The designation special economic zone (SEZ) has evolved to cover a broad range of more specific zone types, including free-trade zones (FTZ), export processing zones, free zones, industrial estates, free ports, urban enterprise zones and others. An FTZ is an area within which goods may be landed, handled, manufactured or reconfigured, and re-exported without the intervention of the customs authorities. And now special economic mega-zones are emerging to avoid the traditional enclave-like character of SEZs and accommodate the trend towards global production networks.
In Asia, SEZ development remains inconsistent. The most profitable locations have been the immediate hinterlands of global gateways, and the tax base is usually concentrated in the capital cities. The supply of Asian FTZs far exceeds demand.
The US Congress is considering the Trans-Pacific Partnership (TPP) trade deal in 2016, and ratification is likely to be difficult in a presidential election year. The TPP pact is a major component of president Barack Obama’s “pivot to Asia”, but not all Asian FTZs will be affected.
China has not yet expressed interest in the TPP negotiations, though it already has five city SEZs, one provincial SEZ and 14 Coastal Development Areas. Indeed, China has posited a rival trade pact, the Free Trade Area of the Asia Pacific (FTAAP) to counter the TPP. In October 2014, China launched the Asian Infrastructure Investment Bank (AIIB) with a mandate to lending $50bn to projects across the Asia-Pacific region, although AIIB excludes Japan, Australia and South Korea, the US’s closest allies in the region.
Through the TPP, the US is seeking to establish formal trade agreements with five countries (Japan, Malaysia, Brunei, New Zealand and Vietnam), in addition to existing trading partners such as Australia, Singapore and Malaysia. Hence, FTZs in Asian countries that are not TPP participants will be unaffected by TPP issues such as services, quotas and tariffs, as well as environmental, labour and intellectual property standards.
The way forward will not be clear until 2016, and depends on developments regarding Asian FTZs, TPP and FTAAP. Meanwhile, the spiderweb of geopolitics, FTZs and trade pacts is making it harder for corporates to expand their business. More overtime for all of us in Asia.
Lawrence Yeo is CEO of AsiaBIZ Strategy, a Singapore-based consultancy that provides Asia market research and investment/trade promotion services. Email: firstname.lastname@example.org