A special economic zone (SEZ) is an area in which the business and trade laws are different from the rest of the country. SEZs are located within a country's national borders, and their aims include increasing trade balance, employment, increased investment, job creation and effective administration. To encourage businesses to set up in the zone, financial policies are introduced. These policies typically encompass investing, taxation, trading, quotas, customs and labour regulations. Additionally, companies may be offered tax holidays, where upon establishing themselves in a zone, they are granted a period of lower taxation.
The creation of special economic zones by the host country may be motivated by the desire to attract foreign direct investment (FDI). [1] [2] The benefits a company gains by being in a special economic zone may mean that it can produce and trade goods at a lower price, aimed at being globally competitive. [1] [3] In some countries, the zones have been criticized for being little more than labor camps, with workers denied fundamental labor rights. [4]
The definition of an SEZ is determined individually by each country. According to the World Bank in 2008, the modern-day special economic zone typically includes a "geographically limited area, usually physically secured (fenced-in); single management or administration; eligibility for benefits based upon physical location within the zone; separate customs area (duty-free benefits) and streamlined procedures." [5]
Modern SEZs appeared from the late-1950s in industrial countries. The first was in Shannon Airport in County Clare, Ireland. [6] Some tax-free jurisdictions such as the Cayman Islands offer technology companies a way to keep their IP offshore in a Special Economic Zone (see Cayman Enterprise City).
From the 1970s onward, zones providing labour-intensive manufacturing have been established, starting in Latin America and East Asia. The first in China following the opening of China in 1979 by Deng Xiaoping was the Shenzhen Special Economic Zone, which encouraged foreign investment and simultaneously accelerated industrialization in this region. [7] : 50–51 These zones attracted investment from multinational corporations [1] and allowed export-oriented Chinese businesses to respond quickly to demand in foreign markets. [7] : 50 China continues to maintain Special Economic Zones and certain open coastal areas. Most of China's SEZs are located in former treaty ports and therefore have symbolic significance in demonstrating a "reversal of fortunes" in China's dealings with foreigners since the century of humiliation. [7] : 51 Researcher Zongyuan Zoe Liu writes that "[t]he success of these cities as 'red' treaty ports represented another step in China's overall reform and opening-up plan while legitimizing the leadership of the CPC over the Chinese state and people." [7] : 51
Numerous African countries have set up SEZs in connection with China, [2] including over the period 1990 to 2018 establishing SEZs in Nigeria (two), Zambia, Djibouti, Kenya, Mauritius, Mauritania, Egypt, and Algeria. [8] Generally, the Chinese government takes a hands-off approach, leaving it to Chinese enterprises to work to establish such zones (although it does provide support in the form of grants, loans, and subsidies, including support via the China Africa Development Fund). [8] The Forum on China-Africa Cooperation promotes these SEZs heavily. [8]
The term special economic zone [9] [10] can include: [1] [11]
Type | Objective | Size | Typical Location | Typical Activities | Markets |
---|---|---|---|---|---|
FTZ | Support trade | <50 hectares (120 acres) | Port of entry | Entrepôts and trade related | Domestic, re-export |
EPZ (traditional) | Export manufacturing | <100 hectares (250 acres) | None | Manufacturing, processing | Mostly export |
EPZ (single Unit/free enterprise) | Export manufacturing | No minimum | Countrywide | Manufacturing, processing | Mostly export |
EPZ (hybrid) | Export manufacturing | <100 hectares (250 acres) | None | Manufacturing, processing | Export, domestic |
Free port/SEZ | Integrated development | >1,000 hectares (2,500 acres) | None | Multi-use | Internal, domestic, export |
Urban enterprise zone | Urban revitalization | <50 hectares (120 acres) | Urban/rural | Multi-use | Domestic |
SEZs do not differ from other facilities in industrializing economies. As with any technique administered used by a globalized economy there are oversights by actors that are not domestic. Transnational criminal organizations and terrorist groups have taken advantage of Special Economic Zones and their lack of regulations. [12]
The economy of Kazakhstan is the largest in Central Asia in both absolute and per capita terms. In 2021, Kazakhstan attracted more than US$370 billion of foreign investments since becoming an independent republic after the collapse of the former Soviet Union.
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A free-trade zone (FTZ) is a class of special economic zone. It is a geographic area where goods may be imported, stored, handled, manufactured, or reconfigured and re-exported under specific customs regulation and generally not subject to customs duty. Free trade zones are generally organized around major seaports, international airports, and national frontiers—areas with many geographic advantages for trade.
This is a list of international trade topics.
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A foreign direct investment (FDI) refers to purchase of an asset in another country, such that it gives direct control to the purchaser over the asset. In other words, it is an investment in the form of a controlling ownership in a business, in real estate or in productive assets such as factories in one country by an entity based in another country. It is thus distinguished from a foreign portfolio investment or foreign indirect investment by a notion of direct control.
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In justifying opening up and the series of economic reforms that ensued in China, Deng Xiaoping referred to Karl Marx and his theories, which predicted that nations need to undergo urbanization and a stage of capitalism for a natural socialist transition. One of the most renowned reforms under Deng was establishing four "special economic zones" along the Southeastern coast of China, with Shenzhen, Shantou, and Zhuhai located in Guangdong province and Xiamen located in Fujian province. The four aforementioned special economic zones were all established from 1980 to 1981. As of 2024, there have been 3 additional special economic zones. In 1988, Hainan became the fifth "SEZ". In 1990, Pudong district in Shanghai became the sixth "SEZ". In 2009, Binhai district in Tianjin became the seventh "SEZ". Special economic zones (SEZs) in mainland China are granted more free market-oriented economic policies and flexible governmental measures by the government of China, compared to the planned economy elsewhere.
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