BE/U5 Topic 2 SEZ, EPZ, GATT/ WTO
Special Economic Zone (SEZ)
A special economic zone (SEZ) is an area in which 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: increased trade balance, increased investment, job creation and effective administration. To encourage businesses to set up in the zone, financial policies are introduced. These policies typically regard investing, taxation, trading, quotas, customs and labour regulations. Additionally, companies may be offered tax holidays, where upon establishing 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). 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. In some countries the zones have been criticized for being little more than labor camps, with workers denied fundamental labor rights.
Modern SEZs appeared from the late 1950s in industrial countries. The first was in Shannon Airport in Clare, Ireland. 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. These zones attracted investment from multinational corporations.
SEZ in India
SEZs were introduced to India in 2000, following the already successful SEZ model used in China. Prior to their introduction, India relied on export processing zones (EPZs) which failed to make an impact on foreign investors. By 2005, all EPZs had been converted to SEZs. As of 2017, there are 221 SEZs in operation, with a further 194 approved for 2018. For developers to establish an SEZ in India, applications can be made to the Indian Board of Approval. Companies, partner firms and individuals may also apply by completing Form-A which is available on the Department of Commerce’s website. There are four types of SEZs in India, which are categorized according to size: Multi-sector (1,000+ hectares); Sector-specific (100+ hectares); Free Trade & Warehousing Zone (FTWZ) (40+ hectares); and Tech, handicraft, non-conventional energy, gems & jewellery (10+ hectares).
Export Processing Zone (EPZ)
An Export Processing Zone (EPZ) is a Customs area where one is allowed to import plant, machinery, equipment and material for the manufacture of export goods under security, without payment of duty. The imported goods are subject to customs control at importation, through the manufacturing process, to the time of sale/export, or duty payment for home consumption.
Advantage of an Export Processing Zone
- It helps to boost the manufacturing sector the country and thus leading to the creation of job.
- It helps to boost the GDP and individual income of a particular economy.
- It helps to attract company to the particular country.
- On the whole export processing zones help in welfare and development of a particular economy
Disadvantage of an Export Processing Zone
- Many times companies dumb their goods in the domestic market which can lead to price wars and thus hampering the health of the domestic producer
- Many companies also tend to dump their waste in the host country which can be detrimental to the environment of the country.
Recent trends in India
In the recent years the government has been particular to boost up the manufacturing sector of the country and thus many has launched many initiatives such as “Make in India “,” Skill India” etc. The growth story has also been fueled by the creation of export processing zone in strategic location of the country.
Example of China
In the recent times China has been the manufacturing hub of the world. We have seen manufacturing companies from all over the globe having their manufacturing plants in China. This has not only been fuelled by the availability of cheap labour but also by the presence of a large no of export processing zones in the country. This has booted the GDP of the country and China has been achieving a double digit growth in the recent past.
General Agreement on Tariffs and Trade (GATT)
General Agreement on Tariffs and Trade (GATT) was a legal agreement between many countries, whose overall purpose was to promote international trade by reducing or eliminating trade barriers such as tariffs or quotas. According to its preamble, its purpose was the “substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis.”
It was first discussed during the United Nations Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization (ITO). GATT was signed by 23 nations in Geneva on 30 October 1947, and took effect on 1 January 1948. It remained in effect until the signature by 123 nations in Marrakesh on 14 April 1994, of the Uruguay Round Agreements, which established the World Trade Organization (WTO) on 1 January 1995. The WTO is a successor to GATT, and the original GATT text (GATT 1947) is still in effect under the WTO framework, subject to the modifications of GATT 1994.
The World Trade Organization (WTO)
The World Trade Organization (WTO) is an intergovernmental organization that regulates international trade. The WTO officially commenced on 1 January 1995 under the Marrakesh Agreement, signed by 124 nations on 15 April 1994, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948. It is the largest international economic organization in the world.
The WTO deals with regulation of trade in goods, services and intellectual property between participating countries by providing a framework for negotiating trade agreements and a dispute resolution process aimed at enforcing participants’ adherence to WTO agreements, which are signed by representatives of member governments and ratified by their parliaments.
The WTO prohibits discrimination between trading partners, but provides exceptions for environmental protection, national security, and other important goals. Trade-related disputes are resolved by independent judges at the WTO through a dispute resolution process.
Functions of the World Trade Organization
At the heart of the Organization are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations. The goal is to help producers of goods and services, exporters, and importers conduct their business. The WTO’s overriding objective is to help trade flow smoothly, frets, fairly, and predictably.
With these objectives in mind, we can state the following six specific functions
(i) It shall facilitate the implementation, administration and operation of the WTO trade agreements, such as multilateral trade agreements, plurilateral trade agreements.
(ii) It shall provide forum for negotiations among its members concerning their multilateral trade relations.
(iii) It shall administer the ‘Understanding on Rules and Procedures’ so as to handle trade disputes.
(iv) It shall monitor national trade policies.
(v) It shall provide technical assistance and training for members of the developing countries.
(vi) It shall cooperate with various international organizations like the IMF and the WB with the aim of achieving greater coherence in global economic policy-making.