Free Trade Zone / Export Processing Zone

Chandan Mukhopadhyay

A free trade zone (FTZ) or export processing zone (EPZ) is an area of a country where some normal trade barriers
such as tariffs and quotas are eliminated and bureaucratic requirements are lowered in hopes of attracting new
business and foreign investments. It is a region where a group of countries has agreed to reduce or eliminate trade
barriers.[2] Free trade zones can be defined as labor intensive manufacturing centers that involve the import of raw
materials or components and the export of factory products. The world's first Free Trade Zone was established in
Shannon, Co. Clare, Ireland Shannon Free Zone. This was an attempt by the Irish Government to promote
employment within a rural area, make use of a small regional airport and generate revenue for the Irish economy. It
was hugely successful, and is still in operation today.
Most FTZs are located in developing countries: Brazil, Indonesia, El Salvador, China, the Philippines, Malaysia,
Bangladesh, Pakistan, Mexico, Costa Rica, Honduras, Guatemala, Kenya, and Madagascar have EPZ programs. In
1997, 93 countries had set up export processing zones (EPZs) employing 22.5 million people, and five years later, in
2003, EPZs in 116 countries employed 43 million people.
Corporations setting up in a zone may be given tax breaks as an incentive. Usually, these zones are set up in
underdeveloped parts of the host country; the rationale is that the zones will attract employers and thus reduce
poverty and unemployment, and stimulate the area's economy. These zones are often used by multinational
corporations to set up factories to produce goods (such as clothing or shoes).
Free trade zones in Latin America date back to the early decades of the 20th century. The first free trade regulations
in this region were enacted in Argentina and Uruguay in the 1920s. The Latin American Free Trade Association
(LAFTA) was created in the 1960 Treaty of Montevideo by Argentina, Brazil, Chile, Mexico, Paraguay, Peru, and
Uruguay. However, the rapid development of free trade zones across the region dates from the late 1960s and the
early 1970s. Latin American Integration Association is a Latin American trade integration association, based in
Montevideo.
Free Trade Zones are also known as Special Economic Zones in some countries. Special Economic Zones (SEZs) have
been established in many countries as testing grounds for the implementation of liberal market economy principles.
SEZs are viewed as instruments to enhance the acceptability and the credibility of the transformation policies and to
attract domestic and foreign investment.
In 1999, there were 43 million people working in about 3000 FTZs spanning 116 countries producing clothes, shoes,
sneakers, electronics, and toys. The basic objectives of EPZs are to enhance foreign exchange earnings, develop
export-oriented industries and to generate employment opportunities.
Criticism
Free trade zones are domestically criticized for encouraging businesses to set up operations under the influence of
other governments, and for giving foreign corporations more economic liberty than is given indigenous employers
who face large and sometimes insurmountable "regulatory" hurdles in developing nations. However, many countries
are increasingly allowing local entrepreneurs to locate inside FTZs in order to access export-based incentives.
Because the multinational corporation is able to choose between a wide range of underdeveloped or depressed
nations in setting up overseas factories, and most of these countries do not have limited governments, bidding wars
(or 'races to the bottom') sometimes erupt between competing governments.
Sometimes the domestic government pays part of the initial cost of factory setup, loosens environmental protections
and rules regarding negligence and the treatment of workers, and promises not to ask payment of taxes for the next
few years. When the taxation-free years are over, the corporation that set up the factory without fully assuming its
costs is often able to set up operations elsewhere for less expense than the taxes to be paid, giving it leverage to
take the host government to the bargaining table with more demands, but parent companies in the United States
are rarely held accountable.[4]
The widespread use of free trade zones by companies such as Nike has received criticism from numerous writers
such as Naomi Klein in her book No Logo

List of Free Trade Zones

Jebel Ali Free Zone, Dubai
Aegean Free Zone, Izmir Turkey
Aras Free Zone
Bahrain Logistics Zone, Kingdom of Bahrain
Bayan Lepas Free Trade Zone, Penang, Malaysia
Batam Free Trade Zone
Cavite Export Processing Zone, Rosario, Cavite City, Philippines
Zona Franca de Manaus, Brazil
Bataguassu - MS, Brazil
Freeport, Grand Bahama
Inspira Pharma and Renewable Energy Park, Aurangabad, Maharashtra, India
Kulim Hi-Tech Park, Kedah, Malaysia
Las Mercedes Industrial Free Zone, Managua, Nicaragua
Maquiladoras, Mexico
Port Klang Free Zone, Klang, Selangor, Malaysia
Pacífico
Pasir Gudang Free Trade Zone, Johor, Malaysia
Sricity Multi product SEZ, part of Sricity which is a developing satellite city in the epicentre of Andhra Pradesh &
Tamil Nadu.
Shannon Free Trade Zone, Shannon
Walvis Bay Export Processing Zone, Namibia
CentrePort Canada - Winnipeg and Rosser, Manitoba
FTZ Winnipeg and Canada
Slobodna Zona Pirot - Srbija / Free Zone Pirot - Serbia
Aden
Chabahar
Bizerte and Zarzis in Tunisia
Directorate for Technological Industrial Development Zones - Macedonia managing four Free Zones: TIDZ Skopje 1 &
2, TIDZ Stip and TIDZ Tetovo]

About EPZ in India

The concept of Export Processing Zones was introduced to enhance exports in India with the help of tax holidays
and lucrative incentive packages, which are the most important aspects About EPZ in India.

Developmental Stages About EPZ in India:

The Export Processing Zones in India had gone through four significant stages of development. The initial stage
witnessed the establishment of the Kandla Free Trade Zone in the city of Gujarat in the year 1965 and the
consequent establishment of the Santacruz Electronics Export Processing Zone.The limitations faced by these
zones are lack of a proper policy and administrative control, weak infrastructure, limited scope for concessions,
and lack of adequate incentives.
Therefore, the government of India has been setting up various committees to suggest measures About EPZ in
India, in order to check these existing shortcomings.Moreover, in the year 1980 a new scheme was formulated by
the government known as the Export Oriented Units Scheme to bring about an over all development in these
zones. The second stage witnessed the Second Oil Price Shock, which hampered the export activities
significantly and led the establishment of a number of Export Processing Zones to boost the export sector. Thus,
Export Processing Zones were set up in West Bengal, Tamil Nadu, Kerala, Uttar Pradesh and in Andhra Pradesh
and were named as:
Falta Export Processing Zone
Chennai Export Processing Zone
Noida Export Processing Zone
Cochin Export Processing Zone
Visakhapatnam Export Processing Zone
The third stage witnessed economic liberalization in India and restructuring of the entire export processing zone
framework in the year 1991. The stage incorporated various measures for example:
More Fiscal Incentives
Simplification of Policy Provisions
Incorporation of more industries like horticulture, re-engineering, agriculture, aqua culture
The fourth stage witnessed the introduction of the concept of special economic zones in the EXIM policy of 1997-
2002. Presently, most of the export-processing zones have been transformed into special economic zones. The
special economic zones extended their scope to include private companies together with the government
organizations and offered space to be used for residential as well as for industrial purpose. They offer various
fiscal and non-fiscal benefits to the inhabitants in the form of tax exemption, relaxation in duties, and various
incentives to enhance the Indian economy.

Features of the EPZs in India:

EPZs allow subcontracting activities in case of manufactured goods within India as well as in foreign countries
Licenses are required for IT industries only
Tax Holidays allowed for raw materials and capital goods
Exemption from Corporate Income Tax
Private bonded warehouses for the purpose of import, re-export, marketing etc.
Exemption from Customs Duty
Commodities supplied from DTA are exempted from Excise Duty
Advantage of choosing the desirable location on the fulfillment of required conditions

Facilities offered by the EPZs in India:

Uninterrupted Power Supply
Single Window Clearance
Cost Effective and Skilled Labor
Water Connection
Locational advantage
Proper Infrastructure
Medical Facilities
Thus, About EPZ in India, it is clear that they have boosted the overall economy of the country by their policies of
exemptions and incentives offered to the industries operating in these zones.

India EPZ Overview

The India EPZ - Overview encompasses the summary of the main objective for setting up of the Export Promotion
Zones in India. Further, the India EPZ - Overview also includes the administrative structure and the facilities
offered by the Export Promotion Zones of India. An Export Processing Zones bears cluster of specially designed
commercial zones for aggressive promotion of exports of India. The basic concept of Export Processing Zones was
conceived in the 1970s and it was implemented to encourage the growth of export of India. All the Indian Export
Processing Zones are facilitated with fiscal incentives, subsidized taxes, and other exclusive benefits for the
growth of Indian export.

India EPZ - Overview of objectives

To encourage and generate the economic development across all industry sectors
To encourage Foreign Direct Investments (FDI)
To channel the sources of foreign exchange within the system in a phased manner
To foster the establishment and development of industrial enterprises within the said zones
To encourage and generate wider economic activities by encouraging foreign investments for the development of
the zones
To channel the foreign exchange earnings for the further development of these zones and explore new areas for
the development of Indian exports
To encourage establishment and development of Indian industries and business enterprises and facilitate with
proper infrastructure
To generate employment opportunity
To upgrade labor and management skills
To acquire advanced technology for increased productivity
To ensure world class quality of products

India EPZ - Overview of facilities offered

Simplified procedures for development, operation, and maintenance of the Export Processing Zones and for
setting up units and conducting business
Single window clearance for setting up of a EPZ
Single Window clearance on matters relating to Central as well as State Governments
Easy and simplified compliance procedures and documentations with stress on self certification
Exemption from duties on all imports for project development
Income tax exemptions on business income
Subsidized import duty
Procedural ease and efficiency for speedy approvals, clearances and customs procedures and dispute resolution
Simplification of procedures and self-certification in the labor acts
Artificial harbor and handling bulk containers made operational through out the year
Houses both domestic and international air terminals to facilitate transit, to and fro from major domestic and
international destinations
Has host of Public and Private Bank chains to offer financial assistance for business houses
A vibrant industrial city with abundant supply of skilled manpower, covering the entire spectrum of industrial and
business expertise
Well connected with network of public transport, local railways and cabs
Pollution free environment with proper drainage and sewage system
In-house Customs clearance facilities
Easy access to airport and local Railway Station
Full authority to provide services such as water, electricity, security, restaurants and recreational facilities within
the zone on purely commercial basis
Abundant supply of technically skilled manpower
Abundant supply of semi-skilled labor across all industry sectors

India EPZ - Overview of management structure

Level one is headed by the Ministry of Commerce headed by the Commerce Secretary, which drafts and
implements policies and reviews the performance of each such zones
Level two is headed by the Board of Approval (BOA), which is responsible for scrutinizing of application for
opening up of new unit in the zone and which is headed by a person of the level of Additional Secretary
The Development Commissioner, who is the chief executive of the Export Processing Zone, heads the three
levels. The Development Commissioner is vested with the power for the day-to-day function of the zone. Further,
he is the head of functions relating to administration, approval of investment, and he also enforces various
regulatory provisions