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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








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Internationale Zusammenarbeit (GIZ) GmbH

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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 fr 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)
Regional Economic Cooperation and Integration in Asia

Contents

List of Abbreviations ..................................................................................................................................... i
Boxes & Tables ............................................................................................................................................... ii
I. Introduction ................................................................................................................................................ 3
2. Lao PDRs 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 Si1e Does 2ot &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 1b2ectives ......................................... 23
6.1 EPZ / Impact on 2ational ?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 ................................................................... %A
6.; 4ec*nolog5 4rans#er and :uman Capital De"elopment ..................................................................................... 6.
6. LinBages to t*e Domestic Econom5 .............................................................................................................................. 6%
+. )ase tud$4 *en5*en as Best Practice 6odel ............................................................................. /7
;.1 Em)eddedness o# SEZs in C*inaCs !pen Door Polic5 ............................................................................................ 6
;.2 C*inese SEZs / De#inition< Concept and !)Decti"es ............................................................................................... 6+
;.% S*en1*en SEZ.......................................................................................................................................................................... 6A
;.%.1 Legal &rame=orB< Institutional Design and Regulati"e Regime ............................................................. 6$
;.%.2 &actors o# SuccessE ...................................................................................................................................................... ;%
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 ............ 3.
Publications b$ R)I .................................................................................................................................... 32

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 !rgani1ation
@!P" Iarac*i E9port Processing Zone
Lao PDR Lao PeopleCs Democratic Repu)lic
LD) Least De"eloped Countr5
LR6) Long-term marginal costs
N)!" 2ational Committee #or Special Economic Zone in Lao PDR
PPP Pu)lic-Pri"ate Partners*ip
!" Special Economic Zone
=N)!" Secretariat to t*e Lao 2ational Committee #or Special Economic Zone
!" S*en1*en Special Economic Zone
T!P" 4raditional E9port Processing Zone
AN >nited 2ations
AN)TAD >nited 2ations Con#erence on 4rade and De"elopment
BA" ?ide Area Zones
BB ?orld @anB
B!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 Iarac*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 3 ?orBers in S*en1*en< 1$A. / 1$AA ;

Table . Special and Speci#ic Zones in Lao PDR
Table 2 'ost Common 45pes o# SEZ 1A
Table 3 Cost-@ene#it Structure o# EPZs %2
Table / Incenti"e Sc*eme o# S*en1*en SEZ in t*e 1$A.s ;2
Table + 2um)er o# Contract Conclusions Including &DI in S*en1*en ;6
Table 7 2um)er o# Contract Conclusions =it* &oreign In"estors in S*en1*en ;6
Table 3 &oreign In"estment in S*en1*en )5 Economic Sector ;;
Table C E9port Jolume and (ro=t* in S*en1*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# Iorea< 4ai=an< Singapore and :ong Iong<
=*ose e9port-led strateg5 started in t*e 1$.s<
Sout*-East Asian nations liBe 'ala5sia< Indonesia and 4*ailand< =*ic* )egun in t*e
1$+.s<
#ollo=ed )5 Jiet 2am< Cam)odia< and< as an outstanding e9ample< t*e PeopleCs Repu)lic
o# 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.26A 7Hune 2.118< p. %.
3
Irueger< Anne !.: 4rade Policies in De"eloping 2ations< in: :and)ooB o# International Economics< ?as*ington 1$A;<
p. ;1$-;$ 7p. 2.8
4
>2C4AD: E9port Competi"eness and De"elopment in LDCs / Policies< Issues and Priorities #or Least De"eloped
Countries #or Action During and @e5ond >2C4AD KII< 2e= ,orB and (ene"a 2..A< 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 1ones 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* 1ones.
6

4*e Lao PeopleCs 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# LaoCs on-going e##orts
to en*ance its national SEZ strateg5< t*e primar5 o)Decti"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*en1*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# LaoCs SEZ strateg5<
its accomplis*ments< and )ottlenecBs. C*apter t*ree =ill scrutini1e 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)Decti"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*en1*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 LaoCs course o# setting-up
SEZs.

5
,uan< Hing-dong and Eden< Lorraine: E9port Processing Zones in Asia< in: Asian Sur"e5< Jolume %2< 2um)er 11
71$$28< pp. 1.2-1.6; 7p. 1.28.
6
@iggs< 45ler: Assessing E9port Suppl5 Constraints / 'et*odolog5< Data< 'easurement< &rame=orB paper #or t*e
AERC Colla)orati"e Researc* ProDect on E9port Suppl5 Response Capacit5 Constraints in A#rica< A#rican Economic
Researc* Consortium< 2airo)i 2..+< p. 1..
; Regional Economic Cooperation and Integration in Asia

2. Lao PDRs National !" trate#$ % tatus &uo' Pros(ects and C)allen#es
@eginning =it* t*e introduction o# t*e 2e= Economic 'ec*anism in 1$A< 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)erali1ation 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 countr5Cs 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< LaoCs 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 72o: .2G2A< ...%.2..%8< 0La= on In"estment Pro-
motion3 72o: .2G2A< .A..+.2..$8< 0Resolution o# Standing Committee o# t*e 2ational Assem)l5
on t*e Endorsement t*e Decree on Special and Speci#ic Economic Zones in Lao PDR3 72o: 6+GSC<
2.1..2.1.8< 0Decree on Special and Speci#ic Economic Zones in Lao PDR3 72o: 66%GP'<
2.1..2.1.8 and on t*e 0Proposal Letter o# t*e C*airman o# 2ational Committee #or Special and
Speci#ic Economic Zone 72o: .AG2CSEZ< .;..6.2.1.8.
Em)edded in t*e long-term 0Se"ent* &i"e-,ear 2ational Socio-Economic De"elopment Plan
72.11-2.1;83< LaoCs 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)Decti"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: LLndergutac*ten / JolBsrepu)liB Laos< 2.12< p. 1;#.
8
4*e Secretariat to t*e 2ational 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===.sncse1.go".laGimagesGLegalDocumentsGse1Mde"elopmentMstrateg5Meng.pd#< p. i.
Regional Economic Cooperation and Integration in Asia

'oderni1ing t*e econom5 )5 trans#orming land into capital
9

2.*. tatus &uo+ (ecial !cono,ic "ones in Lao PDR
4*e national 1one programme =as launc*ed )5 a SEZ #easi)ilit5 stud5 proDect 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# LaoCs #irst e9perimental economic
1one 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 1ones< t*ree alread5 e9isting 1ones< =*ic* are according to t*e
Secretariat to t*e Lao 2ational Committee #or Special Economic Zone 7S-2CSEZ8 most pro-
gressed
11
< =ill )e discussed )elo=.
Table *. (ecial and (ecific "ones in Lao P.D.R
No "one Location 1b2ective tatus Develo(er
A((roved
1 Sa"an-Seno SEZ Sa"annaB*et
pro"ince
Industr5
4rade
Ser"ice
Logistics
Appro"al
2..2
Lao (o"ern-
ment
2 @oten @eauti#ul
Land SEZ
Luangnamt*a
pro"ince
Logistics
4rade
Commercial
4ourism
Appro"al
2.1.
PR C*ina
% (olden 4riangle
SEZ
@oBea pro"-
ince
4ourism
4rade
Ser"ice
Appro"al
2.1.
PR C*ina
6 P*ouB*5o SEZ I*ammouane
pro"ince
4rade
Ser"ice
Industr5
Appro"al
2.1.
Lao (o"ern-
ment
; Jientiane Industrial
and 4rade SEZ
Jientiane
capital
Industr5
4rade
Ser"ice
Appro"al
2.11
PR C*ina
74ai=an8
; Jientiane Industrial
and 4rade SEZ
Jientiane
capital
Industr5
4rade
Ser"ice
Appro"al
2.11
PR C*ina
74ai=an8

$
Prime 'inisterCs !##ice Lao PDR: Decree on Special Economic Zone and Speci#ic Economic Zone< Jientiane !cto)er
2.1.< p. 6.
1.
4*e Secretariat to t*e 2ational Committee #or Special and Speci#ic Economic Zone 7S-2CSEZ8: De"elopment Strate-
g5 #or Special and Speci#ic Economic Zone in t*e Lao PDR< 2.11 / 2.2.<
*ttp:GG===.sncse1.go".laGimagesGLegalDocumentsGse1Mde"elopmentMstrateg5Meng.pd#< p. 6.
11
I)id< p. 16.
+ Regional Economic Cooperation and Integration in Asia

Longt*an* Jienti-
ane SEZ
Jientiane
capital
4ourism
Ser"ice
Appro"al
2.12
-
+ Dongp*os5 SEZ Jientiane
capital
Ser"ice
Commerce
Logistic
Appro"al
2.12
-
A Sa5set*a De"elop-
ment SEZ
Jientiane
capital
Industr5
4rade
Appro"al
2.12
-
$ 4*atluang LaBe SEZ

Jientiane
capital
Industr5
4ourism
Appro"al
2.12
-
1. 4*aB*eB SEZ

I*ammouane
pro"ince
4rade
Ser"ice
Appro"al
2.12
-
0easibilit$ studies :status 2D.2;
11 2am*euang C*ecB
Point Zone
Ka5a)ul5
pro"ince
4rade
Ser"ice
- -
12 :oua59one Zone Jientiane
capital
Ser"ice
4ourism
- -
1% 4*atluang LaBe Jientiane
capital
4rade
Ser"ice
- -
16 Culture (arden
Zone 7Dong P*os58
Jientiane
capital
4rade
Ser"ice
- -
1; 2e= 4o=n De"el-
opment Zone
2ongping
Jientiane
capital
Ser"ice
4ourism

- -
1 Speci#ic Economic
Zone #or Eco-
4ourism
KiengB*ouang 'ai
District
KiengB*ouang
pro"ince
Ser"ice
4ourism

- -
1+ 'a*ant*iSip*an-
done Zone
C*ampasaB
pro"ince
Special Economic
Zone
- -
1A @ola"enPlateu Zone C*ampasaB
pro"ince
4rade
Ser"ice
- -
1$ Jangtao Zone
7KongmeB8
C*ampasaB
pro"ince
4rade
Ser"ice
- -
2. &ocal Point Ji-
engB*am-4*asaat
@oliB*am9a5
pro"ince
Special Economic
Zone
- -
21 2ongB*ang Zone :uap*an
pro"ince
Special Economic
Zone
- -
22 :ua59a5 Point
@ridge Zone
@oBeo-
pro"ince
Ser"ice
4ourism
- -
Regional Economic Cooperation and Integration in Asia A

Esta)lis*ed in Septem)er 2..%< avan=eno !" comprises o# ++ *ectares and is geograp*i-
call5 located along Road 2o. $ 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 2ort*-East 4*ailand t*roug* Lao PDR to Da 2ang Port in
Jiet 2am. >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 1one. :o=e"er< accord-
ing to t*e S-2CSEZCs assessment< progress regarding #urt*er 1one de"elopment still #aces se"-
eral pro)lems< especiall5 related to re-compensation o# land costs< and t*e de"eloperCs 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 1one =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 PeopleCs Repu)lic o# C*ina< t*e >nited Iingdom< :ong Iong< 'acao< t*e Russian &ed-
eration< Slo"enia< Sout* Iorea< and 4*ailand< in#rastructure proDects< 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 1one 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 1one *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 1one *ad )een made more t*an a decade ago. Internationall5 recogni1ed as 0drug 1one3<
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. 2e"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 proDects )5 t*e de"eloper< suc* as an entertainment comple9< one *otel< si9 dor-

12
I)id< p. .
1%
S-2CSEZ: i)id< pp. 16-1$.
16
I)id< pp. A-$.
$ Regional Economic Cooperation and Integration in Asia

mitories< a )ricB #actor5< a small airport as =ell as electricit5< =ater and telecommunication
suppl5 s5stems. 2e9t to t*e )uild-up o# in#rastructure in t*e 1one< t*e de"eloper also pro"ided
#inancial support #or t*e construction o# a road #rom 2am Ieung to 'om "illage and 1 sc*ools
in #our 2ort*ern pro"inces. ,et< despite smoot* in"estment operations on t*e side o# t*e de"el-
oper< t*e 1one 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 1one.
15

2.2. -verall Issues of !" Pro#ra,,e
4*e reasons #or t*e per#ormance gap o# LaoCs SEZ programme range / according to S-2CSEZCs
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# 1one constructions due to insu##icient de"eloper )udgets< as =ell as
legal and land related issues. &urt*ermore< t*e t*ree alread5 constructed 1ones 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 citi1ens due to de"eloperCs pre#erence to emplo5 #oreign sta##.
16

In sum< underl5ing issues #or t*e a#orementioned de#ects can )e summari1ed 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# 1ones *ad )een inappropriate.
Limited or insu##icient go"ernment #unds #or crucial in#rastructure proDects< suc* as
road 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# 1one programmes *ad )een insu##icient.
LacB o# ci"il societ5Cs 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+-1A.
Regional Economic Cooperation and Integration in Asia 1.

2... /uture !" Directions and 0ain 1oals as !,bedded in t)e 2
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< LaoCs 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 1ones< suc* as Sa"annaB*et-Seno< Dansa"an*<
Jientiane capital< :ua59a5-4onp*eung< Ienet*ao< @oten< and 2ong*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. 2eig*)ouring coun-
tries liBe PR C*ina< 4*ailand< Jiet 2am< as =ell as ot*er ASEA2 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# LaoCs 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-
tomi1ed 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 1one #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 #rom
Sout*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 as
integral part o# t*e Cam)odia< Laos< and Jiet 2am 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 remarkale tool
for growth and -o creation around the world. .osts in /sia, especially .hina,
are rising and there is much talk of millions of laour intensive firms looking
for new regional locations.0
"1heodore 2oran, %&3%(
20

Promotion o# #oreign commerce )5 means o# setting up special economic 1ones is a centuries-
old polic5 concept pursued )5 "arious nations all o"er t*e glo)e.
21
2e"ert*eless< alt*oug* toda5
t*e set-up o# t*e #irst modern Special Economic Zone 7SEZ8 / S*annon Airport 71$;8 in Ireland
/ dates )acB more t*an ;. 5ears< t*e economic polic5 tool gains rene=ed popularit5. Since t*e
earl5 1$A.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+ 1ones in
6+ countries in 1$AN t*e International La)our !rgani1ationCs 7IL!8 data)ase recorded %<;..
1ones in 1%. countries 2...
24

4o *a"e a )etter understanding o# t*e concept as =ell as o# t*e underl5ing economic o)Decti"es<
=*ic* maBe SEZs attracti"e #or go"ernments< t*e #ollo=ing section =ill scrutini1e 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$A.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*inaCs Special Economic Zones / 4*eir De"elopment and Prospects< in: Asian Sur"e5< Jolume
26< 2um)er 71$A68< pp. %+-;6 7%A8.
22
&arole< 4*omas: Special Economic Zones / ?*at *a"e =e learnedE< in: J!K online Edition< Septem)er 2.11<
*ttp:GG===."o9eu.orgGarticleGspecial-economic-1ones-=*at-*a"e-=e-learned
23
'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.
Regional Economic Cooperation and Integration in Asia 12

..*. !"s % A 0atter of Definition
As Dorsati 'adani and ot*ers *a"e emp*asi1ed 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# 1ones t*at #eature di##erences in #orm and
#unction.
Jariances in economic terminolog5 among countries.
4*e desire o# 1one 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$A.s =ill ser"e as t*eoretical #oundation< illustrating t*e essential #ea-
tures.
SonBo 2is*itateno de#ined SEZs in t*e 1$A.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
I=an-,iu
?ong and Da"id C*u< on t*e ot*er *and< de#ined t*em as 4areas involved in the estalishment of
modern manufacturing plants inside an industrial estate, y offering suitale package of invest-

25
'adani< Dorsati: i)id< p. 1%.
26
Da)our< 2a)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$$$8< pp. 1-%% 7p. %8.
27
Ho*annson< :elena: 4*e Economics o# E9port Processing Zones Re"isited< in: De"elopment Polic5 Re"ie=< Jolume
12< 2um)er 6 71$$;8< pp. %A+-6.2 7p.%A+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
2is*itateno< SonoBo: C*inaCs Special Economic Zones / E9perimental >nits #or Economic Re#orm< in: International
and Comparati"e La= Quarterl5< 2um)er %271$A%8< pp. 1+;-1A; 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 distriution 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 susi-
dies as well as the sustantial 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..A< (oB*an ABinci and Hames Crittle #inel5 de#ined
t*em as 4one tool in a portfolio of mechanisms commonly employed to create -os, 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 1one<

31
?ong< I=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 < 2um)er 1
71$A68< pp. 1-1 7p. 18.
32
?ang< Hici and @rad)ur5< Ho*n :.: 4*e C*anging Industrial (eograp*5 o# t*e C*inese Special Economic Zones< in:
Economic (eograp*5< Jolume 2< 2um)er 6 71$A8< pp. %.+-%2. 7p. %.A8.
33
@usc*< @ert*old: OSonder=irtsc*a#ts1onen als Instrument der S5stemtrans#ormation< in: @eitrLge 1ur ?irtsc*a#ts-
und So1ialpolitiB< Jolume % 71$$28< p.A.
34
A*rens< Hoac*im and 'e5er-@audecB< Astrid: Special Economic Zones / S*ortcut or Rounda)out ?a5 4o=ards
CapitalismE< in: Intereconomics< Jolume %.< 2um)er 271$$;8< pp. A+-$A 7p. AA8.
35
&IAS: Special Economic Zones / Per#ormance< Lessons Learned< and Implications #or Zone De"elopment< ?as*ing-
ton DC 2..A< p. ;1.
Regional Economic Cooperation and Integration in Asia 16

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

In 4*omas &aroleCs 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 lieral( 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.
A. 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< 2ada: 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< 'E2A-!ECD In"estment Programme< 2o"em)er 2..$<
*ttp:GG===.oecd.orgGmenaGin"estmentG66A;A;.pd#.
Box *+ 0ain tructural /eatures of a "one
1. Zones are< primaril5< #ormall5 delimited portions o# t*e national territor5 and< se-
condaril5< legal spaces pro"ided =it* a set o# in"estment< trade< and operating rules
t*at are more li)eral and administrati"el5 e##icient t*an t*ose pre"ailing in t*e rest
o# t*e national territor5. Zones are t*ere#ore de#ined )5 a s(ecific re#ulator$ re=
#i-e. 4*is regime ma5 )e contained in one or se"eral dedicated la=s or t*roug* a
set o# measures contained in a num)er o# te9ts.
2. 4*e administration o# t*e regime usuall5 reFuires a dedicated #overnance struc=
ture< centrali1ed or decentrali1ed. 4*e attri)utes o# t*is structure "ar5 according to
t*e nature o# t*e 1one regime< t*e pre"alent administrati"e culture< t*e num)er o#
e9isting 1ones< t*e role o# t*e pri"ate sector in de"eloping and operating 1ones< and
man5 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 1one to its sources< marBets and economic "icini-
t5. E"en in countries =*ere 1ones are legal spaces< industrial or mi9ed-use acti"it5
parBs usuall5 e9ist to *ost #irms.
7E9tract #rom @aissac< Claude: i)id< p. 2;8
Regional Economic Cooperation and Integration in Asia 1

..2.*. /ree Trade "one 9Co,,ercial /ree "one:
According to 2a)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*asi1e 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# 1one is located =it*in port areas and at ot*er maDor transportation *u)s<
connected to rail=a5s or main roads. Essentiall5< operations =it*in t*e 1one 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< 2a)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$6A as an autonomous institution =it*in PanamaCs Durisdiction. 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 1one
is regarded as one o# PanamaCs 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.
1b2ectivesF6ission4
PanamaCs go"ernment *ad set up C&Z to accomplis* t*ree main o)Decti"es: 718 &ostering
economic moderni1ation< 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 PanamaCs "ast la)our #orce.
1+ Regional Economic Cooperation and Integration in Asia

Sources: *ttp:GG===.1olicol.go).pa< *ttp:GGdmce.1onali)redecolon.go).pa<
*ttp:GG===.colon#reetrade1one.com
P*$sical )*aracteristics4
Strategicall5 located at t*e Cari))ean entrance o# Panama Canal< t*e 1one acts as a gate #or
t*ree maDor 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 entrepPt 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 and
re-e9ports
2o corporate ta9 #or companies
Di"idends paid on pro#its #rom
#oreign trade operations and
#rom direct sales are not su)Dect
to a di"idend ta9
An5 incoming merc*andise
stored in or lea"es t*e #ree 1one
#or a #oreign countr5 is e9empted
#rom ta9es< c*arges< or an5 t5pe
o# tari##
Regional Economic Cooperation and Integration in Asia 1A

Sources: &IAS: i)id< p.1N Da)our< 2a)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 !xa-(les
0ree Trade
"one :)o-=
-ercial 0ree
"one;
Support trade
&acilitating o# imports
Ports o# entr5 EntrepPt and
trade-related ac-
ti"ities
?are*ousing
PacBaging
4rans-s*ipment
E9emption #rom import Fuotas
Rein"ested pro#its =*oll5 ta9 #ree
Domestic
Re-e9port
Colon &ree Zone< Panama
He)el Ali< 'auritius< Iran
Traditional
!x(ort Proc=
essin# "one

E9port manu#acturing
De"elopment o# e9port
industr5
Encla"e or
industrial 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
'ostl5
e9port
Iarac*i EPZ< PaBistanN
'asan &ree Zone< Repu)-
lic o# IoreaN S*annon<
IrelandN C*. 4aipei< 'ala5-
sia< Ien5a< :ungar5
>$brid !x(ort
Processin#
"one
E9port manu#acturing
De"elopment o# e9port
industr5
Encla"e or
industrial parB
Lig*t industr5
'anu#acturing
!t*er processing
Pro#its ta9 and regulator5 relie#< see 4raditional
EPZ
E9port
Domestic
marBet
Lat Ira)ang Industrial
Estate< 4*ailand
0ree(ort De"elopment o# trading
regimeGcentre
Di"ersi#ication o# eco-
nomic )ase
&acilitation o# trade and
imports
Entire cit5 or
Durisdiction
'ulti-use
4rade ser"ice
Industr5
@anBing
!t*ers
Simple )usiness start-up
'inimal ta9 and regulator5 restraints
&ree repatriation o# capital< pro#its and di"idends
Pre#erential interest rates
Domestic
Internal
E9port
marBets
AFa)a Special Economic
Zone< HordanN :ong-Iong<
'acao< Singapore< @a*a-
mas< @ataan< La)uan
!nter(rise
"one' !-(o=
Ger-ent'
Arban 0ree
"one
>r)an re"itali1ation
De"elopment o# S'Es in
depressed areas
Distressed
ur)an or rural
areas
'ulti-use Simpli#ied )usiness registration
Local ta9 a)atement
Reduction o# licensing reFuirements
(o"ernment mandated li)eral on *iring and #iring
Domestic Empo=erment Zone<
C*icago
in#le 0actor$
!x(ort Proc=
essin# "one
E9port manu#acturing
De"elopment o# e9port
industr5
Countr5-=ide Lig*t industr5
'anu#acturing
!t*er processing
Pro#its ta9 and regulator5 relie#< see 4raditional
EPZ
E9port
marBet
'auritius< 'e9ico< 'ada-
gascar

1$ Regional Economic Cooperation and Integration in Asia

..2.2. Traditional !x(ort Processin# "one
Hason A))ott de#ined traditional e9port processing 1ones 74EPZ8 as 4e7port enclaves within
which special economic concessions apply including an e7tensive package of incentives and very
often 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*asi1ed in *is =orB t*at t*e most common t5pe o# 4EPZ is )5 #ar t*e
industrial parB 1one< =*ic*< despite p*5sical in#rastructure incenti"es< enDo5s compre*ensi"e
polic5 inter"entions. Inter"ention pacBages usuall5 contain #iscal incenti"es< =*ic* ma5 co"er
custom 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


44
A))ott< Hason: E9port Processing Zones and t*e De"eloping ?orld< in: Contemporar5 Re"ie=< Jolume 2+.< 2um-
)er 1;+ 71$$+8< pp. 2%2-2%A 7p. 2%68.
45
Iusago< 4aBa5os*i and 41annatos< Za#iris: E9port Processing Zones / A Re"ie= in 2eed o# >pdate< Social Protec-
tion Paper< 2um)er $A.2 71$$A8< 4*e ?orld @anB< ?as*ington DC.
46
?arr< Peter (.: E9port Promotion "ia Industrial Encla"es / 4*e P*ilippinesQ @ataan E9port Pro-cessing Zone< in:
4*e Hournal o# De"elopment Studies< Jolume 2%< 2um)er 2 71$A+8< pp. 22.-261 7p. 22%8.
47
'uranda< Zororo: SeeBing Competeti"e Ad"antage in a Deepening Crisis / An In"estigation o# Zim)a)=eCs E9port
Processing Zones< in: Hournal o# A#rican @usiness< Jolume ;< 2um)er 272..68< pp. ;%-$ 7p. ;8.
Regional Economic Cooperation and Integration in Asia 2.


Box .+ ;arac)i !x(ort Processin# "one in Pa<istan
A#ter #ollo=ing a long pat* o# import su)stitution< PaBistanCs go"ernment attempted to
re"erse t*e trend )5 adDusting its de"elopment and industrialisation strateg5 to a more
e9port oriented polic5 #rame=orB )5 li)erali1ing t*e trade regime )eginning #rom t*e
1$A.s. Part o# t*e li)erali1ation attempt =as a nation=ide EPZ programme. In 1$A1< Iara-
c*i E9port Processing Zone 7IEPZ8 *ad )een t*e #irst 1one to )e esta)lis*ed under t*e
ne=l5 introduced regime.
1b2ectivesF6ission4
In order to create Do) opportunities #or PaBistanCs la)our #orce< #oster tec*nological pro-
gress< and attract #oreign direct in"estments< t*e main de"elopment o)Decti"es o# IEPZ
are 18 acceleration o# t*e national pace o# industrialisation and 28 increase o# e9port "ol-
ume. Accordingl5< it is IEPZ aut*orit5Cs mission e"er since 4[to] moili5e 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 proDects.
P*$sical )*aracteristics4
IEPZ *ad )een set up ne9t to Land*i Industrial Area< =*ic* is 1A Bilometres a=a5 #rom
Quaid-e-A1am International Airport< 2. Bilometres #rom Port Quasim< and %; Bilometres
#rom t*e recentl5 moderni1ed Iarac*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.
!li#ible Activities4
EPZA is #ocussing on #i"e priorit5 sectors< in =*ic* companies can in"est: :ig*-tec* indus-
tr5< gem and De=eller5< so#t=are< in#ormation tec*nolog5 )ased industries< and processed
engineering.
21 Regional Economic Cooperation and Integration in Asia

Sources: AB*tar< 'o*ammad :ani#: An E"aluation o# Iarac*i E9port Processing Zone / A Preliminar5
In"estigation< in: PaBistan De"elopment Re"ie=< Jolume 62 72..68< Issue 2um)er 6< pp. $2+-$6. 7p.
$2A8< *ttp:GG===.ep1a.go".pB< *ttp:GG===.paBmission-uB.go".pB
..2.. =$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# 1one is usuall5 separated into t=o parts. !ne area is a more general 1one<
=*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 1one is pre#erred )5 man5 Latin American< t*e maDorit5 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 1one< 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 import
restrictions
Relie# #rom dou)le ta9ations su)-
Dect to )ilateral agreement
Dut5 #ree imports o# mac*iner5<
eFuipment and material
&reedom #rom national import
restrictions
&ree mo"ement o# capital 2o minimum limit #or in"est-
ment
Relie# #rom national #oreign e9-
c*ange control regulations
2o sales ta9 on electricit5 and
gas )ills
!)soleteGold mac*iner5 can )e
sold in PaBistanCs domestic mar-
Bet a#ter pa5ment o# applica)le
duties and ta9es
Production oriented la)our la=
are solel5 regulated )5 t*e au-
t*orit5
Regional Economic Cooperation and Integration in Asia 22

regimes.
49
!ne prominent e9ample o# suc* a *5)rid 1one is LatIra)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*aracteri1ed 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 AssociationCs
7?EPZA8 classi#ication o# 0?ide Area Zones3 7?AZ8.
51
?AZs usuall5 capture a geograp*ic
area< =*ic* surpasses a total si1e 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 Iong< 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)Decti"e to ac*ie"e a deeper integration o# ?AZs
and t*e domestic marBet.
54


49
S*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..$< p. 21.
50
Due to insu##icient sources a"aila)le in Englis* language< t*e 1oneCs speci#ic c*aracteristics cannot )e descri)ed at
t*is point.
51
@aissac< Claude: i)id< p. 2$-%..
52
?EPZA 4a)le o# Zone Countries< in: ?EPZA !nline Plat#orm< *ttp:GG===.=ep1a.orgGa1c.*tml< accessed
2...$.2.1%.
53
?ool#re5< Sean: Special Economic Zones and Regional Integration in A#rica< 4RALAC ?orBing Paper< 2um)er 1%
72.1%8< p. %.
54
S*aB5a< 'alliBa and 'cLinden< (erard: i)id< p. 21.
2% Regional Economic Cooperation and Integration in Asia


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 1ones. La)elled )5 t*e go"erning ASEZ Aut*orit5 as so-called 0multi-
modal transportation *u)3< =*ic* is c*aracteri1ed as li)erali1ed< lo= ta9< dut5-#ree< and
multi-sector de"elopment 1one respecti"el5< it o##ers di"erse in"estment opportunities #or
entrepreneurs.
6ana#e-ent Bod$4
ASEZ is go"erned )5 an administrati"el5 and #inanciall5 autonomous institution< =*ic* is
called 0AFa)a Special Economic Zone Aut*orit53 7ASEZA8. ASEZA is responsi)le #or )ot*
t*e conceptuali1ation and implementation o# management regulations as =ell as o# de"el-
opment strategies. Consisting o# si9 ministerial-le"el commissioners< eac* go"erning
)oard mem)er is responsi)le #or one area o# operational or regulator5 acti"it5.
1b2ectivesF6ission4
According to its commissionerCs o=n statement: R4*e AFa)a Special Economic Zone is a
=orld class )usiness *u) and leisure destination on t*e Red Sea SandT acts as a de"elop-
ment dri"ing #orce #or Hordan t*at impro"es t*e Fualit5 o# li#e and prosperit5 #or t*e com-
munit5 t*roug* sustaina)le de"elopmentR. Accordingl5< t*e 1one =as designed as suc* to
718 attract in"estment )5 creating a glo)all5 competiti"e )usiness en"ironment< 728 im-
pro"e t*e communit5Cs Fualit5 o# li#e and prosperit5< and 7%8 insure continuous economic
de"elopment.
P*$sical )*aracteristics4
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.
!li#ible Activities4
ASEZ o##ers a "ariet5 o# in"estment opportunities< co"ering )usiness sectors liBe tourism<
ser"ices< and industr5 7detailed list at *ttp:GG===.Dordanin"estment.com8.
Regional Economic Cooperation and Integration in Asia 26

Source: *ttp:GG===.aFa)a1one.com
..2.@ !nter(rise "one' !,(oAer,ent' Brban /ree "one
0Enterprise3< 0Empo=erment3< and 0>r)an &ree Zones3 all #ollo= common economic polic5
o)Decti"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"itali1e t*e econom5 o# depressed municipals. >suall5< industri-
ali1ed 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 Processing
Zones / A Sur"e5 o# 4rends< ?orBing Paper< IL! 2..A< p. 6.
56
A*rens< Hoac*im and 'e5er-@audecB< Astrid: i)id< p. A$.
Incentives
&lat ;V income ta9 on net pro#it
e9emption #rom annual land and
)uilding ta9es on utili1ed prop-
ert5
E9emption #rom ta9es on distri-
)uted di"idends and pro#its
Dut5-#ree import o# goods in
commercial Fuantities #rom t*e
national customs territor5 and
o"erseas
2o #oreign eFuit5 restrictions on
in"estments
2o #oreign currenc5 restrictions &ull repatriation o# pro#its and
capital
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 or
sale
2; Regional Economic Cooperation and Integration in Asia


Box @+ C)ica#o !,(oAer,ent "one
Introduced in 1$$;< t*e C*icago Empo=erment Zone 7CEZ8 is one o# t*e a=arded cities
under t*e #ederal empo=erment 1onesGenterprise communitiesC programme. 4*e pro-
gramme constitutes a t*ree-tier go"ernment strateg5 / #ederal< state and local le"el /
comprising o# partners*ips #or stimulating social de"elopment and social gro=t* in dis-
tressed ur)an centres and rural parts o# t*e >nited States.
6ana#e-ent Bod$4
4*e cit5 go"ernment o# C*icago is responsi)le #or operating as =ell as implementing t*e
programme. A state agenc5 called 0EZGEC Coordinating Council3 7EZECCC8 *as )een as-
signed as leading aut*orit5 #or 1one de"elopment< distri)ution o# #unding and a=arding
proDects. EZECCC consists o# %$ mem)ers< =*ic* represent communities in t*e 1one< )usi-
nesses< as =ell as o##icials #rom all t*ree go"ernment le"els and related neig*)our*oods.
1b2ectivesF6ission4
!##ering a "ariet5 o# in"estment incenti"es #or )usinesses< =*ic* are located =it*in t*e
)oundaries o# t*e 1one< CEZ targets at tacBling po"ert5 and *ig* unemplo5ment rates< )5
seeBing to re"itali1e t*e econom5.
P*$sical )*aracteristics4
?it* a com)ined population o# 1$$<$%A citi1ens 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.
Regional Economic Cooperation and Integration in Asia 2


Sources: *ttp:GG===.cit5o#c*icago.org< *ttp:GGportal.*ud.go"< *ttp:GGeconomics-#iles.pomona.edu
..2.C 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# 1one 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 2e= AgendaE< in: Carter< Connie and
:arding< Andre=: Special Economic Zones in Asian 'arBet Economies< 2e= ,orB 2.11< pp. 1;-%+ 7p. 1+8.
Incentives
CEZCs 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 1A to
%$ 5ears old< =*o =orBs and
li"es in CEZ
Allo=s )usiness o=ners to re-
co"er all or parts o# certain
propert5 costs up to a speci#ic
limit
Allo=s CEZ )usinesses to rollo"-
er certain gains #rom Fuali#ied
CEZ asset sales
Lo= interest CEZ #acilit5 )onds
are issued )5 local or a national
go"ernments CEZ )usiness in
order to #inance Fuali#ied 1one
propert5
Quali#ied Zone Academ5 @onds
allo= state or local go"ernments
to issue no interest )onds to
0Fuali#ied 1one academics3 in
CEZ
2+ Regional Economic Cooperation and Integration in Asia

>. !"s fro, an !cono,ic Pers(ective % /unctions and -bDectives
4In this current era of gloalisation, 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 noticeale 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
1one 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 4eing 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
1ones 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# 1ones =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*amaraDaBs*i< t*e
primar5 o)Decti"e o# 1one strategies is to attract #oreign in"estment in order to:
Increase and di"ersi#5 e9ports.
Create Do)s and raise li"ing standards.
4rans#er impro"ed tec*nolog5 to local econom5 and impro"e *uman resources.

58
Aggar=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< 2um-
)er 1;; 72..;8< p. 1.
59
Iarunaratne< C*andana and A)a5aseBara< As*ani: Impact o# EPZs on Po"ert5 Reduction and 4rade &acilitation in
Sri LanBa< >2ESCAP AR42e4 ?orBing Paper< 2um)er 1%6 7!cto)er 2.1%8< p. .
60
I)id.
61
AB*tar< 'o*ammad :ani#: An E"aluation o# Iarac*i E9port Processing Zone / A Preliminar5 In"estigation< in:
4*e PaBistan De"elopment Re"ie=< Jolume 62< 2um)er 6 72..%8< pp. $2+-$6. 7p. 2+$8.
62
Hauc*< :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)ani1ation< Jolume 16< 2um)er 1 72..28< pp. 1.1-11% 7p. 1.28.
Regional Economic Cooperation and Integration in Asia 2A

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 organi1ations and )odies suc* as ?@< IL!< t*e !rganisa-
tion #or Economic Co-operation and De"elopment 7!ECD8< and "arious >nited 2ations 7>28
agencies< descri(tive case studies account #or t*e maDor 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-
ali1ation< 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 1one 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)Decti"es:
Integrating t*e Lao econom5 in t*e regional and international marBets )5 increasing
and di"ersi#5ing e9ports.

63
A*rens< Hoac*im and 'a5er-@audecB< Astrid: i)idN 4*amaraDaBs*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< pp. 1.-6..
64
As alread5 re#erred to in c*apter 1< t*e classi#ications in regards to SEZs are not al=a5s clearl5 distinguis*ed and
used interc*angea)l5. 2e"ert*eless< researc* during t*is time mainl5 #ocused on 1ones< =*ic* =ere designed to
create #a"oura)le e9port conditions #or producers and ma5 t*ere#ore #all under t*e categories traditional EPZ
or *5)rid EPZ.
65
Amira*madi< :oos*ang and ?u< ?eiping: E9port Processing Zones in Asia< in: Asian Sur"e5< Jolume %;< 2um)er
$ 71$$;8< pp. A2A / A6$ 7p. A2$8.
66
Amira*madi< :oos*ang and ?u< ?eiping: i)id< p. A%..
2$ Regional Economic Cooperation and Integration in Asia

Contri)uting to a rapid social-economic de"elopment )5 generating emplo5ment<
t*ere#ore impro"ing li"ing standards.
'oderni1ing 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 maDor target #or LaoCs 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# 1ones.
67

4*e #irst attempt to anal5se =el#are implications o# EPZs =as made )5 Ioic*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


67
HenBins< 'auricio< EsFui"el< (erardo and LarraXn @.< &elipe: E9port Processing Zones in Central America< :a"ard
Institute #or International De"elopment< De"elopment Discussion Paper< 2um)er 6 71$$A8< p. 11.
68
:amada< Ioic*i: An Economic Anal5sis o# Dut5-&ree Zone< in: Hournal o# International Economics< 2um)er 1%
71$A28< pp. 6;-6.
Regional Economic Cooperation and Integration in Asia %.

In 1$A2< Carl :amilton and Lars S"ensson corrected and e9tended :amadaCs 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 :amadaCs
#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 impact
regardless o# t*e location. 2e"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< Iar-,iu
?ongCs researc* in 1$A indicated t*at )ot* studies used dissimilar assumptions concerning
=*at Bind o# good =as produced in t*e 1one< =*at good =as used to repatriate #oreign and
domestic production #actors< and i# ta9es =ere imposed on pa5ments. A crucial #inding o#
?ongCs =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 is
also utili1ed #or #actor repatriation.
70

Alt*oug*< ?ongCs #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. Ia1 '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=aCs #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. 2e"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%< 2um)er 1-2 71$A28< pp. 6;-6.
70
?ong< Iar-,iu: International &actor 'o"ements< Repatriation and ?el#are< in: Hournal o# International Economics<
Jolume 21< 2um)er %-6 71$A8< 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< Ia1: >nemplo5ment and t*e &ormation o# Dut5 &ree
Zones< in: Hournal o# De"elopment Economics< Jolume 2< 2um)er 2 71$A+8< pp. %$+-6.;N C*aud*uri< Datta and
Ad*iBari< Smita: &ree 4rade Zones =it* :arris-4odaro >nemplo5ment / A 2ote on ,oung-'i5agi=a< in: Hournal
o# De"elopment Economics< Jolume 61< 2um)er 1 71$$%8< pp. 1;+-12N Din< 'usle*-du: E9port Processing
Zones and @acB=ard LinBages< in: Hournal o# De"elopment Economics< Jolume 6%< 2um)er 2 71$$68< pp. %$-
%A;.
%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*asi1ed< 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)Decti"es<
=*ic* go"ernments seeB to ac*ie"e )5 introducing national 1one 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# Iorea< 'ala5sia< and t*e P*ilippines during t*e 1$A.s )5
comparing t*e results o# *is case studies =it* *5pot*etical results )ased on t*e assumption
t*at no 1one 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< Ia1: A Reconsideration o# t*e ?el#are Economics o# a &ree-4rade Zone< in: Hournal o# International
Economics< Jolume 21< 2um)er %-6 71$A8< pp. %%+-;..
73
HenBins< 'auricio< EsFui"el< (erardo and LarraXn @.< &elipe: i)id< p. 1%.
74
I)id< p. 16.
75
Pu)lis*ed =orBs include #or e9ample: ?arr< Peter: E9port Promotion "ia Industrial Encla"es / 4*e P*ilippineCs
@ataan E9port Processing Zone< in: 4*e Hournal o# De"elopment Studies< Jolume 2%< 2um)er 2 71$A+8< pp. 22.-
261N ?arr< Peter: E9port Processing Zones and 4rade Polic5< in: &inance and De"elopment< Jolume 2< 2um)er
2 71$A$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. ++-A1.
In academic discourse< forei#n exc*an#e earnin#s #rom EPZ acti"ities enDo5 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*asi1ed< #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< 2um)er 1 71$A$8< pp. ;-AA 7p. +8.
Box C+ 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 and
capital 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 itself3.
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 )anBCs e9c*ange rate
e9ceeds t*e actual "alue o# t*e domestic currenc5< t*e domestic "alue-added o# t*e currenc5
con"ersion constitutes a positi"e net )ene#it #or domestic =el#are.
78

@5 emp*asi1ing to seeB e-(lo$-ent =*en esta)lis*ing EPZs< a go"ernmentCs 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 1one are eFui"alent to or slig*tl5 e9ceeding t*e =age
le"els in t*e rest o# t*e domestic econom5. Consistent =it* ?arrCs #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. 2e"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 actual transfer of tec*nolo#$ "aries #rom case to case< administrators o# 1ones
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 summari1ed *is #indings: 4)hen +<, firms receive a
reate 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


77
I)id< p. ++.
78
I)id.
79
I)id< pp.+A-+$.
80
I)id< p. +$.
81
I)id< p. A..
82
I)id< pp. +$-A..
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 susidy.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 maDorit5 o#
companies are #oreign< and< according to ?arrCs inter"ie=s =it* managers< 4few would have
invested in the host country without the +<, incentives0.
87
2e"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 1one site as =ell as necessar5 in#rastructure around it< its maintenance< and
administration cost.
89
,et< it is important to add to ?arrCs researc* #indings #rom t*e 1$A.s
t*at< according to a more recent ?orld @anB pu)lication< an important #eature o# current 1one
o=ners*ip arrangements and de"elopment approac*es are t*e increasing num)er o# 1ones<
=*ic* are de"eloped< o=ned< and operated )5 t*e pri"ate sector. Ie5 #actors )e*ind t*is trend
are< on one side< t*e impression t*at pri"ate 1ones ac*ie"e a )etter per#ormance t*an t*e ma-
Dorit5 o# pu)lic ones< and< on t*e ot*er side< t*e general lacB o# pu)lic #inancial resources #or
1one esta)lis*ment. 4*us< #ormall5 institutionali1ed pu)lic-pri"ate partners*ip approac*es

83
I)id< p. A..
84
I)id.
85
I)id.
86
I)id.
87
I)id.
88
I)id.
89
I)id< p. A1.
%; Regional Economic Cooperation and Integration in Asia

*a"e ser"ed as catal5st to reduce net cost and #acilitate 1one 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 1one de"elopment groups< de"elopment o# )etter land
useGo=ners*ip la=s and regulations< as =ell as t*e adoption o# en#orcea)le 1oning
and land use plans.
@uild-operate-trans#er and )uild-o=n-operate approac*es o# on-site and o##-site 1one
in#rastructure and #acilities< =it* go"ernment guarantees andGor #inancial support.
Contracting pri"ate management #or go"ernment o=ned 1ones< or lease o# go"ern-
ment 1one assets )5 a pri"ate operator.
EFuit5-s*i#ting arrangements in =*ic* case a pri"ate contract manager o# a go"ern-
ment 1one 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*asi1ed< 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 countr5Cs economic polic5 c*oices.
93

Studies< suc* as o# Ann :arrison and AndrYs RodrXgue1-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= AmengualCs #indings< *a"e an impressing im-
pact on a countr5Cs e9port per#ormance.
95
:o=e"er< as Hamie 'cCallum pointed out< t*e posi-

90
I)id< p. 1A.
91
I)id< pp. 1A-1$.
92
?ood< Adrian and @erge< Iersti: E9porting 'anu#acturers: :uman Resources< 2atural Resources and 4rade Poli-
c5< in: Hournal o# De"elopment Studies< 2um)er %+ 71$$+8< pp. %;-;$ 7%+8N ?ood< Adrian: !penness and ?age
IneFualit5 in De"eloping Countries / 4*e Latin American C*allenge to East Asian Con"entional ?isdom< in:
?orld @anB Economic Re"ie=< 2um)er 11 71$$+8< pp. %%-;+ 7p. %A8.
93
Iarunaratne< 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 AR42e4 Con#erence on Empirical and Polic5 Issues o# Integration in Asia and t*e
Paci#ic< 1-2 2o"em)er 2.12< Colom)o< Sri LanBa< p. +.
94
:arrison< Ann and RodrXgue1-Clare< AndrYs: 4rade< &oreign In"estment< and Industrial Polic5 #or De"eloping
Countries< 2ational @ureau o# Economic Researc* 72@ER8 ?orBing Paper< 2um)er 1;21 7August 2..$8< p. +;.
95
'il)erg< ?illiam and Amengual< 'att*e=: i)id< p. 11.
Regional Economic Cooperation and Integration in Asia %

ti"e long-term impact o# EPZs on a countr5Cs economic de"elopment is depended on t*e go"-
ernmentCs a)ilit5 to sei1e #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 speciali1e 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)ali1ed 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 ?@Cs glo)al report on SEZs in 2..A< 4+<,s account for a significant share of
manufactured e7port in most regions0.
98
In 2..; #or e9ample< 1one 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 2icaragua 7+$.6 V8< t*e Dominican Repu)lic 7++ V8 and Panama
7+ V8.
Asia and t*e Pacific4 @anglades* 7+;.V8< Sri LanBa 7+.1V8< t*e P*ilippines 7+A.2V8
and PaBistan 7;..%V8.
6iddle !ast and Nort* Africa4 Le)anon 7%.%V8< @a*rain 7A.$V8 and 'orocco
71V8.
ub=a*aran Africa4 (*ana 722.6V8< 'adagascar 7A.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 I.: E9port Processing Zones / Comparati"e Data #rom C*ina< :onduras< 2icaragua and Sout*
A#rica< IL! ?orBing Paper< 2um)er 21 72.118< p. 16.
97
Rogall< :olger: AuZen*andelst*eorien / Jorteile der (lo)alisierung< in: Rogall< :olger: JolBs=irtsc*a#tsle*re #[r
So1ial=issensc*a#tler< pp. %11-%22 7p. %1$8.
98
&IAS: i)id< p. %;.
99
I)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 elements
and policies required for flourishing the +<,s. 1he incentive 4package0 was attractive. 1here was
an aundant and educated pool of laour availale. 1he government was stale, 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*< scrutini1ing crucial #actors #or success#ul e9port and
1one 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 si1e o# an EPZ *ad no su)stantial impact on 1one per#ormance< t*e p*5sical
in#rastructure connecting t*e 1one 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# 1ones and
in#rastructure #acilities. Locating an EPZ in a strategic position< suc* as close to maDor 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# 1ones *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 1one success.
105




101
'adani< Dorsati: i)id< p. +6.
102
I)id< p. +;.
103
Aggar=al< Arad*na: i)id< p. A%.
104
I)id.
105
I)id< p. A6.
Regional Economic Cooperation and Integration in Asia %A

>.> !,(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# >2ID! 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 1one programmes.
108
Especiall5 in Asia< EPZs ac*ie"ed out-
standing emplo5ment generation per#ormance =it* Iorea 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 Ien5a< =*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 1one 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 1ones. '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<
2um)er $+ 72..;8< p. 1+.
107
>2 Industrial De"elopment Report 2..$ / @reaBing In and 'o"ing >p: 2e= 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 2e= E9porting Coun-
tr5 / 4*e Case o# Sri LanBa< in: 4*e ?orld Econom5< Jolume 1A< 2um)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$A6< pp.$-$6 7p. +.8.
110
Hauc*< :er)ert: i)id< p. 11..
111
Rol#e< Ro)ert< ?ood=ard< Douglas and Iagira< @ernard: &ootlose and 4a9 &ree / Incenti"e Pre#erences in Ie-
n5an E9port Processing Zones< in: A#rican Hournal o# Economics< Jolume +2< 2um)er 6 72..68< pp. +A6-A.+ 7p.
+A8.
112
See Rol#e et al. and Hauc*.
%$ 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*asi1ed 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 critici1ed 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 1ones in @anglades*
116
< India
117
or Sri LanBa
118
. 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# =orBerCs
organi1ations representation in EPZs as 4undermining the aility 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 organi1e and Doin organi1ations 7e9amples: @anglades*< Do-

113
:e51er< 2oeleen: Daug*ters in Industr5 / ?orB< SBills and Consciousness o# ?omen ?orBers in Asia< Asian and
Paci#ic De"elopment Centre< Iuala Lumpur< 1$AAN Dunn< Leit*: Education o# ?omen ?orBers in t*e Carri)ean
E9port Processing Zones / C*allenges and !pportunities< in: La)our Economics< 2um)er $A 71$$68N Ii)ria<
2a1li: Culture< Social Class< and Income Control in t*e Li"es o# ?omen (arment ?orBers in @anglades*< in:
(ender and Societ5< Jolume $< 2um)er % 71$$;8< pp.2A$-%.$.
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< 2um)er 1$6 72..+8< p.
1..
115
P*illips< (ar5 and Ka)a< HantDie: 4*e ?orBers\ Stor5 / La)our Rig*ts Jiolations at :udson\s @a5 Suppl5 &actories
in 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!< 2e= Del*i 2..1< pp. 6.-A.
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)o
Re"ie=< Jolume 1. 71$$18< pp. 62-;$.
119
IL!: Emplo5ment and Social Polic5 in Respect o# E9port Processing Zones 7EPZs8< Committee on Emplo5ment
and Social Polic5< 2At* Session< (ene"a 2..%< p.+.
Regional Economic Cooperation and Integration in Asia 6.

minican Repu)lic< 2ami)ia< 2igeria< 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 capaility implying that the capaility 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 capaility 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 1ones are in. In t*e initial p*ase o# national
economic de"elopment< an EPZ is usuall5 c*aracteri1ed )5 assem)l5-t5pe< la)our-intensi"e<
and lo=-sBill productions. Crucial contri)utions o# t*e 1one 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 1one< 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 Iarima !mar and ?illiam Stoe"erCs 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< IartiBo< 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.
61 Regional Economic Cooperation and Integration in Asia

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 countr5Cs industries mattered #or t*e
magnitude and intensit5 o# tec*nological progress in EPZs: 4)hile most +<,s are capale of
generating foreign e7change earnings and employment, relatively few have een ale 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 numer of suppliers availale 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 emodied deeply in people or organi5ations. 2aking good
use of new technologies requires the delierate uilding of such tacit capailities "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 attriuted largely to appropriate synchroni5ation of elements of in-
dustry-specific policies with the institutions necessary to motivate learning among e7porters0.
129


124
!mar< Iarima 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+< 2um)er 1 72..A8< pp. 1%%-1;$ 7p. 16%8.
125
I)id< p. 1;2.
126
Sc*ranB< Andre=: Read5-to-?ear De"elopmentE &oreign In"estment< 4ec*nolog5 4rans#er< and Learning )5
?atc*ing in t*e Apparel 4rade< in: Social &orces< Jolume A%< 2um)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 7mai1e and grapes8< C*ile:
salmon and =ine production< Ien5a: #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#ull5
adapted ne= tec*nologies to catc* up =it* de"eloped countries in a particular industr5.
128
C*andra< Jandana and Iol"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%.
Regional Economic Cooperation and Integration in Asia 62

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< and technological 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 onl5
to 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 capailities, foreign company-led
e7ports are likely to remain technologically stagnant, leaving developing countries unale to
progress eyond the assemly 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 rate
and modest in#lation.
Pro(ert$ ri#*ts and rule of laG4 ?it*out e9ception< propert5 rig*ts =ere preser"ed
and pla5ed an important role in attracting '2Cs =it* ne= tec*nologies to produce
e9port-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*e
econom5.
)o--on #oal tar#etin#4 E9port-led de"elopment< #oreign e9c*ange accumulation or
e9port gro=t*.
Political vision4 Speci#ic industries enDo5ed strong political commitment to tec*nolo-
gical adaption.
ReGardin# Ginner' abandonin# losers4 2urturing o# relati"el5 #ast gro=ing indus-
tries t*roug* direct or indirect pu)lic assistance to adapt ne= tec*nologies and
ac*ie"e e9porta)ilit5< penali1ing poor per#ormers )5 letting t*em #all out o# e9port
competition.
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$.
6% Regional Economic Cooperation and Integration in Asia

)o-(etition4 (o"ernments "alued competition among domestic and #oreign compa-
nies< multinational corporations 7'2Cs8 =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 trained
engineers and ot*er tec*nical and managerial sBills.
132

>.C 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 sucontracting ar-
rangements with domestic firms.0
"1ayakoshi Cusago and ,afiris 15annatos, 3FFG(
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= AmengualCs "alid o)Dection< t*e underl5-
ing issue o# EPZs is t*at< in*erentl5< t*e5 resist suc* linBs. 4*e5 emp*asi1ed correctl5: 4Hor
one, +<,s are generally created precisely to attract foreign firms ecause domestic firms are not
competitive internationally and are not ale 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
Iusago< 4aBa5os*i and 41annatos< Za#iris: E9port Processing Zones / A Re"ie= in 2eed o# >pdate< 4*e ?orld
@anB< Social Protection Discussion Paper< 2um)er $A 71$$A8< p. 12.
134
HenBins< 'auricio 72..;8: i)id< p. 26.
Regional Economic Cooperation and Integration in Asia 66

material inputs. Ion-+<, 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 'adaniE 41he tariff free inputs for the firms in the 5one act as import susidies 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* IoreaCs
'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 1ones. In t*is
case< input purc*ases #rom t*e domestic econom5 increased #rom 1%V in 1$+2 to %2V in
1$A6< remaining at *ig* le"els t*roug*out t*e A.s.
137

E9amples liBe Sout* Iorea 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:
B*en !P" activit$ focuses on -ore *i#*=tec* sectors suc* as electronics rat*er
t*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 AndrYs
RodrXgue1-Clare< 2..$8
138
.
B*en t*e do-estic -arEet si5e is lar#er. Si1e implies not onl5 t*e e9istence o# a
domestic marBet< )ut also t*e a)ilit5 to support large-scale production and a large in-
#rastructure. Andre= Sc*ranB 72..68
139
emp*asi1ed t*e #actor in discussing 'e9icoCs
e9port success and to ela)orate t*e di##iculties o# )uilding linBs to t*e domestic econ-
om5 =*en t*e econom5 is small and lacBs t*e potential #or di"ersit5 t*at linBages can
)ring.
B*en t*e baseline level of industrial develo(-ent of t*e econo-$ is *i#*er.
Dorsati 'adani 71$$$8
140
pointed out t*at t*e creation o# )acB=ard linBages seems
largel5 conditional on t*e industrial )ase o# t*e nation. In countries =*ic* did not al-
read5 enDo5 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 1ones 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. 2A.
137
4aBa5os*i< Iusagoand 41annatos< Za#iris: i)id< p. 12.
138
:arrison< Ann and RodrXgue1-Clare< AndrYs: i)id.
139
Sc*ranB< Andre=: i)id.
140
'adani< Dorsati: i)id.
6; Regional Economic Cooperation and Integration in Asia

B*en t*e state is -ore activist and focused on econo-ic develo(-ent Git* t*e
custo-s area t*at is outside t*e 5one. 4*is point emerges not onl5 in t*e discussion
o# East Asian 2e=l5 Industriali1ed Countries< )ut also in t*e cases o# t*e Dominican
Repu)lic< Costa Rica< and 'auritius. 4*ese states acti"el5 pursued an industrial polic5
t*at in"ol"ed care#ul management o# EPZs and gradual de"elopment o# domestic a)-
sorpti"e capacit5. Claude @aissac 72.118
141
#or instance emp*asi1ed 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.
Regional Economic Cooperation and Integration in Asia 6

@. Case tud$+ )en7)en as Best Practice 0odel
4.hinas roust 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 attriutale to its unfailing commitment to wide-reaching domestic
reform aimed at moderni5ation and growth4
"*upachai <anitchpakdi, GeneralsekretJr KI.1/6, %&&D(
142

In academic literature and pu)lications o# international organi1ations aliBe< t*e PeopleCs Re-
pu)lic o# C*inaCs SEZ programme is regarded as outstanding e9ample o# *o= to success#ull5
implement 1ones. 4*ere#ore< t*e #ollo=ing case stud5 =ill e9emplaril5 anal5se t*e speci#ic
c*aracteristics and polic5 measures o# S*en1*en SEZ in (uangdong pro"ince. Set-up as one o#
C*inaCs #irst SEZs in t*e eig*ties< toda5 S*en1*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# 6A )illion >S-Dollars< %.
)illion >S-Dollars o# #oreign direct in"estment< and % million Do)s in 2..%.
144

Since t*e Lao go"ernment is still in t*e initial stages o# setting-up 1ones< particular #ocus =ill
)e gi"en to t*e "er5 )eginnings during t*e 1$A.s. @ased on e9pert inter"ie=s and pu)lis*ed
=orBs< t*e particular #eatures regarding t*e o"erall economic re#orm conte9t< implemented
policies< and institutional design =ill )e *ig*lig*ted in order to pro"ide *5pot*eses #or t*e Lao
SEZ strateg5.
@.* !,beddedness of !"s in C)inas -(en Door Polic$
In 1$+A< 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< @eiDing International &orum< 2o"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..
6+ Regional Economic Cooperation and Integration in Asia

oriented economic reforms in a controlled economy0.
145
2ot 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 Dust certain segments. In Deng KiaopingCs =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 lieralise 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 &uDian 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$A.< S*en1*en< Z*u*ai< and S*antou in
(uangdong pro"ince =ere designated as SEZs #ollo=ed )5 Kiamen in &uDian pro"ince in !cto-
)er 1$A.. 4*e term 0SEZ3 =as selected a#ter lengt*5 semantic discussion and intellectual de-
)ate< =it* SEZs )eing conceptuali1ed 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 -bDectives
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 estalishments 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*inaCs Rapid De"elopment<
4*e ?orld @anB Polic5 Researc* ?orBing Paper< 2um)er ;;A% 72.118< p.A.
146
I)id.
147
4antri< 'alini: C*inaCs Polic5 #or Special Economic Zone< in: India Quarterl5< Jolume A< 2um)er % 72.128< pp.
2%1-2;. 7p. 2%18.
148
,eung< ,ue-man< Lee< Hoanna and Iee< (ordon: C*inaCs Special Economic Zones at %.< in: Eurasian (eograp*5
and Economics< Jolume ;.< 2um)er 2 72..$8< pp. 222/6. 7p. 22%8.
149
?ong< I=an-,iu: C*inaCs Special Economic Zone E9periment / An Appraisal< in: (eogra#isBa Annaler Series @<
:uman (eograp*5< Jolume $< 2um)er 1 71$A+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$A+< p. 2.1.
151
Regulations on Special Economic Zones in (uangdong Pro"ince< August 1$A.< in: Legislati"e A##airs !##ice o# t*e
State Council: La=s and Regulations o# t*e PeopleCs Repu)lic o# C*ina< @eiDing 2..;.
Regional Economic Cooperation and Integration in Asia 6A

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 I=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 represented
a capitalist concept #rom t*e ?est. 4*ese 1ones 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#erential
treatments to )e gi"en to in"estors setting up )usiness in areas adDacent to )ut outside
t*e )oundaries o# SEZs. 4*is applies< o# course< onl5 to undertaBings t*at t*e C*inese
considered 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< Doint "enture< coopera-
ti"e production< intermediate processing and compensation trade.
153

@.. )en7)en !"
4*e S*en1*en Special Economic Zone 7SSEZ8 =as at t*e top o# C*inaCs SEZ *ierarc*5< )eing
t*e largest o# t*e R&our ?indo=sR. 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*inaCs Special Economic Zones< in: @erBele5 Hournal o# La=< Jolume 2< 2um)er 2
71$A68< pp. %+-%$+ 7%+A8.
153
?ong< I=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 <
2um)er 1 71$A68< pp. 1-1 7p. %8
154
Sit< Jictor: C*inaCs E9port-!riented !pen Areas / 4*e E9port Processing Zone Concept< in: Asian Sur"e5< Jolume
2A< 2um)er 71$AA8< pp. 1-+; 7+18.
6$ Regional Economic Cooperation and Integration in Asia

@...* Le#al /ra,eAor<' 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* 2a-
tional PeopleCs Congress in August 1$A.< 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 @eiDing 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 1ones.
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 Compan5
158
< 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*orit5
160
to:
Dra= up de"elopment plans and organi1e t*eir implementation.
E9amine and appro"e t*e in"estment proDects 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 organi1ation.
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. %A..
156
!)orne< 'ic*ael: C*inaCs Special Economic Zones< !ECD< 1$A p. $A.
157
Regulations on Special Economic Zones in (uangdong Pro"ince: i)id< Art. % and Art. 26.
158
According to Article 2; o# (uangdongCs SEZ regulations< t*e (uangdong Pro"incial SEZ De"elopment Compan5
=as set up to suit t*e e9panding economic acti"ities in t*e 1ones. Its responsi)ilities included: Raising #unds
and *andling trust in"estment )usinesses< operating< or Doining in"estors in operating< rele"ant enterprises in
t*e 1ones< acting as agent #or in"estors in transactions relating to sales and purc*ases in trade =it* t*e interior<
and pro"iding ser"ices #or )usiness discussions.
159
Regulations on Special Economic Zones in (uangdong Pro"ince: i)id< Art. .
160
2is*itateno< SonoBo: C*inaCs Special Economic Zones / E9perimental >nits #or Economic Re#orm< in: Interna-
tional and Comparati"e La= Quarterl5< Jolume %2< 2um)er 1 71$A%8< pp. 1+;-1A; 7p. 1++-1+A8.
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 organi1ational 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 and
C*inese in"estors coming to t*e SEZ. In t*e case o# S*en1*en< t*e De"elopment Compan5 *ad
t*e responsi)ilit5 #or locating appropriate C*inese partners #or Doint "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
1one< 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*en1*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 Iong Special Administrati"e Region. :a"ing )een one o# t*e largest
SEZs< t*e total 1one area comprised o# %2+ BmU< o# =*ic* $A BmU =ere possi)le sites #or con-
struction proDects< 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*en1*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 proDects 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 proDects =ere carried out:
164

In 1$A;< t*e construction o# t*e deep-sea port C*i=an *ad )een #inali1ed.
In 'arc* 1$A+< t*e construction o# an electric rail=a5 line #rom S*en1*en to (uang-
1*ou< co"ering 16+ Bm< *ad )een completed< t*ere#ore trans#orming t*e cit5 into one
o# t*e maDor tra##ic Dunctions )et=een :ong Iong and (uang1*ou< =*ic*< in 1$A+
alone< recorded si9 million tra"ellers.

161
Crane< (eorge: 4*e Political Econom5 o# C*inaCs Special Economic Zones< 2e= ,orB 1$$.< p. ;%.
162
Stolten)erg< Cl5de: i)id< p. 62.
163
Regulations on Special Economic Zones in (uangdong Pro"ince: i)id< Art. ;.
164
Sc*r5en< Rainer: :ong Iong und S*en1*en / Ent=icBlungen< Jer#lec*tungen und A)*LngigBeiten< :am)urg
1$$2< pp. 1;;-1;$.
;1 Regional Economic Cooperation and Integration in Asia

Roug*l5 1.. roads encompassing a total lengt* o# 2.A BmU *ad )een constructed<
connecting S*en1*en to (uangdong pro"ince and :ong Iong.
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 Iong and S*en1*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*asi1ed in t*e regulations o# SEZs in (uangdong pro"ince: 41he
special 5ones shall provide investors with a scope of operation, create favourale operating con-
ditions and guarantee them stale usiness sites. Investors may estalish, 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$A6< t*e go"ernment *ad made di##erent t5pes o# incenti"es ap-
plica)le to "arious proDects and particularl5 *ig*er incenti"es =ere gi"en to t*ose Doint "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%A.
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 1one 71$A.-1$A28<
)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 1one #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 Iong and
'acao =orBers and sta## mem)ers o# enterprises can )e remitted a)road
t*roug* t*e @anB o# C*ina or ot*er )anBs located in t*e 1one< 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 -1A.
;% 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 uccessI
In order to gain insig*t into t*e Fuestions =*et*er and =*5 S*en1*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 *ost
econom5. Su)seFuentl5< t*e second section =ill discuss t*e particular success #actors o#
S*en1*en SEZ polic5 )ased on t*e results o# e9pert inter"ie=s
170
.







170
IntervieG (artner: 18 Ban# "*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# &oreign
4rade and International &inance Researc* Centre o# C*inese Academ5 o# Social SciencesN 28 Professor Hu
Hianxian#: E9pert #or economic gro=t*< regional economics< and t*e political econom5 o# institutions and de-
"elopment at Sun ,at-sen >ni"ersit5< (uang1*ouN and %8 Professor Iuan Ii-in#: Deput5 Director< C*ina Cen-
tre #or Special Economic Zone Researc* at S*en1*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 1one< in"estments )5 #oreign companies
rose steadil5 )eginning #rom 1$A1.
171

Source: S*en1*en Special Economic Zone ,ear)ooBs 1$+$-1$A+< C*ina 4rade and In"estment< Hul5
1$AA< in: Sc*r5en< Rainer: i)id< p. 16%.
Accordingl5< starting =it* + eFuit5 Doint "entures 7EHJ8< %. cooperati"e Doint "entures 7CHJ8<
and no companies< =*ic* =ere #ull5 o=ned )5 #oreign in"estors< in 1$+$< S*en1*en SEZ ac-
counted )5 1$A+ #or a total o# 1<.$ EHJs< A$. CHJs< and $+ #irms o=ned )5 #oreigners 7see
ta)le ;8. Simultaneousl5< t*e num)er o# contracts< =*ic* *ad )een concluded )et=een C*i-
nese companies and #oreign in"estors< mainl5 #rom :ong Iong< increased #rom 1+. in 1$+$ to
a total o# <1+$ in 1$AA.

Table C+ Nu,ber of Contract Conclusions Ait) /orei#n Investors in )en7)en' *F2F 4 *FGG
Iear Nu-ber Iear Nu-ber
1$+$ 1+. 1$A6 %<%A2
1$A. 6+% 1$A; 6<+.A
1$A1 1<.;1 1$A 6<$6+
1$A2 1<%6 1$A+ ;<6A;
1$A% 2<;12 1$AA <1+$
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' *F2F4*FG2
Iear Total !Juit$ 2oint
ventures
)oo(erative
2oint ventures
0ir-s G*oll$ oGned b$
forei#n investors
1$+$ %+ + %. .
1$A. %% 6 26 ;
1$A1 +. 1% %$ 1A
1$A2 11 6+ A
1$A% 2;% $2 16$ 12
1$A6 %%6 1AA 1%6 12
1$A; %A2 1$2 +% 1+
1$A 226 1;2 6 A
1$A+ %1. 2%1 2 1+
4otal 1<.$ A$. 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 A )illion >S-Dollar )5 1$A. !t*er
sectors< =*ic* enDo5ed prominent attention )5 #oreign in"estors< =ere construction< tourism<
and trade and ser"ices.

Table 2+ /orei#n Invest,ent in )en7)en b$ !cono,ic ector 9*F2F4*FGC:' in *H'HHH BD
ector .K3K .KCD .KC2 .KC/ .KC7
Industr$ 21$ 1<.1; 2<A2. $<$% %%<6;+
)onstruction ;2% 1<11. 2<;.$ 2<+6+ n.a.
Touris- %1 ; 16A 1<; n.a.
Trade & ser=
vices
122 %66 A+% ;<26% $.
A#riculture &
fis*er$
; 1. 22 %A 122
Diverse 1. 6A 1+1 12; 1;<%;
Source: S*en1*en Statistical ,ear)ooBs 1$+$ / 1$A+< in: Sc*r5en< Rainer: i)id< p. 166.
!x(ort 8roGt*4 As demonstrated in t*e #ollo=ing #igure< S*en1*enCs e9port per#ormance *ad
)een Fuite success#ul in its #irst ten 5ears a#ter esta)lis*ment. According to num)ers pro"ided
in ?ei (eCs t*oroug* stud5 on C*inaCs SEZ programme< SSEZ generated )et=een 1$+$ and
1$AA a total e9port gro=t* o# 1$<+A+.6 per cent< accounting #or a total "olume o# around 1<A
)illion >S-Dollars 7see ta)le A8. &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 in
1$A$.
172


Table G+ !x(ort 5olu,e and 1roAt) in )en7)en 9*F2F4*FGG:
Iear ,olu-e of !x(orts
:6io. AD;
8roGt* of ex(orts :L;
.K3K M .DD Precedin# $ear M .DD
1$+$ $.% 1.... -
1$A. 11.2 12..A 12..A
1$A1 1+.; 1A+. 1;;.%
1$A2 1.. 1+1.+ $1.;
1$A% 2.% $. %$..1
1$A6 2;.6 2<A;2.6 62..
1$A; ;%.6 <.;;.; 212.%
1$A +2;.; +<+$+.$ 12A.A

172
Pissula< Petra and L]sc*< Dieter: Special Economic Zones in t*e PeopleCs Repu)lic o# C*ina< in: Intereconomics<
Septem)erG !cto)er 1$$.< pp. 2;+-22 7p. 2.8.
Regional E
1$A+ 1<61%.;
1$AA 1<A6$.;
Source: ?ei< (e: Special Economic Zones and
ing to t*e 21st Centur5 / Jolume ;< Singapor
4*e )iggest s*are in SSEZCs e9port struct
total ratio o# +%V in 1$A+< =*ile agricult
ernment proclaimed t*at SSEZ e9tended
:ong Iong *ad )een t*e primar5 destina
!-(lo$-ent #eneration4 In terms o# e
enced a steep rise in t*e total amount o#
accounted #or an amount o# 2<;.. =orB
)5 1$AA t*e total num)er o# Do)s creat
%;+<$.. 7see )o9 +8.

Source: ?ei< (e: i)id< p. A6.
Tec*nolo#$ transfer4 In t*e late
in resource-intensi"e ra= materials and
grains< and #ood and "egeta)les. Its e9po
do=ment at t*at time< despite o# t*e go"
result o# man5 5ears o# So"iet-t5pe stra

173
,ang< Dali: C*ina AdDusts to t*e ?orld Econom
g5< in: Paci#ic A##airs< Jolume 6 71$$18< pp. 6
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
1980 1981 1982
Box 2+ !" Eor<ers in )en7)en' *FG
Regional Economic Cooperation and Integration in Asia
1;<1$2.A 1$6.A
1$<+A+.6 1%..A
Economic Zones and t*e Economic 4ransition o# C*ina< Economic Ideas Le
Jolume ;< Singapore 1$$$< p. $A.
SSEZCs e9port structure *ad t*e secondar5 sector< =*ic* accounted #
1$A+< =*ile agricultural e9ports declined steadil5. E"en t*oug*< t*e
t*at SSEZ e9tended its trade relation to a total num)er o# %2 count
t*e primar5 destination o# $AV o# total e9ports in 1$A.
173

In terms o# emplo5ment generation< S*en1*en SEZ also e9p
t*e total amount o# Do)s pro"ided )5 t*e 1one. ?*ile S*en1*en SEZ
ount o# 2<;.. =orBers during its #irst 5ear a#ter esta)lis*ment in 1
um)er o# Do)s created in t*e 1one *ad e9panded t*irteen times u
In t*e late 1$+.s and earl5 1$A.s< C*inaCs e9ports =ere concentr
e ra= materials and primar5 products< suc* as coal< crude oil< mine
"egeta)les. Its e9port structure =as consistent =it* C*inaCs natura
e< despite o# t*e go"ernmentCs e##orts to )uild *ea"5 industries. @ut<
t5pe strateg5 C*inaCs e9ports accounted #or a small s*ar
t*e ?orld Econom5 / 4*e Political Econom5 o# C*inaCs Coastal De"elopment S
lume 6 71$$18< pp. 62-6 7p. ;%8.
1982 1983 1984 1985 1986 1987
n' *FGH 4 *FGG
ntegration in Asia ;
a< Economic Ideas Lead-
accounted #or a
il5. E"en t*oug*< t*e go"-
num)er o# %2 countries<
en1*en SEZ also e9peri-
?*ile S*en1*en SEZ onl5
r esta)lis*ment in 1$A.<
t*irteen times up to

ports =ere concentrated
coal< crude oil< minerals<
=it* C*inaCs natural en-
ea"5 industries. @ut< as a
ted #or a small s*are in
oastal De"elopment 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"ernmentCs strateg5 =as to attract #or-
eign in"estors< especiall5 o"erseas C*inese< =*ic* could )ring practical Bno=-*o=< Bno=ledge
a)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 Doint "entures< and Doint cooperation companies
=ere t*e central mode o# cooperation =it* #irms #rom a)road. &oreign in"estors #rom :ong
Iong< '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*inaCs 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$+.s< t*e *uman de"elopment indicators o# t*e C*i-
nese population =ere *ig*er t*an t*ose o# de"eloping countries at t*e same income le"el.
&urt*ermore< as part o# t*e o##icial tec*nological 0catc*-up3 strateg5< massi"e reallocation o#
la)our< along =it* *uman capital< #rom pu)lic to pri"ate and e9port sectors< and #rom capital-
intensi"e to la)our-intensi"e sectors< in =*ic* t*e rate o# return to learning is *ig*er< *ad
taBen place. Cadres and #res* graduates 0plunged into t*e sea3 to seeB *ig*er salaries in t*ose
sectors< in =*ic* prices and =ages =ere li)erali1ed. In particular< a massi"e reallocation o#
la)our #rom t*e primar5 sector to t*e secondar5 sector tooB place. Additionall5< t*e go"ern-
ment *ad )een in"esting e9tensi"el5 in #ormal education as =ell as in 0learning )5 doing3. In
1$+$ #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-$4 Literature dealing =it* SSEZCs linBages to t*e domes-
tic econom5 during t*e 1$A.s is scarce. :o=e"er< Petra Pissula and Dieter L]sc*Cs =orB on

174
&itting< (eorge: E9port Processing Zones in 4ai=an and t*e PeopleCs Repu)lic o# C*ina< in: Asia Sur"e5< Jolume
22< 2um)er A 71$A28< pp. +%2-+66 7p. +%$8.
175
Crane< (eorge: Special 4*ings in Special ?a5sC / 2ational Economic Identit5 and C*inaCs Special Economic Zones<
in: Australian Hournal o# C*inese A##airs< 2um)er %2 71$$68< pp. +1-$2 7A18.
176
Lin<,i#u and ?ang< ,an: C*inaCs Integration =it* t*e ?orld / De"elopment as a Process o# Learning and Indus-
trial >pgrading< 4*e ?orld @anB Polic5 Researc* Paper< 2um)er 6+$$ 72..A8< pp. 1$-22.
Regional Economic Cooperation and Integration in Asia ;A

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 Doint "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.V
to %.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 1one. 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 industriali1ed
countries or ot*er< usuall5 non-C*inese 1one companies< )ut *ardl5 e"er #rom t*e C*inese-
*interland.
178

2e"ert*eless< t*e5 continued< particularl5 t*e e9perimental and s*o=case #unction o# t*e spe-
cial economic 1ones *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 1one 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 Zhiles< Yuan Yimings, and Xu Xiangxiangs assessment< t*e de"elopment o#
SSEZ )eginning o# t*e 1$A.Cs can )e c*aracterised as a 0trial and error3 process< in =*ic* t*e
S*en1*en municipal go"ernment *ad )een t*e central decision maBing institution on t*e
grass root le"el< enDo5ing 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 1one de"elopment in accordance =it* its o=n particular pat*< and t*e o"erall
o)Decti"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*e
central 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 Iong =ould Fuali#5 t*e area as an e9perimen-
tal unit #or #oreign in"estors. 4*e central go"ernment anticipated t*at :ong Iong )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 Iong< 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 Iong at t*at time ac-
counted #or +. / +;VN =*ile in S*en1*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 Iong )usinesses pro"ided t*e
maDor 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## SSEZCs 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 maDor 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 maDor #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 Doint
"entures =it* C*inese counterparts< setting t*e ground #or en*anced on t*e Do) learning< and
Regional Economic Cooperation and Integration in Asia .

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*en1*en and C*ina.
I-(ortant lessonsN
(enerall5< as t*e e9perts pointed out< C*inaCs S*en1*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#
1ones in t*e )eginning to t*oroug*l5 stud5 appropriate incenti"es and polic5 meas-
ures. Setting up too man5 1ones< =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"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 marBet demand. In t*e C*inese
case< 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*orities
s*ould onl5 pro"ide t*e )road polic5 #rame=orB and regulations< a good education
s5stem< 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*nological
le"el do not ultimatel5 pose constraints in t*e initial de"elopment stage o# SEZs< )ut
t*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 countr5Cs
comparati"e ad"antageE !# =*ic* #actors can a countr5 maBe =*atE :o= s*ould na-
tional resources )e allocatedE
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 SEZ
legislation and de"elopment< =*ere it is appropriate and reasona)le.
1 Regional Economic Cooperation and Integration in Asia

C. 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*asi1ed<
=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$A.Cs< 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)Decti"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# 1ones toda5 in-
clude: 718 &ree trade 1ones< 728 traditional and 7%8 *5)rid e9port processing 1ones< 768 #ree-
ports< 7;8 enterprise 1ones< 78 ur)an #ree 1ones< and 7+8 single #actor5 e9port processing
1ones / 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)Decti"es.
Regional Economic Cooperation and Integration in Asia 2

Still< against t*e )acBground o# LaoCs on-going e##orts to en*ance its national SEZ strateg5< t*e
primar5 o)Decti"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*en1enCs practices o# designing and implementing e9port processing 1ones<
#ollo=ing essential polic5 implications s*ould to )e considered )5 t*e Lao 2CSEZ in its course
o# 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..A and t*e case stud5 on S*en1*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 institutionali1ed pu)lic-pri"ate partners*ips 7PPPs8 to reduce a go"ern-
mentCs s*are o# net cost and #acilitate 1one de"elopment 7#or t*e di"erse t5pes o# PPPs
see pages %2 - %%8.
(i"ing #inancial autonom5 to t*e local S*en1*en SEZ aut*orities in t*e earl5 stages o#
1one 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 proDects according to t*e needs o# in"estors and o"erall 1one
de"elopment.
2. !x(ort increase and diversification
4*e positi"e long-term impact o# SEZs on a *ost countr5Cs economic de"elopment in terms o#
e9port gro=t* and di"ersi#ication is dependent on a go"ernment a)ilit5 to sei1e #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*en1*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 countr5Cs a)ilit5 to attract #oreign e9port producers.
% Regional Economic Cooperation and Integration in Asia

3. !-(lo$-ent #eneration and i-(rove-ent of livin# standards
@eing one o# t*e primar5 polic5 o)Decti"es o# SEZs< international studies *a"e s*o=n t*at t*e
o"erall impact o# SEZs on emplo5ment generation is not dependent on a speci#ic la)our re-
gime< )ut on t*e o"erall 1one design< in terms o# incenti"e sc*eme< location site< and good go"-
ernance practices. :o=e"er< on t*e ot*er *and< pu)lis*ed =orBs< especiall5 o# IL!< *a"e e9-
tensi"el5 criti1ed =orBing condition in se"eral SEZs. 4*ere#ore< in order to ac*ie"e t*e target
o# impro"ing li"ing standards o# SEZ =orBers< a proper la)our regime needs to )e institution-
ali1ed< =*ic* pro*i)its t*e in#ringement o# la)our rig*ts< suc* as o"erl5 long =orBing *ours<
emplo5ment uncertaint5< and insu##icient =orBing conditions etc.< and empo=ers =orBers to
organi1e and Doin organi1ations< to striBe< and use collecti"e )argaining rig*ts.
/. Tec*nolo#$ 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 1ones are in. In t*e initial
p*ase o# national economic de"elopment< SEZs are usuall5 c*aracteri1ed )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< 78 competition< and 7+8 pri-
"ate sector led de"elopment 7#or details see page 618.

Regional Economic Cooperation and Integration in Asia 6

+. 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 utili1ation 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
si1e 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 1one.
7. 0urt*er lessonsO
Nu-ber of 5ones4 4*e e9pert inter"ie=s on t*e S*en1*en case *a"e re"ealed t*at t*e num-
)er o# 1ones< =*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*en1*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
1one and marBet demand.

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?EPZA 4a)le o# Zone Countries< in: ?EPZA !nline Plat#orm< *ttp:GG===.=ep1a.orgGa1c.*tml
?ong< Iar-,iu: International &actor 'o"ements< Repatriation and ?el#are< in: Hournal o# Inter-national
Economics< Jolume 21< 2um)er %-6 71$A8.
?ong< I=an-,iu and C*u< Da"id I. ,.: E9port Processing Zones and Special Economic Zones as (enerators
o# Economic De"elopment / 4*e Asian Perspecti"e< in: (eogra#isBa Annaler. Series @< :uman (eograp*5<
Jolume < 2um)er 171$A68.
?ood< Adrian: !penness and ?age IneFualit5 in De"eloping Countries / 4*e Latin American C*allenge to
East Asian Con"entional ?isdom< in: ?orld @anB Economic Re"ie=< 2um)er 11 71$$+8.
?ood< Adrian and @erge< Iersti: E9porting 'anu#acturers: :uman Resources< 2atural Resources and
4rade Polic5< in: Hournal o# De"elopment Studies< 2um)er %+ 71$$+8.
?ool#re5< Sean: Special Economic Zones and Regional Integration in A#rica< tralac ?orBing Paper 2um)er
1% 72.1%8.
I
,ang< Dali: C*ina AdDusts to t*e ?orld Econom5 / 4*e Political Econom5 o# C*inaCs Coastal De"elopment
Strateg5< in: Paci#ic A##airs< Jolume 6 71$$18.
,oung< Leslie and 'i5aga=a< Ia1: >nemplo5ment and t*e &ormation o# Dut5 &ree Zones< in: Hournal o#
De"elopment Economics< Jolume 2< 2um)er 2 71$A+8.
,uan< Hing-dong and Eden< Lorraine: E9port Processing Zones in Asia< in: Asian Sur"e5< Jolume %2< 2um-
)er 11 71$$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 AsiaCs #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< proDects 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 proDects 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 RCI
Pro2ect na-e Regional Economic Cooperation and
Integration 7RCI8 in Asia
)o--issioned
b$
(erman &ederal 'inistr5 #or Eco-
nomic Cooperation and De"elopment
7@'Z8
@e$ sub2ects 4rade and in"estment #acilitation<
port cooperation< local cross-)order
economic cooperation and social
implications o# economic integration
Duration 2.11 / 2.1;
Regiona
Publications b$ RCI
4*e (IZ RCI Programme pu)lis*es regu
seminate regional Bno=ledge on integr
*ttp:GG===.scri)d.comGRci ASIA
In(uts and 6aterials

Cross-@order Cooperation
and 4rade &acilitation in Asia
Social Im
Econom


ProDect 'anagement o#
Cross-@order Cooperation:
European E9periences
'anagin
'igratio

NeGsletter )onnect Asia
4o su)scri)e to our Fuarterl5 ne=slett
gramme 2e=sletters3 on *ttp:GG===.g

Connect Asia 2o. 6 Connect

Regional Economic Cooperation and Integration in Asia
mme pu)lis*es regular updates on its acti"ities to o##er insig*ts an
no=ledge on integration processes in Asia. 4o do=nload please re
Rci ASIA or *ttp:GG===.slides*are.netGRCI-Asia.

Social Implications o# Regional
Economic Integration
Economic Polic5 Dialogue a
Asian 4ransition Countries


'anaging Cross-@order La)our
'igration on a Regional Scale
Potentials #or Port Cooperat
in t*e Pan-@ei)u (ul# Regio

r Fuarterl5 ne=sletter< simpl5 select Connect Asia under 0ProDect an
*ttp:GG===.gi1.deGenGmediacenterG11+.*tml.

Connect Asia 2o. %
Integration in Asia +2
s to o##er insig*ts and dis-
do=nload please re#er to

Polic5 Dialogue among
ransition Countries

ials #or Port Cooperation
@ei)u (ul# Region
ia under 0ProDect and Pro-









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