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Special Economic Zones Public Disclosure Authorized Public Disclosure Authorized APublic P R Disclosure I L 2 0 0 Authorized 8 Public Disclosure Authorized 45869 SPECIAL ECONOMICZONES LEARNED, AND IMPLICATIONS PERFORMANCE, LESSONS FOR ZONE DEVELOPMENT Copyright © 2008 The World Bank Group 1818 H Street, NW Washington, DC 20433 All rights reserved Manufactured in the United States of America April 2008 Available online at www.fias.net The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The World Bank Group encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint, please send a request with complete information to: Copyright Clearance Center, Inc. 222 Rosewood Drive Danvers, MA 01923, USA t. 978-750-8400; f. 978-750-4470 www.copyright.com All queries on rights and licenses, including subsidiary rights, should be addressed to: The Office of the Publisher The World Bank 1818 H Street, NW Washington, DC 20433, USA f. 202-522-2422 e-mail: [email protected] FIAS, the multi-donor investment climate advisory service managed by the International Finance Corporation (IFC) and supported by the Multilateral Investment Guarantee Agency (MIGA) and the World Bank (IBRD), is an integrator of services to improve the business-enabling environment of member countries. In particular, FIAS advises governments of developing and transition countries on regulatory simplification, investment policy and promotion, and industry-specific investment climate issues. In its more than 20 years as a donor-funded operation, FIAS has completed over 760 projects in all regions of the world. For more information, visit www.fias.net. The Organizations (IFC, MIGA, and IBRD) through FIAS, endeavor, using their best efforts in the time available, to provide high quality services hereunder and have relied on information provided to them by a wide range of other sources. However, they do not make any representations or warranties regarding the completeness or accuracy of the information included in this publication. Photo credits: Globe/Patricia Hord Design (cover and chapter opening pages); Call center/stock.xchng/Ralph Morris (cover); Freeport/stock.xchng/Martin Erichsen (cover); Business park building/stock.xchng/William Tucker (cover); Welder/stock.xchng/ Niels Rameckers (cover). Special economic ZoneS performance, leSSonS learned, and implicationS for Zone development April 2008 Acknowledgements This publication was produced by a team led by Gokhan Akinci and James Crittle of FIAS, the multi-donor investment climate advisory service of the World Bank Group. The draft report that formed the basis for this publication was developed by a team at BearingPoint led by Kishore Rao, and including Sheri Pitigala, Michael Hoverter, and Jean-Paul Gauthier. The report benefited from the valuable comments and support of Vincent Palmade, Suzanne Smith, Cecilia Sager, and Andrew Stone. Christopher Geurtsen, Samir Stewart, and Etienne Kechichian provided insightful research support and inputs. Nena Terrell and Patricia Steele provided key comments and editorial assistance in finalizing the report for publication. Contents Executive Summary ............................................................................. 1 Introduction ......................................................................................... 7 Study Objectives 7 Report Organization 8 Zone Definition and DevelopmentTrends ............................................. 9 The Challenge of Definition 9 Rationale for Zone Development 12 Major Trends in Zone Development 13 Zone Growth and Key Characteristics ................................................. 23 Overview 23 Zone Development Characteristics by Region 25 Economic Performance and Impacts ................................................... 32 Defining Zone Benefits and Costs 32 Economic Impacts 34 Social and Environmental Impacts 39 Special Economic Zones and Countrywide Reforms 42 Lessons Learned: Common Obstacles to Zone Success 43 Are Private Zones Better Performers? 45 Lessons Learned and Implications for Zone Development ................... 48 What Determines Zone Success? 48 Guidelines for Zone Development 51 Outlook for Zone Development 57 ANNEXES 1. Acronyms and Abbreviations 60 2. Profiles of Zone Programs by Region 61 3. Bibliography 71 iii Tables Report Tables 1 Basic Policy Framework for SEZs .................................................................... 6 2 Types of Zones .......................................................................................... 10 3 Examples of Specialized Zones ................................................................... 11 4 Free Zones in Selected Industrialized Countries .............................................. 13 5 Traditional Zones Were Developed as Enclaves ............................................. 14 6 Zone Concepts in Selected Developing and Transition Economies .................... 15 7 Examples of Freeports/Specialized Zones ..................................................... 17 8 Private and Public Sector Zones in Developing and Transition Economies .......... 18 9 Examples of Public-Private Partnership in Zone Development ........................... 19 10 Examples of Zone Administrative Models ..................................................... 19 11 Zone Administrative and Regulatory Bodies ................................................. 20 12 Dates of Establishment of Zone Programs ...................................................... 24 13 Zones in Developing and Transition Countries ............................................... 26 14 Zone Development Rankings ....................................................................... 27 15 Direct Employment Impact of Special Economic Zones .................................... 34 16 Impact of Zones on Exports ......................................................................... 36 17 Zones as Catalysts and Enclaves .................................................................. 41 18 Obstructed Zone Examples .......................................................................... 44 19 Export Development Mechanisms ................................................................. 51 20 SEZ Basic Policy Framework ........................................................................ 53 Annex Tables 2–1 Profile of Zone Programs in the Americas ............................................................ 61 2–2 Profile of Zone Programs in Asia and the Pacific .................................................. 64 2–3 Profile of Zone Programs in the Middle East and North Africa ............................... 66 2–4 Profile of Zone Programs in Western Europe ....................................................... 67 2–5 Profile of Zone Programs in Central and Eastern Europe and Central Asia .............. 68 2–6 Profile of Zone Programs in Sub-Saharan Africa ................................................... 69 iv Boxes 1 Types of Zones .................................................................................................. 3 2 Special Economic Zone Facilities and Services .................................................... 21 3 ZonaAmerica Business and Technology Park, Uruguay ......................................... 28 4 Zones within Zones: The Unique Case of China ................................................... 29 5 Shannon Free Zone, Ireland .............................................................................. 30 6 Pomeranian Special Economic Zone, Poland ....................................................... 31 7 Both Sides of the Zone Debate........................................................................... 33 8 Government Revenues and Costs from Zone Development ..................................... 39 9 Difficulties in Establishing Industrial Linkages: The Case of the .............................. 43 Dominican Republic 10 Obstacles Faced by the Dakar EPZ ................................................................... 45 11 Private Free Zone Development in the Dominican Republic .................................... 46 12 Private EPZ and Industrial Estate Designation Criteria in Thailand .......................... 47 13 Why Are Tax Holidays an Ineffective Incentive? ................................................... 50 14 Prohibited and Actionable Subsidies under the Uruguay Round ........................... 55 15 Advantages of Using U.S. FTZs .......................................................................... 58 v eXecUtive SUmmarY For developing countries, special economic zones raised about the impact of zones on employment (SEZs) traditionally have had both a policy and an (in terms of gender, wage levels and benefits, worker infrastructure rationale. In terms of policy, the SEZ rights and work conditions), the environment, and can be a useful tool as part of an overall economic related social factors. growth strategy to enhance industry competitiveness and attract foreign direct investment (FDI). Through To a great extent, the fate of zone initiatives has SEZs, governments aim to develop and diversify been determined from the outset, by the choices exports while maintaining protective barriers, to made in the establishment of policy frameworks, create jobs, and to pilot new policies and approaches incentive packages, and various other provisions and
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