Singapore

Asia-Pacific FDI Forum IV

Past Events

The past meetings of the Asia-Pacific FDI Forum have observed discussions on a wide variety of themes including faring APAC’s agreements with global trends in other foreign nations which gathers momentum from both policy and academic perspectives so as to have comprehensive knowledge and understanding, wave of regionalization in rule-making, complementary nature of Chinese bilateral, regional and multilateral initiatives, economic and legal consequences of the China-European Union Bilateral Investment Treaty (BIT) and legal and regulatory framework governing operations of SEZs and possible violations of World Trade Organization (WTO) laws.

In 2015, the world accounted about 4,300 Special Economic Zones (SEZs) in existence and the number is only increasing. China established the first SEZs in 1980. The success of these SEZs and in particular that of Shenzhen, inspired other countries to follow. India set up the first Asian Special Economic Zones in Kandla in 1965, followed by Singapore, Malaysia, and the Philippines, all of whom started their SEZs between 1968 and 1972.

Nowadays, ASEAN Member States have widely adopted the SEZs model, establishing more than 1,000 SEZs and recognizing their vital role in the development of the ASEAN Economic Community. In December 2015, Japan adopted the Law on National Strategic Special Zones as a part of the regulatory reform and more generally as part of “Abenomics”, the economic policies advocated by Prime Minister Abe in 2012. In 2016, Dubai Multi Commodities Centre was awarded “Global Free Zones of the Year” for the second year running, thanks to the constant support the United Arab Emirates provide for investors. In 2017, the Vietnamese Planning and Investment Minister announced the establishment of three ‘outstanding’ SEZs, in the north, centre and south of the country, that offered investors greater incentives and fewer restrictions than those available to date in the country.

As a development strategy, SEZs have benefited not only the advanced economies but also the developing countries and transitional states. The emphasis of SEZs ranges from having relaxed rules relating to export (as in the Export Processing Zones in Bangladesh) to financial liberalization (like in the Shanghai Free Trade Zone) and having industry-specific policies (as in industrial parks for logistics, energy and  telecommunications). Over the years, the establishment of SEZs as a policy tool greatly contributed to  transformation and growth of Asian economies.

However, SEZs are not a cost-free miracle that promote economic growth. In fact, although fiscal incentives can represent a fine start for SEZs, in addition to creating distortions within economies, SEZs are not a sustainable option as they are not in line with the liberalization inherent to the SEZs scheme. At heart, SEZs embody a testing ground, within the territory of states, for trying out bold reforms which look to a more liberal economic policy and a more efficient administrative procedure. It derives that both local and international companies investing in an SEZ will obtain a comparative advantage with respect to companies investing in other areas of the same state. Projections of SEZs are to boost overall competitiveness of a country or a region. It was therefore necessary to elaborate the legal and regulatory framework that guided a SEZs’ development and ensured that they are properly designed, in order to successfully attract businesses and stimulate growth.

From the perspective of international trade and investment law, SEZs are not directly governed by WTO trade rules. Nevertheless, the incentives may be covered by the WTO Agreements. As a consequence, the relationship between SEZs and some WTO Agreements, such as the Agreement on Subsidies and  Countervailing Measures, the General Agreement on Trade in Services and Agreement on Trade Related Investment Measures, and free trade agreements including provisions on the functions and treatment of SEZs raise legal issues.

Furthermore, to attract investment, under SEZs, the application of certain state laws can be exempted, or standards be lowered (such as certain taxes made inapplicable or the standards of labor and environmental laws be lowered). These measures nevertheless, are seen as contrasting with the current tendency of attributing greater importance to quality rather than quantity of investments. In fact, with this aim, states have introduced some changes in their foreign investment policy, for instance issuing new rules to protect the environment and labor rights, and address tax avoidance. These changes contravene specific provisions
included in international investment agreements aimed at the protection of foreign investment and induces foreign investors to allege breaches of international obligations before investment tribunals. The emergence of such discrepancies is one more reason to rethink of the SEZs regulatory framework.