Types and Scoping of SEZs
At a Glance
- Export processing zones are industrial estates that offer special incentives and facilities for manufacturing and related activities, with a focus on exports.
- Free trade zones (also called commercial free zones) are generally fenced-in, duty-free areas that focus on trade facilitation and logistics services, and are mostly used as trade development instruments.
- Free (or single) enterprise zones provide incentives to individual enterprises; factories do not necessarily have to locate within a designated zone to receive incentives and privileges.
- Wide-area SEZs and freeports tend to provide a much broader set of incentives and benefits, and typically encompass much larger areas and a wider set of activities (which can include tourism, retail sales, and accommodation, etc.).
There are several different types of SEZs. Each type has different goals, design, and requirements (although in practice there are often overlaps). The main forms of SEZ are discussed below:
- Export processing zones are industrial estates that offer special incentives and facilities for manufacturing and related activities, with a focus on exports. These zones were very popular from the 1960s to the 1990s, and their success was often based on cheap labor, pre-WTO trade preferences, and the dominance of Western consumer markets. As these conditions have changed, creating successful EPZs is significantly more difficult than it used to be. One example of where EPZs might be suitable is at the value-adding stage of the minerals value chain.
- Free trade zones (also called commercial free zones) are mostly used as trade development instruments. They are generally fenced-in, duty-free areas that focus on trade facilitation and logistics services, not necessarily manufacturing as with EPZs. They, therefore, rely on being in-or next to a port of entry. The zones tend to be small, except when they have reached regional prominence (e.g. Colon Free Zone in Central America, Jebel Ali Free Zone in the Middle East, or Singapore in South East Asia). These could relate to either exploration or operations.
- Free (or single) enterprise zones provide incentives to individual enterprises; factories do not have to locate within a designated zone to receive incentives and privileges. Examples of countries relying exclusively on a single factory scheme include Mauritius, Madagascar, Mexico, and Fiji. Other countries, e.g. Costa Rica, the United States, and Sri Lanka allow both industrial estate-style zones and single factory designations. Many extractive industry development phase and operational projects could already be considered de facto single enterprise SEZs due to differential tax and regulatory treatment under their permits or conventions.
- Wide-area SEZs and freeports typically encompass much larger areas and a wider set of activities (which can include tourism and retail sales, and accommodation). These SEZs also tend to provide a much broader set of incentives and benefits. Freeports have gained prominence through the Chinese experience. In their most developed format, these zones function as autonomous entities, managed by a dedicated government that also oversees the cities, ports, airports, and the population living within them.
Potential types of SEZs particular to extractive industry include: manufacturing of processed minerals for export (e.g. precious metal into jewellery or automotive components, diamond cutting); gas to-power zones; supplier parks (not necessarily export oriented; offshore oil and gas servicing hubs, which allow rigs to stay not to enter the domestic customs area during repairs); and a consolidate logistics zone at a port to serve multiple extractives companies in a region (although this supports efficient imports rather than necessarily local content development).
 Thomas Farole and Claude Baissac and Jean-Paul Gauthier. Special Economic Zones: A Guidance Framework for Policymaking draft (June, 2013)
- Special Economic Zones: Performance, Lessons Learned, and Implication for Zone Development (Gokhan Akinci, James Crittle)
- Special Economic Zone: Facts, Roles, and Opportunities of Investment (IAENG, P. Pakdeenurit, W. Rattanawong, N. Suthikarnnarunai,)
- Special Economic Zones: A Guidance Framework for Policymaking (Claude Baissac, Thomas Farole, Jean-Paul Gauthier)
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