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.