With the World Bank drafting the legislation for Special Economic Zones in Papua New Guinea and the government eager to use the new Act to declare the Pacific Marine Industrial Park in Madang as PNG's first SEZ, it is timely to review a report on the Untold Agonies that SEZs have created in SE Asia and critically examine some of the benefits they supposedly bring

In Special Economic Zones: Untold Agonies. Experiences from Asian Countries, Dr Ujjaini Halim examines the reasons behind the proliferation of Special Economic Zones across Asia and their impacts on the lives of local people.

Halim describes SEZs as 'isolated foreign enclaves' dedicated to industrial activities, which receive very special and preferential treatment from the host government. The enclaves have their own rules and regulations, are duty and tax-free and receive other generous incentives from the state. Zones are commonly exempted from environmental regulations and labour laws and states often have very limited powers to intervene. They can serve international and domestic markets, but are focused on exports.

Halim finds that economic growth, as defined by a rising Gross Domestic Product is not necessarily the same as economic development and 'nor does it always mean an improvement on the well-being of the majority of the people'.

'A nation's development path should be defined by the people's aspirations and priorities rather than corporate interests', she suggests.

The report concludes that 'it is erroneous to claim SEZs foster all-round development and result in poverty-reduction'.

Neoliberalism: the driving force behind SEZs

'The SEZ epitomises the principles of the neoliberal economy' and is highly promoted by multilateral institutions [such as the World Bank] as part of trade liberalisation and structural adjustment programs.  

It is ironic, though, that SEZs require large amounts of state intervention and support to establish and survive, while neo-liberals espouse the benefits of reduced state intervention and free market economics.

Economic zones have grown rapidly, from 80 projects in 30 countries in the 1970s to over 3,000 zones in more than 120 countries by 2003. 26% are in Asia, mainly in China, Malaysia, Indonesia, Philippines and Thailand.

This proliferation means states are competing against each other to offer the best incentives to attract industries into the zones which means increasing tax incentives, lowering labour, immigration and environmental standards and offering land, better infrastructure and less regulation. Halim provides details of the generous incentives offered in different Asian countries.

SEZs and growth

Advocates of SEZs claim they are the engines of economic growth, however experiences from Asia are not uniform enough to support this general conclusion. While some countries have been able to benefit temporarily, others have not.

While China, India, Singapore and Indonesia have registered a growth in GDP over the last 20 years and this has been due in part to their success in attracting foreign investment and increasing exports, whether this growth has contributed to all-round development remains a question. In China and India unemployment, acute hunger and poverty remain and exemplary economic growth is not reflected in similar improvements in Human Development Indicators.

Foreign investment that seeks to exploit a country's comparative advantage in the export market [for example Papua New Guinea's preferential access to the European tuna market] will not automatically translate into the economic well being of the host country, as multinational corporations do not reinvest profits there.

Increasing foreign investment is not synonymous with economic growth, empowerment of domestic industries, sustainable employment generation nor does it guarantee skill upgrading in the host country. It is also risky and unsustainable in the long run.

The lucrative packages offered to companies to invest in SEZs and the freedom to repatriate profits lead to a loss of revenues and mean the zones do not contribute to long-term economic development and self-reliance. In India the losses have been estimated at US$19.5 billion. As the number of SEZs continues to grow and competition becomes greater the losses to nation-states will only increase. The problem is only exacerbated as existing industries shift from non-SEZ areas in to SEZs.

SEZs can also cause a reduction in public spending on essential services as government revenues are diverted initially to pay for the development of SEZs and later to repay loans.

Employment and labour rights

SEZs are promoted as sources of large-scale employment, which contributes to economic growth and poverty alleviation, and are supposed to contribute to skills development and technological upgrading. However, there is no conclusive evidence to support this.

While SEZs have generated many thousands of jobs they have largely failed to address unemployment problems, as the jobs are nominal compared to annual increases in the size of the labour force.

SEZs have also failed to address the very high numbers of working poor in Asia.

The sustainability of the jobs and the working conditions also need to be considered. 

Experience shows the nature and quality of the jobs created in SEZs depend largely on the labour market in the host country and on global market demands. The main attraction for big investors in Asia is cheap labour and countries have had to use this as an incentive to lure investors. Thus, jobs created in SEZs in Asia are mainly low skilled, temporary and low-paid with no job security. Women constitute the majority of the cheap-labour force in SEZs. 'They are generally unskilled or semi skilled and are employed in intensive, repetitive work'.

The competition between SEZs in different to attract investors means 'capital flight' is a constant risk and this is used to further curb workers rights and pay.

'Labour laws are usually poorly enforced in SEZs and governments have little power to monitor and enforce labour rights'. Internationally agree core labour standards are frequently violated in SEZs. International rights to a minimum wage, defined working hours, a safe working environment, freedom of association, freedom to join a union, the rights of female workers ad the abolition of child labour are 'constantly being violated in SEZs all over Asia'.

Health standards for workers can also be very poor. Safety regulations are often not followed and factory fires are 'quite common' claiming hundreds of lives.

Women make up the majority of the workforce in SEZs and 'the high incidence of abuse of female workers is a matter of grave concern in SEZs'. SEZs are not a tool for women empowerment in poor countries and are instead enclaves of exploitation.

Access to land, livelihoods and food security

Land and SEZs are inseparable issues. SEZs demand large areas of land, which is often compulsorily acquired. This has serious consequences on livelihoods and food security. 

Landlessness contributes to poverty and hunger in Asia and land acquisition for SEZs has resulted in the eviction of thousands of people (and in China millions have been evicted from land converted to industrial uses).

Access to land determines the economic and social position of rural households in Asia and poverty is inversely related to access to land. But landlessness in Asia is intensifying at an alarming rate due to increasing demands for land by corporate interests. Landlessness in Asia is 'most appalling' in areas designated for foreign investment and export production. 

'SEZs, due to their high demand for land, has emerged as the single largest threat to the livelihood of peasants in Asia.'

SEZ promotion across Asia has the ability to compromise the food sovereignty of nation-states in the future.

In Asia agriculture is the single largest source of employment. 'To improve the standard of living of the poor and ensure all-round development, nations should adopt polices which strengthen the basis of agriculture'. 'Replacing agriculture with SEZs, is a path to self destruction which will not only weaken agriculture but also endanger the sovereignty of nations in the long-run.'

Emerging people's resistance to SEZs

'As SEZs expand into new regions, the victims of this offensive are mobilizing themselves to fight back. The resistance to SEZs is advancing on two fronts; firstly, workers in SEZs are raising their voices against unjust and exploitative working conditions; and, secondly, rural people who are suffering the loss of their livelihoods.'

'In China, SEZs are doing 'miracles' for the few, at the cost of irrevocable damage to the environment and the economy and peoples resistance is intensifying'. In 2005, there were more than 87,000 riots, protest marches and rallies.

Halim details protests that have occurred in India, Sri Lanka, Bangladesh, Vietnam and the Philippines. 

'The only way for the SEZ to survive in the highly competitive global market is to intensify the exploitation of labour and to demand more incentives from the state, leading to further marginalisation of the poor in the host countries'. 

'The emergence of SEZs in Asia and the large scale negative impact of these economic zones on the livelihoods of the poor leads us to question the existing model of development based on neo-liberal principles.'