

ernment proclaimed t*at SSEZ e

ong ong *ad )een t*e primar5

!-(lo$-ent #eneration4 In ter

enced a steep rise in t*e total am

accounted #or an amount o# 2 <;

)5 1$ t*e total num)er o# o

%;+<$ 7see )o9 +8.

Source: ?ei< (e: i)id< p. 6.

Tec*nolo#$ transfer4 In t*e late

in resource-intensi"e ra= materi

grains< and #ood and "egeta)les.

do=ment at t*at time< despite o#

result o# man5 5ears o# So"iet-t

173 ,ang< Dali: C*ina Ad usts to t*e ?orldg5< in: Paci#ic A##airs< Jolume 6 71$$

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

1980 1981 19

Box + !" Eor<ers in )en7)en' *F

gional Economic Cooperation and Integration in

1;<1$2. 1$6.1$<+ +.6 1% .

nes and t*e Economic 4ransition o# C*ina< Economic I

ngapore 1$$$< p. $ .

t structure *ad t*e secondar5 sector< =*ic* acc

agricultural e9ports declined steadil5. E"en t*ou

tended its trade relation to a total num)er o# %

destination o# $ V o# total e9ports in 1$ . 173

ms o# emplo5ment generation< S*en *en SEZ

ount o# o)s pro"ided )5 t*e one. ?*ile S*en *

=orBers during its #irst 5ear a#ter esta)lis*m

s created in t*e one *ad e9panded t*irteen

1$+ s and earl5 1$ s< C*ina s e9ports =ere c

als and primar5 products< suc* as coal< crude o

ts e9port structure =as consistent =it* C*ina s

t*e go"ernment s e##orts to )uild *ea"5 industri

pe strateg5 C*ina s e9ports accounted #or a sm

conom5 / 4*e Political Econom5 o# C*ina s Coastal De"elo8< pp. 62- 6 7p. ;%8.

82 1983 1984 1985 1986 1987

GH 4 *FGG

sia ;

deas Lead-

unted #or a

g*< t*e go"-

2 countries<

lso e9peri-

en SEZ onl5

nt in 1$ <

imes up to

oncentrated

il< minerals<

natural en-

es. @ut< as a

all s*are in

ment Strate-

1988



;+ Regional Economic Cooperation and Integration in Asia

manu#acturing e9ports< and mac*iner5 accounted #or ;V o# total e9ports. o=e"er< C*ina did

not *a"e su##icient domestic *uman capital and sBills t*at =ere consistent =it* its compara-

ti"e ad"antage< suc* as *o= to maBe la)our-intensi"e te9tiles< clot*ing< s*oes< and to5s< =*ic*

could )e sold to #oreign marBets. 4*us< t*e central go"ernment s strateg5 =as to attract #or-

eign in"estors< especiall5 o"erseas C*inese< =*ic* could )ring practical Bno=-*o=< Bno=ledgea)out international marBets< and *ands-on sBills #or C*inese =orBers and engineers. 174

A#ter esta)lis*ing t*e #our SEZs< setting up oint "entures< and oint cooperation companies

=ere t*e central mode o# cooperation =it* #irms #rom a)road. &oreign in"estors #rom ong

ong< 'acau< 4ai=an< and ot*er Asian countries pla5ed a crucial role in pro"iding connections

to international marBets< as =ell as relia)le in#ormation on =*at t5pes o# products =ere de-

manded )5 glo)al consumers< *o= to get orders #or e9porters< and *o= to *a"e access to

tec*nolog5< =*ic* =as suita)le #or C*ina s de"elopment stage. 175

&urt*ermore< as Lin and ?ang put it< C*ina *as constantl5 in"ested in t*e *ealt* and educa-

tion o# its population. At t*e end o# t*e 1$+ s< t*e *uman de"elopment indicators o# t*e C*i-

nese population =ere *ig*er t*an t*ose o# de"eloping countries at t*e same income le"el.

&urt*ermore< as part o# t*e o##icial tec*nological 0catc*-up3 strateg5< massi"e reallocation o#

la)our< along =it* *uman capital< #rom pu)lic to pri"ate and e9port sectors< and #rom capital-

intensi"e to la)our-intensi"e sectors< in =*ic* t*e rate o# return to learning is *ig*er< *ad

taBen place. Cadres and #res* graduates 0plunged into t*e sea3 to seeB *ig*er salaries in t*ose

sectors< in =*ic* prices and =ages =ere li)erali ed. In particular< a massi"e reallocation o#

la)our #rom t*e primar5 sector to t*e secondar5 sector tooB place. Additionall5< t*e go"ern-

ment *ad )een in"esting e9tensi"el5 in #ormal education as =ell as in 0learning )5 doing3. In

1$+$ #or e9ample< =*en Deng Kiaoping "isited >S President Himm5 Carter< t*e5 agreed to e9-

pand t*e student e9c*ange program< #ollo=ed )5 man5 C*inese stud5ing in t*e >.S.< )ringing

)acB ?estern approac*es and Bno=ledge. Simultaneousl5< eac* 5ear< C*ina sent man5 o##icial

delegations #or stud5-tours to learn a)out #oreign production processes. 176

LinEa#es Git* t*e do-estic econo-$4 Literature dealing =it* SSEZ s linBages to t*e domes-

tic econom5 during t*e 1$ s is scarce. o=e"er< Petra Pissula and Dieter L]sc* s =orB on

174 &itting< (eorge: E9port Processing Zones in 4ai=an and t*e People s Repu)lic o# C*ina< in: Asia Sur"e5< Jolume22< um)er 71$ 28< pp. +%2-+66 7p. +%$8.

175 Crane< (eorge: Special 4*ings in Special ?a5s / ational Economic Identit5 and C*ina s Special Economic Zones<in: Australian Hournal o# C*inese A##airs< um)er %2 71$$68< pp. +1-$2 7 18.

176 Lin<,i#u and ?ang< ,an: C*ina s Integration =it* t*e ?orld / De"elopment as a Process o# Learning and Indus-trial >pgrading< 4*e ?orld @anB Polic5 Researc* Paper< um)er 6+$$ 72 8< pp. 1$-22.




C*inese SEZs in t*e $ s s*eds some lig*t on t*is issue. According to t*eir assessment< despite

t*e reasona)le num)er o# cooperation contracts )et=een SEZ companies and C*inese suppli-

ers< =*ic* *ad )een concluded< t*e s*are o# local supplies =as at a "er5 lo= le"el during t*is

period< especiall5 in t*e oint "entures. SEEZ s*ared t*ere#ore a common issue =it* ot*er

Asian EPZs< in =*ic* t*e ratio o# locall5 produced intermediate products accounted #or 1 Vto % V at t*e most. 177

!ne cause #or t*e lo= percentage o# local supplies< Pissula and L]sc* put it< *ad )een t*e in-

dustrial structure in t*e one. 4*e gro=ing role o# electronics and its demand #or sop*isti-

cated components< circuits etc. caused a decline rat*er t*an a rise in local content< since t*e

intermediate products =ere not a"aila)le at all or not in t*e reFuired Fualit5. 4*at *ad )een

t*e prospecti"e trend in SSEZ< too< =*ere most supplies stemmed #rom ?estern industriali ed

countries or ot*er< usuall5 non-C*inese one companies< )ut *ardl5 e"er #rom t*e C*inese-

*interland. 178

e"ert*eless< t*e5 continued< particularl5 t*e e9perimental and s*o=case #unction o# t*e spe-

cial economic ones *ad )een success#ul< gi"ing impetus to e9tend t*e open-door polic5 to

encompass t*e entire coastal region. 4*ere#ore< t*e relati"e success o# t*e one e9periments

=as a precondition #or t*e )roader out=ard- looBing polic5 o# t*e C*inese econom5. 179

@. .2.2 !x(ert -(inions

According to Wang Zhile’s<Yuan Yiming’s , and Xu Xiangxiang’s assessment< t*e de"elopment o#

SSEZ )eginning o# t*e 1$ s can )e c*aracterised as a 0trial and error3 process< in =*ic* t*e

S*en *en municipal go"ernment *ad )een t*e central decision maBing institution on t*e

grass root le"el< en o5ing relati"el5 su)stantial autonom5 #rom t*e central and pro"incial go"-

ernment in its de"elopment course. It *as )een a 0)ottom up process3< in =*ic* t*e central

le"el initiall5 encouraged t*e SSEZ aut*orities to adopt polic5 measures< =*ic* =ould )e

)ene#icial #or one de"elopment in accordance =it* its o=n particular pat*< and t*e o"erall

o) ecti"e to un#old marBet #orces =it*in t*e ot*er=ise strictl5 planned econom5. @5 onl5 pro-

"iding t*e 0special3 regulator5 #rame=orB< minimal #unding< and )road polic5 guidelines< t*ecentral aut*orities stimulated t*e municipal aut*orities to e9periment =it*in its prede#ined<

geograp*icall5 delimited< areas.

177 Pissula< Petra and L]sc*< Dieter: i)id< p. 2 .178 I)id.179 I)id.



;$ Regional Economic Cooperation and Integration in Asia

Infrastructure develo(-ent4 Due to insu##icient amounts o# a"aila)le #unding on t*e central

le"el< t*e C*inese go"ernment decided t*at SSEZ =ould not *a"e to trans#er an5 pro#its to t*e

central or pro"incial go"ernment in t*e #irst decade< )ut rat*er rein"est it in t*e )uild up o#

*ard and so#t in#rastructure. 'unicipal and district aut*orities could< t*us< decide on *o= t*e5

=anted to in"est into t*e p*5sical de"elopment o# SSEZ< e"entuall5 leading to t*e )uilding o##actories< roads< =ater and electricit5 suppl5< sc*ools< and ot*er necessar5 in#rastructure

components.

Attraction of forei#n invest-ent4 @e#ore esta)lis*ing SSEZ< o##icial studies *ad indicated

t*at t*e strategic location o# SSEZ ne9t to ong ong =ould Fuali#5 t*e area as an e9perimen-

tal unit #or #oreign in"estors. 4*e central go"ernment anticipated t*at ong ong )usinesses

=ould )e in"esting in SSEZ< )ecause t*e5 =ould *a"e to e9pect *ig* pro#it rates. At t*at time<

compared to ong ong< t*e cost #or la)our< land< and renting #actories or spaces =ere e9-

tremel5 lo= in SSEZ. 4*us< according to t*e e9pert opinions< considerations a)out #actor pro-

portions and geograp*ic pro9imit5 pla5ed a Be5 role in C*inas national SEZ strateg5 to attract

and learn #rom #oreign in"estment. &or e9ample< =*en onl5 #ocusing on la)our costs< t*e a"-

erage s*are o# "alue added spent #or manu#acturing =ages in ong ong at t*at time ac-

counted #or + / +;VN =*ile in S*en *en t*e s*are amounted #or 1;V.

(ranted t*e rig*t to )ring in t*eir suggestions a)out t*e #urt*er de"elopment o# SSEZ once a

5ear in t*e 0consultati"e3 meeting on t*e municipal le"el< ong ong )usinesses pro"ided t*e

ma or s*are o# SSEZ in"estors. @5 renting #actor5 space #or t*eir assem)ling operations o#

international e9port products< t*us trans#erring mac*iner5 and e9port Bno=ledge< t*e5 con-

seFuentl5 set o## SSEZ s pat* o# industrialisation.

Tec*nolo#$ diffusion and *u-an sEill u(#rade4 According to t*e results o# t*e conducted

inter"ie=s< t*e tec*nolog5 and sBill trans#er le"els *ad )een rat*er lo= in t*e )eginning. &o-

cusing on simple assem)l5 productions during t*e earl5 eig*ties< #armers< =*ic* constituted

t*e ma or proportion o# t*e la)our #orce in SSEZ< =ere onl5 trained )5 #oreign companies in

rat*er less sop*isticated assem)ling and manu#acturing tasBs. C*inese aut*orities did not

consider tec*nolog5 di##usion as muc* in t*e )eginning< since t*e ma or #ocus *ad )een on t*e

de"elopment o# a solid production )ase and a sound regulator5 en"ironment. o=e"er< along-

side #urt*er de"elopment o# SSEZ< tec*nolog5 di##usion gained increased importance and C*i-

nese aut*orities started to introduce policies< =*ic* =ere designed to guarantee a certain

standard o# sBill trans#er to =orBers. &oreign companies =ere legall5 encouraged to start oint

"entures =it* C*inese counterparts< setting t*e ground #or en*anced on t*e o) learning< and




training measures #or C*inese sta## in accordance =it* t*e particular position in t*e compan5.

A#ter learning #rom t*e #oreign companies< C*inese =orBers started opening up t*eir o=n

companies or 0selling3 t*eir pre"iousl5 gained Bno=ledge on production or e9port processes<

t*ere#ore di##using sBills and Bno=ledge t*roug*out S*en *en and C*ina.

I-(ortant lessons

(enerall5< as t*e e9perts pointed out< C*ina s S*en *en e9perience is "er5 di##erent #rom in-

ternational SEZ strategies toda5< )ecause most o# t*e countries *ad alread5 introduced mar-

Bet economies )e#ore t*e5 started implementing t*eir national SEZ strategies. C*ina< on t*e

ot*er *and< *ad )een in a national transition period #rom a strictl5 planned econom5 to a

more marBet )ased s5stem< =it*out *a"ing pre"ious e9perience =it* t*e capitalist mode o#

production. 4*ere#ore< as #or e9ample ,iming put it: 41he hina model cannot e easily learned

and adopted y other countries.0 o=e"er< according to general consensus )et=een t*e e9-

perts< SSEZ is ne"ert*eless a good case e9ample #or gaining inspiration and ideas. Potential

central polic5 implications< =*ic* *ad )een pointed out during t*e inter"ie=s< included:

• Nu-ber of 5ones4 A go"ernment s*ould #ocus on setting up a limited num)er o#ones in t*e )eginning to t*oroug*l5 stud5 appropriate incenti"es and polic5 meas-

ures. Setting up too man5 ones< =ill lead to a de"elopment process in =*ic* t*e at-tention o# SEZ rele"ant aut*orities and allocation o# national resources =ill )e distri-)uted ine##icientl5.

• Decentrali5ation4 Especiall5 in t*e earl5 stages< t*e di##usion o# po=er to local le"elscan )e essential. Aut*orities on t*is le"el can monitor and access t*e need o# in"estorsmore closel5< t*ere#ore allocating resources )ased on marBet demand. In t*e C*inesecase< t*is approac* *ad )een an essential #eature in success#ull5 de"eloping SSEZ.

• @e$ features of national (olic$4 ConseFuentl5< t*e central and pro"incial aut*oritiess*ould onl5 pro"ide t*e )road polic5 #rame=orB and regulations< a good educations5stem< and important in#rastructure #acilities liBe pro"incial or national roads etc.

• )rucial conce(tual as(ects4 Domestic poor la)our sBills andGor a lo= tec*nologicalle"el do not ultimatel5 pose constraints in t*e initial de"elopment stage o# SEZs< )utt*e identi#ication o# potential marBets and capital sources are crucial aspects< =*ic*need to )e considered in t*e )eginning o# e"er5 SEZ strateg5: ?*at is a countr5 scomparati"e ad"antage !# =*ic* #actors can a countr5 maBe =*at o= s*ould na-

tional resources )e allocated• De-and=driven !" develo(-ent4 4*e national< pro"incial< and local aut*orities

s*ould regard t*e concerns o# t*e pri"ate sector and incorporate t*eir opinion in SEZlegislation and de"elopment< =*ere it is appropriate and reasona)le.




. Conclusions % Polic$ I,(lications

E"en t*oug*< #rom t*e perspecti"e o# national =el#are onl5 regarded as 0second-)est3 polic5

c*oice to o"erall re#orms o# t*e *ost econom5< in general< as 4*eodore 'oran *ad emp*asi ed<

=ell designed SEZs *a"e pro"en to )e a remarBa)le tool #or gro=t* all o"er t*e glo)e. Espe-

ciall5 since t*e 1$ s< politicians and academics aliBe discuss on t*e )ene#its and limitations

o# internationall5 implemented SEZ strategies. In )ot* de"eloped and de"eloping countries<

t*e concept *as )een increasingl5 propagated< =*ile at t*e same time adapting to t*e polic5

o) ecti"es and economic conditions o# eac* *ost countr5.

In practice< =*en *a"ing a looB at t*e "arious pu)lis*ed =orBs on SEZs< a "ariet5 o# terminol-

ogies appears and is used interc*angea)l5. o=e"er< a s5m)iotic de#inition< as presented in

c*apter %< s*ould include #ollo=ing essential #eatures:

• Hust one instrument in a port#olio o# polic5 options.• Designed to #oster and #acilitate economic acti"it5.

• Encompass a speci#ic delimited area / geograp*icall5 or #unctionall5.

• 'anaged )5 a single administration.

• (o"erned )5 a special regulator5 regime:

- rules and ot*er institutions di##er to t*e rest o# t*e econom5

- deregulated administrati"e #rame=orB

- less go"ernment inter"ention

- legal pri"ileges

• Can o##er pre#erential #inancial in"estment incenti"es.

• 'a5 allo= #or t*e manu#acturing o# goods andGor t*e production o# ser"ices.

• Comprise streamlined procedures.

• !##er custom-)uilt in#rastructure.

?*ile t*e )asic structural #eatures o# SEZs / speci#ic regulator5 regime< dedicated go"ernance

structure< and design o# eit*er industrial or mi9ed used sites / remain< t*e5 ma5 "ar5 #rom

case to case. Against t*is )acBdrop< t*e most commonl5 distri)uted t5pes o# ones toda5 in-

clude: 718 &ree trade ones< 728 traditional and 7%8 *5)rid e9port processing ones< 768 #ree-

ports< 7;8 enterprise ones< 7 8 ur)an #ree ones< and 7+8 single #actor5 e9port processing

ones / eac* one incorporating a speci#ic set o# eligi)le acti"ities< and )eing speci#icall5 de-

signed to ser"e t*e purpose o# accomplis*ing t*e anticipated polic5 o) ecti"es.




Still< against t*e )acBground o# Lao s on-going e##orts to en*ance its national SEZ strateg5< t*e

primar5 o) ecti"e o# t*e *ere presented stud5 *ad )een to deri"e polic5 implications #or suc-

cess#ull5 esta)lis*ing SEZs #rom a glo)al and C*inese perspecti"e. 4*ere#ore< learning #rom

international and S*en en s practices o# designing and implementing e9port processing ones<

#ollo=ing essential polic5 implications s*ould to )e considered )5 t*e Lao CSEZ in its courseo# en*ancing alread5 e9isting SEZs and setting-up ne= ones:

. T*orou#* cost=benefit anal$sis

As descri)ed in su)-c*apter 6.2< )e#ore setting-up SEZs< go"ernments need to calculate eig*t

aspects o# SEZ cost-)ene#it structure in order to determine =*et*er it =ill produce su)stantial

net =el#are )ene#its: Potential #oreign e9c*ange earnings< emplo5ment< tec*nolog5 trans#er<

purc*ase o# domestic ra= material and capital goods< usage o# electricit5< domestic )orro=ing<

ta9es< as =ell as de"elopment and recurrent costs. !# t*e a#orementioned aspects< de"elop-ment and recurrent cost constitute t*e most su)stantial s*are o# cost. 4*ere#ore< as a ?orld

@anB stud5 in 2 and t*e case stud5 on S*en *en SEZ *ad s*o=n< di"erse approac*es on

*o= to #inance t*e )uild-up o# in#rastructure< *a"e )een de"eloped in practice:

• &ormall5 institutionali ed pu)lic-pri"ate partners*ips 7PPPs8 to reduce a go"ern-ment s s*are o# net cost and #acilitate one de"elopment 7#or t*e di"erse t5pes o# PPPssee pages %2 - %%8.

• (i"ing #inancial autonom5 to t*e local S*en *en SEZ aut*orities in t*e earl5 stages o#one de"elopment )5 not o)liging t*em to trans#er s*ares o# re"enues to t*e super or-

dinate pro"incial and central le"els< )ut rat*er encouraging t*em to rein"est it in ne-cessar5 in#rastructure pro ects according to t*e needs o# in"estors and o"erall onede"elopment.

2. !x(ort increase and diversification

4*e positi"e long-term impact o# SEZs on a *ost countr5 s economic de"elopment in terms o#

e9port gro=t* and di"ersi#ication is dependent on a go"ernment a)ilit5 to sei e #oreign de-

mand and direct resources o# *ig*er producti"it5 accordingl5. According to t*e -! model o#

#actor proportion< a countr5 s*ould concentrate on producing and e9porting goods o# =*ic* it

can e9tensi"el5 maBe use o# its production #actor ad"antage. &urt*ermore< ne9t to t*e crucial

aspects o# detecting potential marBets and capital sources )e#ore esta)lis*ing SEZs< as identi-

#ied in t*e e9pert inter"ie=s regarding S*en *en SEZ< #indings o# pu)lis*ed =orBs on glo)al

SEZ e9perience indicate t*at t*e pro"ision o# adeFuate in#rastructure and c*oice o# location

also *a"e a crucial impact on a countr5 s a)ilit5 to attract #oreign e9port producers.



% Regional Economic Cooperation and Integration in Asia

3. !-(lo$-ent #eneration and i-(rove-ent of livin# standards

@eing one o# t*e primar5 polic5 o) ecti"es o# SEZs< international studies *a"e s*o=n t*at t*e

o"erall impact o# SEZs on emplo5ment generation is not dependent on a speci#ic la)our re-

gime< )ut on t*e o"erall one design< in terms o# incenti"e sc*eme< location site< and good go"-

ernance practices. o=e"er< on t*e ot*er *and< pu)lis*ed =orBs< especiall5 o# IL!< *a"e e9-

tensi"el5 criti ed =orBing condition in se"eral SEZs. 4*ere#ore< in order to ac*ie"e t*e target

o# impro"ing li"ing standards o# SEZ =orBers< a proper la)our regime needs to )e institution-

ali ed< =*ic* pro*i)its t*e in#ringement o# la)our rig*ts< suc* as o"erl5 long =orBing *ours<

emplo5ment uncertaint5< and insu##icient =orBing conditions etc.< and empo=ers =orBers to

organi e and oin organi ations< to striBe< and use collecti"e )argaining rig*ts.

/. Tec*nolo#$ transfer and *u-an ca(ital develo(-ent

4*e actual trans#er o# tec*nolog5 and impact on *uman capital de"elopment is< according to

SEZ li#e c5cle *5pot*esis< dependent on t*e p*ase o# li#e c5cle t*at ones are in. In t*e initial

p*ase o# national economic de"elopment< SEZs are usuall5 c*aracteri ed )5 assem)l5-t5pe<

la)our intensi"e< and lo=-sBill productions. Crucial )ene#its #or t*e *ost econom5 onl5 contain

718 generation o# emplo5ment and 728 reduction o# po"ert5 )5 pro"iding income opportuni-

ties #or untrained =orBers and t*ose =*o are at t*e lo=er end o# income distri)ution. Along-

side #urt*er national economic de"elopment< SEZs =ill enter t*e second stage< in =*ic* tec*-

nolog5 trans#er and *uman de"elopment e##ects set o##. o=e"er< as t*e C*inese case and in-

ternational academic =orBs on t*e role o# tec*nolog5 di##usion and *uman capital #ormation*a"e demonstrated< t*e li#e c5cle o# a SEZ is not an automatism. Se"eral polic5 aspects are

crucial #or SEZs to un#old e##ects o# tec*nolog5 di##usion and *uman sBill upgrade: 18 pre"i-

ousl5 e9isting *uman capital< sBill training< and tec*nological capa)ilities< 28 c*oice o# indus-

trial nic*e< and %8 complementar5 national education policies. !nl5 i# t*e sBill )ase in t*e

countr5 is alread5 e9panding and local supplies impro"ing< #oreign companies ma5 in"est in

upgrading local tec*nological capa)ilities. 4*ere#ore< t*e *ost countr5 *as to de"elop national

*uman capital and local capa)ilities< ot*er=ise risBing t*at #oreign compan5 led e9ports are

liBel5 to remain tec*nologicall5 stagnant< lea"ing t*e countr5 una)le to progress )e5ond t*e

assem)l5 o# imported components. !t*er #actors =ort* considering include 718 a reasona)l5

sound macro-economic en"ironment< 728 preser"ation o# propert5 rig*ts and rule o# la=< 7%8

industr5 speci#ic targeting< 768 common goal< 7;8 political "ision< 7 8 competition< and 7+8 pri-

"ate sector led de"elopment 7#or details see page 618.




+. LinEa#es to t*e do-estic econo-$

It *as )een =idel5 acBno=ledged t*at #or SEZs to add to sustaina)le economic de"elopment<

t*e5 need to )e linBed to t*e domestic econom5 )5 esta)lis*ing so-called 0)acB=ard linBages3<

suc* as 18 utili ation o# domestic ra= material< intermediate< supplies< eFuipment< and utili-

ties as =ell as 28 su)contracting arrangements =it* domestic #irms. In academic and pu)lic

discourse< studies *a"e re"ealed t*at linBages are oug*t to )e greater under certain conditions<

=*ic* s*ould )e regarded =*en setting up SEZs: 718 ?*en SEZ acti"it5 #ocuses on more *ig*-

tec* sectors suc* as electronics rat*er t*an lo=-tec* sectors< 728 =*en t*e domestic marBet

si e is large< 7%8 =*en t*e )aseline le"el o# industrial de"elopment o# t*e econom5 is *ig*er<

and 768 =*en t*e state is more acti"ist and #ocused on economic de"elopment =it* t*e cus-

toms area t*at is outside o# t*e one.

7. 0urt*er lessonsO

Nu-ber of 5ones4 4*e e9pert inter"ie=s on t*e S*en *en case *a"e re"ealed t*at t*e num-

)er o# ones< =*ic* a go"ernment seeBs to esta)lis* in t*e )eginning in t*e #rame=orB o# its

SEZ strateg5< s*ould )e rat*er limited. 4*ere#ore< contri)uting to more e##icientl5 allocated

national resources< and ser"ing as a testing ground #or appropriate incenti"es and polic5

measures.

Decentralisation4 As e9perienced in t*e case o# S*en *en< especiall5 in t*e earl5 stages< t*e

di##usion o# po=er to t*e local le"els can )e essential. Aut*orities on t*is le"el can monitor

and access t*e need o# in"estors more closel5< t*ere#ore allocating resources )ased on t*e

one and marBet demand.




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At*uBorala< Premac*andra: &oreign Direct In"estment and 'anu#acturing #or E9port in a e= E9portingCountr5 / 4*e Case o# Sri LanBa< in: 4*e ?orld Econom5< Jolume 1 < um)er 6 71$$;8.

B

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@elloc< 'arianna: Sur"e5 o# t*e Literature on Success#ul Strategies and Practices #or E9port Promotion )5De"eloping Countries< in: International (ro=t* Centre< ?orBing Paper 11G 26 7Hune 2 118.

@ertelsmann 4rans#ormationsinde9 7@4I8: L ndergutac*ten / JolBsrepu)liB Laos< 2 12.

@iggs< 45ler: Assessing E9port Suppl5 Constraints / 'et*odolog5< Data< 'easurement< &rame=orB paper#or t*e AERC Colla)orati"e Researc* Pro ect on E9port Suppl5 Response Capacit5 Constraints in A#rica<A#rican Economic Researc* Consortium< airo)i 2 +.

@o5enge< Hean-Pierre Singa: IL! Data)ase on E9port Processing Zones< IL! ?orBing Paper< 2 +.

@usc*< @ert*old: OSonder=irtsc*a#ts onen als Instrument der S5stemtrans#ormation< in: @eitr ge ur?irtsc*a#ts- und So ialpolitiB< Jolume % 71$$28.




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C*andra< Jandana and ol"alli< S*as*i: 4ec*nolog5< Adaption< and E9ports / o= Some De"eloping Coun-

tries (ot It Rig*t< in: 4ec*nolog5< Adaption< and E9ports / o= Some De"eloping Countries (ot It Rig*t<4*e ?orld @anB< ?as*ington DC 2 .

C*aud*uri< Datta and Ad*iBari< Smita: &ree 4rade Zones =it* arris-4odaro >nemplo5ment / A ote on,oung-'i5agi=a< in: Hournal o# De"elopment Economics< Jolume 61< um)er 1 71$$%8.

C*aud*uri< 'rinal: 4*e Role o# &ree 4rade Zones in Emplo5ment Creation and Industrial (ro=t* in 'a-la5sia< in: IL!: E9port Processing Zones and Industrial Emplo5ment in Asia / Papers and Proceedings o# a4ec*nical ?orBs*op< AR4EP< Asian Emplo5ment Programme< @angBoB 1$ 6.

Crane< (eorge: 4*e Political Econom5 o# C*ina s Special Economic Zones< e= ,orB 1$$ .

Crane< (eorge: Special 4*ings in Special ?a5s / ational Economic Identit5 and C*ina s Special EconomicZones< in: Australian Hournal o# C*inese A##airs< um)er %2 71$$68.

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Da)our< a)il 'd.: O&ree 4rade Zones in t*e A#termat* o# t*e >rugua5 Round / E9perience o# Selected !IC'em)er Countries< in: Hournal o# Economic Cooperation< Jolume 2 < um)er 6 71$$$8.

De=an< Ritu: Et*ics o# Emplo5ment and E9ports / ?omen in E9port Processing >nits in India< in: !)eroi<A.S.< Si"anant*iran< A. and JenBataRatnam< C.S: La)our Issues in E9port Processing Zones in Sout* Asia /Role o# Social Dialogue< IL!< e= Del*i 2 1.

Din< 'usle*-du: E9port Processing Zones and @acB=ard LinBages< in: Hournal o# De"elopment Economics<Jolume 6%< um)er 2 71$$68.

Dunn< Leit*: Education o# ?omen ?orBers in t*e Carri)ean E9port Processing Zones / C*allenges and!pportunities< in: La)our Economics< um)er $ 71$$68.

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&arole< 4*omas: Special Economic Zones / ?*at *a"e =e learned < in: J!K online Edition< Septem)er2 11< *ttp:GG===."o9eu.orgGarticleGspecial-economic- ones-=*at-*a"e-=e-learned

&arole< 4*omas: Special Economic Zones in A#rica / Comparing Per#ormance and Learning #rom (o)alE9perience< ?as*ington DC 2 11.

&IAS: Special Economic Zones / Per#ormance< Lessons Learned< and Implications #or Zone De"elopment<?as*ington DC 2 .

&arid< ada: 4o=ards @est Practice (uidelines #or t*e De"elopment o# Economic Zones< Contri)ution tot*e 'inisterial Con#erence )5 ?orBing (roup 1< 'E A-!ECD In"estment Programme< o"em)er 2 $<*ttp:GG===.oecd.orgGmenaGin"estmentG66 ; ;.pd#.

&en=icB< Ann: E"aluating C*ina s Special Economic Zones< in: @erBele5 Hournal o# La=< Jolume 2< um)er2 71$ 68.



+ Regional Economic Cooperation and Integration in Asia

&itting< (eorge: E9port Processing Zones in 4ai=an and t*e People s Repu)lic o# C*ina< in: Asia Sur"e5<Jolume 22< um)er 71$ 28.

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amada< oic*i: An Economic Anal5sis o# Dut5-&ree Zone< in: Hournal o# International Economics< um)er1% 71$ 28.

amilton< Carl and S"ensson< Lars: !n t*e ?el#are E##ects o# A 0Dut5-&ree Zone3< in: Hournal o# Interna-tional Economics< Jolume 1%< um)er 1-2 71$ 28.

arrison< Ann and RodrXgue -Clare< AndrYs: 4rade< &oreign In"estment< and Industrial Polic5 #or De"elop-ing Countries< ational @ureau o# Economic Researc* 7 @ER8< ?orBing Paper um)er 1;2 1 7August2 $8.

ettiarac*c*i< 4riest: Some Aspects o# Social Pro)lems Related to E9port Promotion< in: >ni"ersit5 o#Colom)o Re"ie=< Jolume 1 71$$18.

e5 er< oeleen: Daug*ters in Industr5 / ?orB< SBills and Consciousness o# ?omen ?orBers in Asia<

Asian and Paci#ic De"elopment Centre< uala Lumpur< 1$ .

ossain< Ismael: E9port Processing Zones in @anglades* and Industrial Relations< in: !)eroi< A.S.< Si"anan-t*iran< A. and JenBata Ratnam< C.S: La)our Issues in E9port Processing Zones in Sout* Asia / Role o# So-cial Dialogue< IL!< e= Del*i 2 1.

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IL!: Emplo5ment and Social Polic5 in Respect o# E9port Processing Zones 7EPZs8< Committee on Emplo5-ment and Social Polic5< 2 t* Session< (ene"a 2 %.

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Hauc*< er)ert: E9port Processing Zones and t*e Quest #or Sustaina)le De"elopment / A Sout*ern A#ricanPerspecti"e< in: En"ironment and >r)ani ation< Jolume 16< um)er 1 72 28.

HenBins< 'auricio: Economic and Social E##ects o# E9port Processing Zones in Costa Rica< IL! ?orBingPaper< um)er $+ 72 ;8.

HenBins< 'auricio< EsFui"el< (erardo and LarraXn @.< &elipe: E9port Processing Zones in Central America<ar"ard Institute #or International De"elopment< De"elopment Discussion Paper< um)er 6 71$$ 8.

Ho*annson< elena: 4*e Economics o# E9port Processing Zones Re"isited< in: De"elopment Polic5 Re"ie=<Jolume 12< um)er 6 71$$;8.

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arunaratne< C*andana and A)a5aseBara< As*ani: Impact o# EPZs on Po"ert5 Reduction and 4rade &acili-tation in Sri LanBa< > ESCAP AR4 e4 ?orBing Paper< um)er 1%6 7!cto)er 2 1%8.

i)ria< a li: Culture< Social Class< and Income Control in t*e Li"es o# ?omen (arment ?orBers in @an-glades*< in: (ender and Societ5< Jolume $< um)er % 71$$;8.




rueger< Anne !.: 4rade Policies in De"eloping ations< in: and)ooB o# International Economics< ?as*-ington 1$ ;.

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'adani< Dorsati: A Re"ie= o# t*e Role and Impact o# E9port Processing Zones< ?as*ington DC 1$$$.

'ann< 4*eodore: >sing Special Economic Zones to Dri"e Economic De"elopment< in: CDI Roundta)le<2 12.

'cCallum< Hamie .: E9port Processing Zones / Comparati"e Data #rom C*ina< onduras< icaragua andSout* A#rica< IL! ?orBing Paper um)er 21 72 118.

'il)erg< ?illiam and Amengual< 'att*e=: Economic De"elopment and ?orBing Conditions in E9portProcessing Zones / A Sur"e5 o# 4rends< IL! ?orBing Paper< 2 .

'i5aga=a< a : A Reconsideration o# t*e ?el#are Economics o# a &ree-4rade Zone< in: Hournal o# Interna-tional Economics< Jolume 21< um)er %-6 71$ 8.

'uc*linsBi< Peter: Special Economic Zones / A Polic5 4ool in Searc* o# a e= Agenda < in: Carter< Connieand arding< Andre=: Special Economic Zones in Asian 'arBet Economies< e= ,orB 2 11.

'uranda< Zororo: SeeBing Competiti"e Ad"antage in a Deepening Crisis / An In"estigation o# Zim)a)=e sE9port Processing Zones< in: Hournal o# A#rican @usiness< Jolume ;< um)er 2 72 68.

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!mar< arima and Stoe"er ?illiam: 4*e Role o# 4ec*nolog5 and uman Capital in t*e EPZ Li#e-c5cle< in:

4ransnational Corporations< Jolume 1+ 72 8.

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$ Regional Economic Cooperation and Integration in Asia

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Prime 'inister s !##ice Lao PDR: Decree on Special Economic Zone and Speci#ic Economic Zone< Jientiane!cto)er 2 1 .

Putranto< artiBo< Ste=art< Don and 'oore< (ra*am: International 4ec*nolog5 4rans#er and Distri)utiono# 4ec*nolog5 Capa)ilities: 4*e Case o# Rail=a5 De"elopment in Indonesia< in: 4ec*nolog5 and Societ5<Jolume 2; 72 %8.

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Rol#e< Ro)ert< ?ood=ard< Douglas and agira< @ernard: &ootlose and 4a9 &ree / Incenti"e Pre#erences inen5an E9port Processing Zones< in: A#rican Hournal o# Economics< Jolume +2< um)er 6 72 68.

Rogall< olger: Au en*andelst*eorien / Jorteile der (lo)alisierung< in: Rogall< olger: JolBs=irtsc*a#ts-le*re #[r So ial=issensc*a#tler.

Sc*ranB< Andre=: Read5-to-?ear De"elopment &oreign In"estment< 4ec*nolog5 4rans#er< and Learning)5 ?atc*ing in t*e Apparel 4rade< in: Social &orces< Jolume %< um)er 1 72 68.

Sc*r5en< Rainer: ong ong und S*en *en / Ent=icBlungen< Jer#lec*tungen und A)* ngigBeiten< am-)urg 1$$2.

S*aB5a< 'alliBa and 'cLinden< (erard: Dut5 and 4a9 Relie# and Suspension Sc*emes #or Impro"ing E9-port Competiti"eness / A Re#erence and Learning 4oolBit< 4*e ?orld @anB / International 4rade Depart-ment< ?as*ington DC< 2 $.

Sit< Jictor: C*ina s E9port-!riented !pen Areas / 4*e E9port Processing Zone Concept< in: Asian Sur"e5<Jolume 2 < um)er 71$ 8.

Stolten)erg< Cl5de D.: C*ina s Special Economic Zones / 4*eir De"elopment and Prospects< in: Asian Sur-"e5< Jolume 26< um)er 71$ 68.

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4*amara aBs*i< R: Promotion o# Social Dialogue in EPZs in Sout* Asia / S5nt*esis o# Countr5 E9periences<in: !)erai< S.< Si"ant*iran< A. and JenBata Ratnam: La)our Issues in E9port Processing Zones in Sout* Asia/ Role o# Social Dialogue< IL!< (ene"a 2 1

4*e Secretariat to t*e ational Committee #or Special and Speci#ic Economic Zone: De"elopment Strateg5#or Special and Speci#ic Economic Zone in t*e Lao PDR< 2 11 / 2 2 <*ttp:GG===.sncse .go".laGimagesGLegalDocumentsGse Mde"elopmentMstrateg5Meng.pd#.

> C4AD: E9port Competi"eness and De"elopment in LDCs / Policies< Issues and Priorities #or Least De-"eloped Countries #or Action During and @e5ond > C4AD KII< e= ,orB and (ene"a 2 .



Regional Economic Cooperation and Integration in Asia +

?ang< Hici and @rad)ur5< Ho*n .: 4*e C*anging Industrial (eograp*5 o# t*e C*inese Special Economic

Zones< in: Economic (eograp*5< Jolume 2< um)er 6 71$ 8< pp. % +-%2 .

?arr< Peter: E9port Processing Zones and 4rade Polic5< in: &inance and De"elopment< Jolume 2 71$ $8<Issue 2.

?arr< Peter: E9port Promotion "ia Industrial Encla"es / 4*e P*ilippines @ataan E9port Processing Zone<in: 4*e Hournal o# De"elopment Studies< Jolume 2%< um)er 2 71$ +8.

?ei< (e: Special Economic Zones and t*e Economic 4ransition o# C*ina< Economic Ideas Leading to t*e21st Centur5 / Jolume ;< Singapore 1$$$.

?EPZA 4a)le o# Zone Countries< in: ?EPZA !nline Plat#orm< *ttp:GG===.=ep a.orgGa c.*tml

?ong< ar-,iu: International &actor 'o"ements< Repatriation and ?el#are< in: Hournal o# Inter-nationalEconomics< Jolume 21< um)er %-6 71$ 8.

?ong< =an-,iu and C*u< Da"id . ,.: E9port Processing Zones and Special Economic Zones as (eneratorso# Economic De"elopment / 4*e Asian Perspecti"e< in: (eogra#isBa Annaler. Series @< uman (eograp*5<Jolume < um)er 171$ 68.

?ood< Adrian: !penness and ?age IneFualit5 in De"eloping Countries / 4*e Latin American C*allenge toEast Asian Con"entional ?isdom< in: ?orld @anB Economic Re"ie=< um)er 11 71$$+8.

?ood< Adrian and @erge< ersti: E9porting 'anu#acturers: uman Resources< atural Resources and4rade Polic5< in: Hournal o# De"elopment Studies< um)er %+ 71$$+8.

?ool#re5< Sean: Special Economic Zones and Regional Integration in A#rica< tralac ?orBing Paper um)er1% 72 1%8.

,ang< Dali: C*ina Ad usts to t*e ?orld Econom5 / 4*e Political Econom5 o# C*ina s Coastal De"elopmentStrateg5< in: Paci#ic A##airs< Jolume 6 71$$18.

,oung< Leslie and 'i5aga=a< a : >nemplo5ment and t*e &ormation o# Dut5 &ree Zones< in: Hournal o#De"elopment Economics< Jolume 2 < um)er 2 71$ +8.

,uan< Hing-dong and Eden< Lorraine: E9port Processing Zones in Asia< in: Asian Sur"e5< Jolume %2< um-)er 11 71$$28.



+1 Regional Economic Cooperation and Integration in Asia

1I" 6Re#ional !cono,ic Coo(eration and Inte#ration in Asia 9RCI:84Pro#ra,,e

BacE#round

Regional economic cooperation and integration are consensuall5 seen as Be5 to Asia s #uture

de"elopment< =*ose arc*itecture is )uilt largel5 on su)regional initiati"es =it* so #ar onl5 #e=<lean regional institutions. Su)regional economic cooperation initiati"es aim at promoting coop-

eration in speci#ic areas< liBe trade and transport< in"estment< tourism< energ5 or en"ironment.

(i"en t*e de"elopment gaps in t*e region< it is e"en more important to maBe regional coopera-

tion inclusi"e and to ensure t*at t*e smaller countries can access )ene#it #rom regional actions.

1ur A((roac*

4*e RCI Programme supports regional

and national staBe*olders in t*e conte9t

o# su)regional cooperation initiati"es )5

pro"iding capacit5 )uilding< organising

trainings and dialogue e"ents< and con-

ducting sector studies.

4*e cooperation encompasses t*e #ocus

areas o# t*e Regional Cooperation and Integration in Pan @ei)u (ul# 7P@(8 and t*e Regional

Cooperation and Integration =it*in (reater 4umen Initiati"e 7(4I8. In addition< RCI )est prac-

tices are trans#erred among t*e named Asian regional initiati"es as =ell as Central Asia Regional

Economic Cooperation 7CAREC8 and (reater 'eBong Su)region 7('S8. 4*e RCI initiati"e #osters

t*e de"elopment o# regional and local production net=orBs and *elps to o"ercome t*e limita-

tions o# domestic marBets. 4*ere#ore< pro ects promoted )5 RCI *a"e t*e potential to signi#i-

cantl5 contri)ute to inclusi"e de"elopment )5 )oosting regional economic gro=t* t*roug* trade

#acilitation. @5 t*ese means< also resources #or pro-poor policies can )e generated in order to

)oost =eaBer economies.

0ocus Areas

• Addressing #unctional aspects o# regional cooperation and integration =it*in P@( )5 or-ganising studies and capacit5 )uilding acti"ities.

• Contri)uting to t*e implementation o# concrete pro ects in t*e (4I priorit5 areas o#trade< multi-destination tourism< and local cross-)order cooperation.

• Promoting peer-to-peer learning and e9c*ange o# good practices among regional initia-ti"es< leading to pilot replication o# lessons learnt.

/act Box RCIPro ect na-e Regional Economic Cooperation and

Integration 7RCI8 in Asia)o--issionedb$

(erman &ederal 'inistr5 #or Eco-nomic Cooperation and De"elopment7@'Z8

@e$ sub ects 4rade and in"estment #acilitation<port cooperation< local cross-)ordereconomic cooperation and socialimplications o# economic integration

Duration 2 11 / 2 1;



Publications b$ RCI

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seminate regional Bno=ledge on

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Cross-@order Cooperationand 4rade &acilitation in Asia

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es regular updates on its acti"ities to o##er ins

integration processes in Asia. 4o do=nload p

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ocial Implications o# Regionalconomic Integration

Economic Polic5 DiaAsian 4ransition Co

anaging Cross-@order La)ourigration on a Regional Scale

Potentials #or Port Cin t*e Pan-@ei)u (ul

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