Special Economic Zones: Select Advantages and Substantial Problems

I. Introduction

Special Economic Zones (SEZ’s) are regions within a country that have economic laws more liberal than that country’s typical economic laws.[1] They are usually used by developing countries to attract investment and serve as enclaves of economic freedom for businesses located within them. Originating in China in the early 1980’s, SEZ’s have now spread across multiple continents to dozens of countries including Brazil, India, Iran, Jordan, Kazakhstan, Pakistan, the Philippines, Poland, Russia, and Ukraine.[2] While SEZ’s offer a plethora of relaxed laws and economic advantages to investors, they also provide substantial problems for residents of the communities in which they are located and people who comprise the labor force of SEZ industries. This article seeks to examine the economic, environmental and social impact SEZ’s have on various stakeholders and discuss the current trends in SEZ development.

II. Advantages or SEZ’s

Special Economic Zones offer many advantages to investors otherwise wary of dealing with an unfamiliar foreign regime. Those advantages include relaxed labor, environmental, registration and land use laws, along with lower taxes, less cumbersome procurement of materials and more streamlined negotiation of projects.[3]  By offering tax breaks, reduced bureaucratic interference, and enhanced legal enforcement of property rights, local jurisdictions have been able to create regulatory environments more conducive to business and more attractive to foreign investors.[4] Governments, including that of China, often grant extensive legislative autonomy to the SEZ.[5] For governments struggling to establish modern industrial infrastructure throughout their countries, SEZ’s provide the next best thing: pockets of excellent infrastructure.[6] Not only do SEZ’s attract industrial development, which inevitably provides manufacturing jobs, but their existence also promotes the development of secondary industries to service firms. [7]

III. Problems with SEZ’s

In spite of their seemingly ideal economic backdrops, SEZ’s are not problem free. They raise sustainability issues, as SEZ development is often very rapid while environmental precautions are thin. [8]  As more arable land is taken over for urbanization and industrialization, issues related to changes in land use have become a major source of dispute between the public and the government. [9] Protests against land acquisition and deprivation have become a common feature of rural life in China, especially in the provinces of Guangdong (south), Sichuan, Hebei (north), and Henan province.[10] Guangdong has been affected more severely than the other provinces. [11]

IV. China: An SEZ Case Study
In many SEZ’s, particularly those in China, social problems such as the exploitation of the working class, trump their environmental counterparts. The urban residents of China’s Shenzen SEZ resent and blame migrants for social problems related to the massive influx of people into the city. [12]  Shenzhen's burgeoning population — and the large portion of transient residents, is causing headaches for city planners. [13] While both the central and local governments have recognized the indispensable contribution of migrant labor, so far government policy (as of 2002) has provided migrant laborers few protections. [14] The high turnover of migrant workers, coupled with a large percentage of the workers being women, often results in prostitution. [15] The Chinese government’s response to solving this problem often results in violence and human rights violations. In 2006, thousands of armed police were deployed to quell a protest by 3,000 people who were left without jobs after the closure of massage parlors and discos in Shenzhen. [16] That same year authorities put approximately 100 women and men arrested in connection with prostitution on display in the middle of a major intersection for public humiliation. [17] Along with urban residents upset over the impact of SEZ’s, rural farmers show resentment over the loss of farmland, corruption, worsening pollution and arbitrary evictions by property developers. [18]

V. The Future of SEZ’s
Poland’s plan for SEZ’s may yield some clues as to what the future may hold for SEZ’s worldwide. Polish SEZ’s are running out of room to accommodate new investors. [19] Although some of the SEZ’s have increased their areas, the limit on such territorial expansion, which is determined by legislation, has been almost exhausted. [20] Moreover, in accordance with 1994 legislation, the SEZ’s are scheduled to close and dissolve by the end of 2017. [21] While such limitations are foreseeable for countries with smaller land areas like Poland, geographic giants like China, India and Russia may be slow to follow suit.


[1] Pankaj Tripathi, Which is the World’s First SEZ?  The Times of India, Sept. 23, 2007 http://timesofindia.indiatimes.com/Opinion/Sunday_Specials/Open_Space

[2] Id.

[3] Joanna Smith, Note, Amending the Philippines' Laws Governing Foreign Property Ownership: The Extent to Which Mexican Law Can Serve as a Workable Template, 35 Ga. J. Int'l & Comp. L. 613, 621 (2007).

[4] Hal Blanchard, Constitutional Revolutionism in the PRC: Seeking Truth From Facts,  17 Fla. J. Int'l L. 365, 391 (2005).    

[5] Id.

[6] Prowling Tiger: India Pushes Anew for Special Economic Zones, Economist, July 9, 2007, http://www.economist.com/agenda/displaystory.cfm?story_id=9462984.

[7] Christine Bowers, Special Economic Zone or Land Grab?,  Private Sector Development Blog – World Bank Group, Oct. 3, 2006,  http://psdblog.worldbank.org/psdblog/2006/10/special_economi.html.

[8] Bhaskar Goswami, SEZ’s: Lessons From China, India Together, Feb. 9, 2007, http://www.indiatogether.org/2007/feb/opi-sezschina.htm#continue.

[9] Id.

[10] Id.

[11] Id.

[12] Lawrence Cox, Freedom of Religion in China: Religious, Economic and Social Disenfranchisement for China’s Migrant Workers, 8 Asian-Pac. L. & Pol'y J.  370, 418 (2007). 

[13] Id.

[14] Ronald C. Brown, China’s Employment Discrimination Laws During Economic Transition, 19 Colum. J. Asian L. 361, 377 (2006).

[15]  Goswami, supra note 8.

[16] Natalie Huls et al, International Legal Updates, 14 Hum. Rts. Br., 53 (2007).

[17] Id.

[18] Goswami, supra note 8.

[19] Monika G. Kislowska, The Future of Special Economic Zones in The Aftermath of Poland’s Accession to the European Union, 5 J. Int'l Bus. & L. 174 (2005).

[20] Id.

[21] Id.