Free Trade Zones - · PDF fileThe FTZ concept appeared at least 2000 years ago. The modern...
Transcript of Free Trade Zones - · PDF fileThe FTZ concept appeared at least 2000 years ago. The modern...
![Page 1: Free Trade Zones - · PDF fileThe FTZ concept appeared at least 2000 years ago. The modern concept of a free trade zone was born in Shannon, Ireland, in the 1950’s when the](https://reader034.fdocuments.in/reader034/viewer/2022051717/5a704d377f8b9ac0538bd812/html5/thumbnails/1.jpg)
Free Trade Zones – Learning From Global Experiences
Ganesh Rasagam Lead Private Sector Development Specialist World Bank Douglas Zhihua Zeng Sr. Economist, World Bank
AFDC “FTZ Seminar” Shanghai, June 2014
![Page 2: Free Trade Zones - · PDF fileThe FTZ concept appeared at least 2000 years ago. The modern concept of a free trade zone was born in Shannon, Ireland, in the 1950’s when the](https://reader034.fdocuments.in/reader034/viewer/2022051717/5a704d377f8b9ac0538bd812/html5/thumbnails/2.jpg)
What is Free Trade Zone? FTZs, also known as free commercial zones,
are a sub-category of special economic zone. They are fenced-in, duty-free areas, offering ware-housing, storage, and distribution facilities for trade, transshipment, and re-export operations, without the intervention of the customs authorities.
Free-trade zones are mostly organized around major seaports, international airports, and national frontiers—areas with many geographic advantages for trade.
![Page 3: Free Trade Zones - · PDF fileThe FTZ concept appeared at least 2000 years ago. The modern concept of a free trade zone was born in Shannon, Ireland, in the 1950’s when the](https://reader034.fdocuments.in/reader034/viewer/2022051717/5a704d377f8b9ac0538bd812/html5/thumbnails/3.jpg)
A Taxonomy of Zone Types
Worldwide, enormous variety exists in Zones
Programs. Most fall under these common
headings
Industrial Estates
(No Fiscal Incentives)
Incubators
Bonded Warehouses
Free Trade Zones and
Export Processing
Zones
Single Factory Zones
Freeports
◦ Results of the demand analysis will suggest one or more appropriate types of SEZ to pursue.
◦ Many countries offer more than one type of SEZ, offering both industrial estates and free trade zones for instance.
◦ More expansive solutions like Freeports are generally considered only in parts of the country with a unique comparative advantage, such as a major port.
◦ Which solution is the “right” one will depend on the unique strategic and development goals of the conflict-affected country.
![Page 4: Free Trade Zones - · PDF fileThe FTZ concept appeared at least 2000 years ago. The modern concept of a free trade zone was born in Shannon, Ireland, in the 1950’s when the](https://reader034.fdocuments.in/reader034/viewer/2022051717/5a704d377f8b9ac0538bd812/html5/thumbnails/4.jpg)
Why FTZs?
The FTZ regime seeks to provide an enclave of favorable conditions that: ◦ Reduce business transaction costs; ◦ Promote investment; ◦ Facilitate trade; ◦ Spur employment generation; and ◦ Pilot certain economic/policy reforms
![Page 5: Free Trade Zones - · PDF fileThe FTZ concept appeared at least 2000 years ago. The modern concept of a free trade zone was born in Shannon, Ireland, in the 1950’s when the](https://reader034.fdocuments.in/reader034/viewer/2022051717/5a704d377f8b9ac0538bd812/html5/thumbnails/5.jpg)
The First Modern FTZ in the World The FTZ concept appeared at least 2000 years
ago. The modern concept of a free trade zone was
born in Shannon, Ireland, in the 1950’s when the Irish Government granted liberal policies to the industrial area adjoining the Shannon Airport.
The main rationale was to establish a “growth pole” in the economically distressed southern part of the country.
The policies adopted in Shannon were upgraded & extended throughout Ireland over the next 30 years, and turned Ireland into the “Celtic Tiger” in the 1990s.
![Page 6: Free Trade Zones - · PDF fileThe FTZ concept appeared at least 2000 years ago. The modern concept of a free trade zone was born in Shannon, Ireland, in the 1950’s when the](https://reader034.fdocuments.in/reader034/viewer/2022051717/5a704d377f8b9ac0538bd812/html5/thumbnails/6.jpg)
Overview of Global SEZs
30 Countries 120+
80 Zone Projects* 2,000 +
0 Private Zones** 1,200+
$6 billion Total Exports $600+ billion
1 million
Direct Jobs 68 million, China alone 30+ million
*By 2004, over 1,000 FTZs in over 100 countries. **This figure does not include single-factory zones. With them included, the total would exceed 3,000 zones.
• The segregated data on FTZs only is hardly available. Here are the total figures of SEZs.
Special Economic Zones (SEZs): A Practitioner's Guide
![Page 7: Free Trade Zones - · PDF fileThe FTZ concept appeared at least 2000 years ago. The modern concept of a free trade zone was born in Shannon, Ireland, in the 1950’s when the](https://reader034.fdocuments.in/reader034/viewer/2022051717/5a704d377f8b9ac0538bd812/html5/thumbnails/7.jpg)
SEZ Distribution by Region
Source: Data from ILO, WEPZA, and Bearing Point and updated by the IFC (2007)
7
![Page 8: Free Trade Zones - · PDF fileThe FTZ concept appeared at least 2000 years ago. The modern concept of a free trade zone was born in Shannon, Ireland, in the 1950’s when the](https://reader034.fdocuments.in/reader034/viewer/2022051717/5a704d377f8b9ac0538bd812/html5/thumbnails/8.jpg)
Objectives Promotion of exports Promotion of FDI Policy Features Duty-free Area - 70-80% export requirement Manufacturing-oriented: Neglected services, intermediaries, logistics Tax Holidays Limited or no selection or performance criteria
Institutional Features Zone Authority owns, operates, regulates the zone Zone funded by government; typically subsidized services & facilities Zone Authority exerts little power over or collaboration with other government bodies Separate Customs Area, recognized by Kyoto Convention Development Approach Limited or no demand analysis Public sector develops, manages, and regulates Public subsidies of services & facilities Political influence (no clear background analysis) on site selection
Traditional FTZ Concept
![Page 9: Free Trade Zones - · PDF fileThe FTZ concept appeared at least 2000 years ago. The modern concept of a free trade zone was born in Shannon, Ireland, in the 1950’s when the](https://reader034.fdocuments.in/reader034/viewer/2022051717/5a704d377f8b9ac0538bd812/html5/thumbnails/9.jpg)
Main Issues With the Traditional Concept?
Public sector development of zones (lack of private sector participation)
Inadequate institutional structure
Uncompetitive policies
Lack of an integrated development approach
Limited focus on improving the investment climate
9
![Page 10: Free Trade Zones - · PDF fileThe FTZ concept appeared at least 2000 years ago. The modern concept of a free trade zone was born in Shannon, Ireland, in the 1950’s when the](https://reader034.fdocuments.in/reader034/viewer/2022051717/5a704d377f8b9ac0538bd812/html5/thumbnails/10.jpg)
FTZ Example:
Colon (Panama) Free Zone A large zone near the Atlantic entrance to the
Panama Canal, dedicated to re-exporting a wide variety of merchandise to LAC.
It is a free port, the largest such port in the Americas and second largest in the world.
It started operations in 1948 and occupies about 2.4 km2 (600 acres).
It is divided in two large areas: one located in Colón, segregated from the city by a wall, and the other relatively new, in the harbor area, which is designated for warehouses, covering 0.53 km2 (130 acres) and 370 m (400 yards) from Colón's commercial sector.
![Page 11: Free Trade Zones - · PDF fileThe FTZ concept appeared at least 2000 years ago. The modern concept of a free trade zone was born in Shannon, Ireland, in the 1950’s when the](https://reader034.fdocuments.in/reader034/viewer/2022051717/5a704d377f8b9ac0538bd812/html5/thumbnails/11.jpg)
Achievements of the Colon Free Zone
With 2,200 companies, 19,000 employees, the Zone generated imports and re-exports valued at over US$29.2 billion in 2011, amounting to almost 97% of the Panama GDP.
Investors are able to harness the services and facilities offered by the free zone for importing, storing, assembling, repacking, and re-exporting products from all over the world.
Main products include electrical appliances, pharmaceutical products, liquor, cigarettes, office and home furniture, clothing, shoes, jewelry, and toys.
Considered the "trading showcase" of Central and South America, as well as of the Caribbean region.
![Page 12: Free Trade Zones - · PDF fileThe FTZ concept appeared at least 2000 years ago. The modern concept of a free trade zone was born in Shannon, Ireland, in the 1950’s when the](https://reader034.fdocuments.in/reader034/viewer/2022051717/5a704d377f8b9ac0538bd812/html5/thumbnails/12.jpg)
Success Factors of the Colon Free Zone
Strategic location: located directly on the Panama Canal, goods can reach the Pacific or Atlantic coasts directly, making it an ideal trading hub.
Sound legal and macro environment: Panamá has laws that protect the industrial and intellectual property rights and applies strict sanitary and health regulations for FTZ. The country also enjoys macro-stability.
Conducive business environment: positive ratings as a business friendly location for the past few decades; businesses enjoy tax and duty exemptions for imports and exports, and easy registration – no commercial licensing and minimum capital required.
First class infrastructures: besides the expanded canal and modern port facilities, there are well-maintained railways, highways, and airport.
Easy access to various business services in the FTZ: banking, insurance, reinsurance, shipping, transit, communications and other logistic services are easily available.
Regional trade liberalization, especially through the NAFTA.
![Page 13: Free Trade Zones - · PDF fileThe FTZ concept appeared at least 2000 years ago. The modern concept of a free trade zone was born in Shannon, Ireland, in the 1950’s when the](https://reader034.fdocuments.in/reader034/viewer/2022051717/5a704d377f8b9ac0538bd812/html5/thumbnails/13.jpg)
Medan
Bangkok
Jakarta
Hong Kong
Singapore
KL
NEW TOWNSHIP INDUSTRIAL PARK
CITIES/TOWNS EXISTING ROAD RAILWAY
KEDAH
Beach Resorts
PENANG ISLAND
Penang International Airport
Bayan Lepas Industrial Park
Batu Kawan
Bukit Minyak
PRAI
Kulim High-Tech Park
Taipei
Malaysia’s first Free Zone was established in Penang in 1972: political vision and leadership, port, airport and basic infrastructure in place, educated workforce, attractive living environment and tourist destination
FTZ Example: Penang (Malaysia) Free Zone
Source: Ganesh Rasagam, 2011
![Page 14: Free Trade Zones - · PDF fileThe FTZ concept appeared at least 2000 years ago. The modern concept of a free trade zone was born in Shannon, Ireland, in the 1950’s when the](https://reader034.fdocuments.in/reader034/viewer/2022051717/5a704d377f8b9ac0538bd812/html5/thumbnails/14.jpg)
Key Outcomes
1970 2010 Population (‘000) 0.78 1.61 Per capita income (US$) 400 5600 Unemployment rate (%) 16 3 Poverty rate (%) 32.3 0.3 Infant Mortality Rate (%) 38 0.4
Source: Ganesh Rasagam, 2011
![Page 15: Free Trade Zones - · PDF fileThe FTZ concept appeared at least 2000 years ago. The modern concept of a free trade zone was born in Shannon, Ireland, in the 1950’s when the](https://reader034.fdocuments.in/reader034/viewer/2022051717/5a704d377f8b9ac0538bd812/html5/thumbnails/15.jpg)
Development of the Penang FTZ Over 40 Years
0
500
1000
1500
2000
2500
1960 1970 1980 1990 2000 2010
No. of firms
Employment (00)
250,000 direct jobs and 1,500 firms over 40 years
30% of Malaysia’s exports and 50% of electronics exports
Source: Ganesh Rasagam, 2011
![Page 16: Free Trade Zones - · PDF fileThe FTZ concept appeared at least 2000 years ago. The modern concept of a free trade zone was born in Shannon, Ireland, in the 1950’s when the](https://reader034.fdocuments.in/reader034/viewer/2022051717/5a704d377f8b9ac0538bd812/html5/thumbnails/16.jpg)
Key Success Factors of the Penang Free Zone Zone program is part of the national development policies:
from 2nd to 5th Malaysia National Plan (1970-1990), free zone-led manufacturing had been the centerpiece of the plan, and the Penang Master Plan also fully reflected this priority
Sound legal framework: Free Trade Zone Act (1971); Free Zones Act (1990) and Free Zones Regulations (1991)
Enabling role of the Penang Development Corporation (PDC): Lead agency for strategy, planning, communications, intra-agency coordination and consensus building; Business facilitation; Regular dialogue with investors: address concerns related to infrastructure, regulations, permits, customs, etc.: Investment promotion; and Facilitating innovation, entrepreneurship and industry-academia partnerships and skills development
Source: Ganesh Rasagam, 2011
![Page 17: Free Trade Zones - · PDF fileThe FTZ concept appeared at least 2000 years ago. The modern concept of a free trade zone was born in Shannon, Ireland, in the 1950’s when the](https://reader034.fdocuments.in/reader034/viewer/2022051717/5a704d377f8b9ac0538bd812/html5/thumbnails/17.jpg)
Value Add
FTZ Example:
Jebel Ali (Dubai) Free Zone: Eco System Business Center Offices
Warehouse Standard
Warehouse Build to Suite
Infrastructure Ready Land
Company Registration Licensing
Facility Management
Warehouse Development
OSS
Dubai 0% Tax
0% Custom Duty
Repatriation of Capital Zone Services
Convention Centers Hotels
OSR Show Rooms
Investment Management
Community
Products
Infrastructure
Service
17 Source: Chuck Heath, 2011
![Page 18: Free Trade Zones - · PDF fileThe FTZ concept appeared at least 2000 years ago. The modern concept of a free trade zone was born in Shannon, Ireland, in the 1950’s when the](https://reader034.fdocuments.in/reader034/viewer/2022051717/5a704d377f8b9ac0538bd812/html5/thumbnails/18.jpg)
Companies
Jebel Ali in Numbers 2010
Assets
Economic Contribution
Companies
6,500 Fortune 500 Co.s
117 Countries
120
Million SQM
57 Properties
11,000 USD Billion, Value
4.2
Employees
138,188 USD Billion, 2009Trade
68.6
More than
More than More than
More than
Source: Chuck Heath, 2011
![Page 19: Free Trade Zones - · PDF fileThe FTZ concept appeared at least 2000 years ago. The modern concept of a free trade zone was born in Shannon, Ireland, in the 1950’s when the](https://reader034.fdocuments.in/reader034/viewer/2022051717/5a704d377f8b9ac0538bd812/html5/thumbnails/19.jpg)
Jebel Ali’s Contribution Significant contribution to UAE and Dubai economy
60.7 AED Billion to Dubai
economy
21.1% Of Dubai GDP
GDP
138 Thousands sustained employment in Dubai
10.1% Of Dubai working
population
Workforce
60.9 AED Billion to UAE
economy
7.9% Of UAE GDP
GDP
139 Thousands sustained employment in UAE
4.4% Of UAE working
population
Workforce
* % in Kgs excluding trans-shipments & empty containers
524 422 55% * 24% * 40% AED Million to
Telecom AED Million to
Water & Electricity Volume to Jebel
Ali Port Volume to Dubai
Intl. Airport UAE FDI
Source: Chuck Heath, 2011
![Page 20: Free Trade Zones - · PDF fileThe FTZ concept appeared at least 2000 years ago. The modern concept of a free trade zone was born in Shannon, Ireland, in the 1950’s when the](https://reader034.fdocuments.in/reader034/viewer/2022051717/5a704d377f8b9ac0538bd812/html5/thumbnails/20.jpg)
20
• Catalyzing of economic reform, with demonstration effect, rather than serve as an enclave?
• Maximizing linkages between enterprises within and outside the zones?
• Integrating into a local community from a physical planning and social perspective?
• Maximizing transfer of skills, management know-how and technology to ensure the long-term competitiveness?
• Involving the private sector in zone development, promotion and management, through public-private partnerships?
Challenges in Responding to New Trends
![Page 21: Free Trade Zones - · PDF fileThe FTZ concept appeared at least 2000 years ago. The modern concept of a free trade zone was born in Shannon, Ireland, in the 1950’s when the](https://reader034.fdocuments.in/reader034/viewer/2022051717/5a704d377f8b9ac0538bd812/html5/thumbnails/21.jpg)
Key Lessons Learned • Leadership at the highest political level • Long-term vision and clear objectives • Sound legal, regulatory and institutional framework • Broad but realistic program of improvement of the business environment
• Coherent reform efforts, year after year: “start small and build on demonstrable effects”
• Clear definition of responsibilities among implementing agencies
• Strong public-private partnerships (PPPs) • Follow-up, communication strategy and training