SEZs Under the WTO’s Scrutiny: Defining the Scope of Trade Issues

Abstract

The concept, classification, rationales and legal regimes of special economic zones (SEZs) vary from country to country. SEZs may be called differently as free trade zones (FTZs), export processing zones (EPZs), free ports, enterprise zones, single-factory EPZs or otherwise. SEZs are common in creating a pleasant business climate not available in the rest of the SEZ-hosting country. In particular, governments apply business-friendlier policies and offer a more generous incentive package to investors working in SEZs. These mostly include enhanced physical infrastructure, streamlined administrative services, fiscal benefits, relaxed regulations and export promotion services.

Despite their name, SEZs are not treated in the World Trade Organization (WTO) in a ‘special’ way. This paper examines WTO accession, transparency and case law materials to identify specific trade issues associated with SEZs. The accession instruments of 36 members contain SEZ-related commitments regarding acceptance of WTO-applicability, treatment of zone-located firms, withdrawal of fiscal preferences for SEZ products entering home markets, and notifications.

Questions raised in the transparency procedures range from notifiability of SEZs to the specifics of national SEZ policies and WTO-consistency of SEZ measures. It is remarkable that unlike the past practice, SEZ-related measures have recently been targeted in WTO disputes. Since most of the issues addressed in different WTO forums have concerned SEZ incentives, it is suggested that the host governments, as a minimum, provide incentives in a transparent and non-discriminatory way without any localization, exportation or other overly burdensome requirements.

Keywords: Special economic zones, SEZs, free zones, free trade zones, incentives, WTO, trade law, accession, transparency, dispute settlement, subsidy, SCM Agreement, non-discrimination