Efforts within the free trade zones (FTZs) community to capitalise on trends reshaping global investment have gone up a notch over the past year. Governments are doubling down on free zones’ benefits to capture business created by reshoring and nearshoring. At the same time, Unctad is pushing ahead with its Global Alliance of Special Economic Zones (Gasez), which seeks to maximise free zones’ contribution to the UN Sustainable Development Goals.
Martín Gustavo Ibarra, strategic advisor to the World Free Zones Organization’s (WFZO) board and its former vice-chairman, shares his insights on how SEZs are adapting to maintain their competitiveness in a changing world.
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Q: Last year there was a surge in foreign investment into SEZs. Is this linked to reshoring prompted by disrupted supply chains during the pandemic?
A: Reshoring is caused by a mix of factors, not only Covid-19. The movement began around 10 years ago when prices started to rise in China. For example, in 2014 the Mexican think tank Centro de Investigación para el Desarrollo launched the Reshoring Mexico initiative, which told the story that as labour and transportation costs in China increased, projects were less likely to be there.
The Mexicans saw opportunities to come from a flow of investments back to the Americas. So reshoring is a combination of factors including [these changes in] China, the US-China trade war and Covid-19, which was the gasoline on the fire. But it would be impossible for companies to do all these relocations without FTZs, because they make it easier to import equipment, reduce business costs and provide access to world- class infrastructure.
Q: What is free zones’ role in the global switch to a green economy?
A: They are playing an important role. A big challenge that the world has is to reduce the cost of green energy to compete with traditional sources. The most efficient way to do that — be it solar, wind or hydrogen — is using the cost savings that come from free zones. For example, FTZs have been created to produce only hydrogen.
Meanwhile, other free zones are building renewable power generation close to their sites. You can’t export green power, so free zones that can produce or have access to green energy will have the tools to attract new businesses.
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Q: WFZO is part of Unctad’s new Gasez programme. What is best practice for FTZs to become models of sustainable investment?
A: They must follow World Trade Organization rules and the OECD code of conduct on clean free zones, which tackles illegal activities and trade flows. We at the WFZO are working to develop an international certification for so-called ‘safe’ free zones, meaning those that comply with the OECD rules.
Free zones must also have digitised custom procedures, because they must be able to clear merchandise in real time. They need world class infrastructure, which includes green parks. You can tell the status of a free zone by the quality of its trees and flowers. They also need training programmes and policies promoting diversity and protecting the environment.
Q: Sustainability aside, what must FTZs do to modernise alongside shifts in the global economy?
A: It is important for free zones to discover their country’s opportunities within the re-globalisation process. They must have their eyes wide open to discover this. We are not in a period of deglobalisation. Instead, this is re-globalisation. We are reshaping international trade, and that creates new opportunities for new regions. Free zones are the laboratory of that new business.
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