SEZ “Concept that changed the way Economy

Works”

Submitted to:

Prof. J Shettigar

COMPARATIVE STUDY OF SEZ

INDIA-CHINA-TAIWAN

Submitted by:

Sumit Rekhi (13DM195)

Surinder Singh (13DM197)

Tushar Mittal (13DM205)

Udit Jain (13DM206)

Utkarsh Singh (13DM209)

Vishesh Raja (13DM216)

TABLE OF CONTENTS

INTRODUCTION ............................................................................................................................... 3

TYPES OF ZONES .............................................................................................................................. 4

HISTORY AND EVOLUTION OF SEZ .................................................................................................. 5

KEY OBJECTIVES OF SEZ .................................................................................................................. 5

INCENTIVE/ FACILITIES TO SEZ ENTERPRISES ................................................................................. 6

SEZ INSTITUTIONAL FRAMEWORK .................................................................................................. 8

NECESSITY OF SEZ ........................................................................................................................... 9

SEZ IN INDIA .................................................................................................................................. 10

SEZ IN CHINA ................................................................................................................................. 13

SEZ IN TAIWAN .............................................................................................................................. 15

INDIA AND CHINA SEZ COMPARED ............................................................................................... 20

COMPARISON ................................................................................................................................ 22

REFERENCES .................................................................................................................................. 23

INTRODUCTION India was one of the first in Asia to recognize the effectiveness of the Export Processing Zone

(EPZ) model in promoting exports, with Asia’s first EPZ set up in Kandla in 1965. With a view to

overcome the shortcomings experienced on account of the multiplicity of controls and

clearances; absence of world-class infrastructure, and an unstable fiscal regime and with a view

to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was

announced in April 2000. A Special Economic Zone (SEZ) i s a g e o g r a p h i c a l r e g i o n

t h a t h a s economic laws that are more liberal than a country's typical economic laws. The

category 'SEZ' covers a broad range of more specific zone types, including Free Trade Zones

(FTZ), Export Processing Zones (EPZ), Free Zones (FZ), Industrial Estates (IE), Free Ports, Urban

Enterprise Zones and others. The most successful Special Economic Zone is in China, Shenzhen

that has been developed from a s m a l l v i l l a g e i n t o a c i t y w i t h a p o p u l a t i o n

o v e r 1 0 m i l l i o n w i t h i n 2 0 y e a r s . Following the Chinese examples, SEZ have been

established in several countries, including India. According to World Bank estimates, as of 2007

there are more than 3,000 projects taking place in SEZs in 120 countries worldwide. SEZs

have been implemented using a variety of institutional structures across the world r a n g i n g

f r o m f u l l y p u b l i c ( g o v e r n m e n t o p e r a t o r , g o v e r n m e n t

D e v e l o p e r , government regulator) to 'fully' private (private operator, private developer,

public regulator). In many cases, public sector operators and developers act as quasi

government agencies. SEZs are often developed under a Public-Private-P a r t n e r s h i p

a r r a n g e m e n t , i n w h i c h t h e p u b l i c s e c t o r p r o v i d e s s o m e l e v e l o f support

to enable a private sector developer to obtain a reasonable rate of return on the project.

MAIN OBJECTIVES OF SEZ (a) Generation of additional economic activity

(b) Promotion of exports of goods and services

(c) Promotion of investment from domestic and foreign source

(d) Creation of employment opportunities

(e) Development of infrastructure facilities

GOALS OF SEZ CREATION Economic Goals:

E n h a n c e m e n t a n d e x p a n s i o n o f f o r e i g n e c o n o m i c a n d f o r e i g n

t r a d e activity

Attraction of foreign and national investments

Promotion of export of industrial products

Increasing of competitiveness of national production and its economic

efficiency

Social Goals:

Creation of new work places and increasing employment

Training and increasing of qualification of employees

Scientific and Technical Goals:

Active using of modern foreign and domestic technologies

Concentration of scientif ic and technical personnel, including foreign one,

for development of priority sectors

TYPES OF ZONES Special Economic Zone

Export Processing Unit (EPU)

Industrial Parks or Industrial Estates (IE)

Free Economic Zones.

Expertise Zone

Financial Service Zone

Commercial Zone

Free Port Zone

HISTORY AND EVOLUTION OF SEZ

KEY OBJECTIVES OF SEZ

Generation of additional economic activity

Promotion of exports of goods and services

Promotion of investment from domestic and foreign sources

Creation of employment opportunities

Development of infrastructure facilities

With above mentioned objectives of SEZ in place basic norms or grants that are placed by the

govt. to facilitate the smooth functioning of SEZ are:

Duty-free import/domestic procurement of goods for the development, operation and

maintenance of SEZ units.

Exemption from the Income Tax of the individual countries.

Exemption from the Minimum Alteration tax of the country.

Softening ECB (External Commercial Borrowing) norms of the country.

Minimum level clearance at center or state level.

INCENTIVE/ FACILITIES TO SEZ ENTERPRISES Operational advantages: •Sectoral restrictions on manufacturing sector inapplicable within SEZ

• All SEZ activities on self certification basis

•Single window clearance

•Inter unit transfer of goods permitted

•No routine customs examination of export and import cargo

•Forward looking labour laws under consideration

Fiscal advantages: 100% FDI for manufacturing units operating inside SEZs Through automatic approval

route in almost every sector.

100% profit repatriation facility from export earnings

Permission to sell within Domestic Tariff Area (DTA) and an exemption f r o m

a S p e c i a l A d d i t i o n D u t y ( S A D ) s u b j e c t t o t h e c o m p a n y h a v i n g a positive

Net Foreign Exchange Position (NFEP)

S u p p l i e s f r o m D T A s t o b e t r e a t e d a s e x p o r t s w h i l e t h o s e f r o m S E Z s

t o DTAs to be treated as imports

Investments in SEZ treated as infrastructure development and eligible for exemption

local inputs at reduced cost without the excise, VAT and other levies of India

Duty free import of materials for construction, capital goods and goods

required for O&M

Customs and Excise: SEZ units may import or procure from the domestic sources, duty free, all their

requirements of capital goods, raw materials, consumables, spares, packing

materials, office equipment, DG sets etc. for implementation of their project

in the Zone without any license or specific approval.

Duty free import/domestic procurement of goods for setting up of SEZ units.

G o o d s i m p o r t e d / p r o c u r e d l o c a l l y d u t y f r e e c o u l d b e u t i l i z e d o v e r

t h e approval period of 5 years.

Domestic sales by SEZ units will now be exempt from SAD.

Domestic sale of finished products, by-products on payment of applicable Custom duty.

Domestic sale rejects and waste and scrap on payment of applicable Custom duty on the

transaction value.

Income tax Physical export benefit

100% IT exemption (10A) for first 5 years and 50% for 2 years thereafter.

Reinvestment allowance to the extent of 50% of ploughed back profits

Carry forward of losses

Foreign Direct Investment: 100% foreign direct investment is under the automatic route is allowed in

manufacturing sector in SEZ units except arms and ammunition, explosive, atomic

substance, narcotics and hazardous chemicals, distillation and brewing of alcoholic

drinks and cigarettes , cigars and manufactured tobacco substitutes.

No cap on foreign investments for SSI reserved items.

Banking / Insurance/External Commercial Borrowings Setting up Off-shore Banking Units allowed in SEZs.

OBU’s allowed 100% Income Tax exemption on profit for 3 years and 50 %for next two

years.

External commercial borrowings by units up to $ 500 million a year allowed without any maturity

restrictions.

Freedom to bring in export proceeds without any time limit.

Flexibility to keep 100% of export proceeds in EEFC account. Freedom to make overseas

investment from it.

Commodity hedging permitted.

Exemption from interest rate surcharge on import finance.

SEZ units allowed to ‘write-off’ unrealized export bills.

Benefits offered by the SEZ

The Government of India through the SEZ Policy has made available a basket

of I n c e n t i v e s , E x e m p t i o n s , C o n c e s s i o n s a n d P r i v i l e g e s ( I E C P )

t o t h e S E Z Developers and the SEZ Units. The benefits available to the Developer

and Unit under the SEZ Policy, essentially translate into :

Reduced Cost of Infrastructure

Reduced Cost of Utilities

Reduced Cost of Raw Material

Reduced Cost of Capital

Reduced Cost of Manpower

Operational Ease

SEZ INSTITUTIONAL FRAMEWORK

NECESSITY OF SEZ

The SEZ’s are important in today’s context for the third world countries which have been in the

race for rapid economic growth. There are many positives which emerge out of establishing an

SEZ. Let us have a look on these factors.

For undertaking any kind of massive development program the government requires huge

amount of funds. So it looks out for potential partners to help the government carry out the

program. Now say for setting up an SEZ, the government may tie up with a private partner

whose willing to invest in that area, thus a win-win situation for both. As in the government

gets the capital needed to establish the required infrastructure and also the expertise. The

private player on the other hand gets the right to market and use the SEZ’s with relaxed tax

laws, thereby increasing its revenue generating capacity and also carrying out the economic

growth of the company in a more efficient way with the better tax policies. Actually SEZ’s with

relaxed import tariffs help the Import dependent and export driven industries to flourish by

helping them develop manufactured goods at competitive prices.

SEZ’s create immense employment opportunities. The setting up of SEZ’s creates lot of indirect

employment in terms of labour required. Then after the completion it enables employment in

the relevant industries operating in the SEZ. Then there are lots of indirect employments

generated wherein people start investing around SEZ. For example SEZ’s are townships of their

own; thereby there are shopping malls, restaurants, amusement parks setup around to attract

people, thus resulting in more economic development in that area.

Moreover SEZ’s improve the country’s foreign export. Because of the increased FDI and Private

Equity presence, the local manufacturers get to tie up with these big names and export their

products which now carry a better brand value, therefore helping in creating a greater demand

for the goods of local manufacturers. Moreover the massive capital required for expansion is

brought in form of FDI resulting in increased economic activity.

The increased exports from the country bring in more revenue for the country which improves

the economic growth.

SEZ’s help in creating a balanced economic growth in a country if they are properly located and

implemented leading to tapping of local talent and contributing to increased economic activity

in the area.

SEZ IN INDIA

Asia’s first EPZ (Export Processing Zone) was set up in Kandla in 1965. Seven more zones were

set up thereafter. However, the zones were not able to emerge as effective instruments for

export promotion on account of the multiplicity of controls and clearances, the absence of

world-class infrastructure and an unstable fiscal regime. While correcting the shortcomings of

the EPZ model, some new features were incorporated in the Special Economic Zones (SEZs)

Policy announced in April 2000.

To in still confidence in investors and signal the Government’s commitment to a stable SEZ

policy regime and with a view to impart stability to the SEZ regime and thereby generating

greater economic activity and employment through the establishment of SEZs, a

comprehensive Special Economic Zones Act, 2005, was passed by Parliament in May, 2005 and

received Presidential assent on the 23rd of June, 2005. The SEZ Act, 2005, supported by SEZ

Rules, came into effect on 10th February, 2006, providing simplification of procedures and

single window clearance on matters relating to Central and State governments. As a result of

this Act and Rules coming into force, it was envisaged that the SEZs would attract a large flow of

foreign and domestic investment in infrastructure and production capacity leading to

generation of additional economic activity and creation of employment opportunities.

Objectives of the SEZ

Act

Promotion of exports of goods

and services

Promotion of investment

from domestic and foreign

sources

Creation of employment opportunities

Generation of

additional economic

activity

Development of

infrastructure facilities

Tax benefits offered by SEZ are:

Duty free import/domestic procurement of goods for development, operation and

maintenance of SEZ units.

100 per cent income tax exemption on export income for SEZ units for first five years, 50

per cent for next five years thereafter and 50 per cent of the ploughed back export

profit for next five years.

Exemption from Minimum Alternate Tax (MAT).

External Commercial Borrowing (ECB) by SEZ units up to USD500 million per year

without any maturity restriction through recognised banking channels.

Exemption from Central Sales Tax.

Exemption from Service Tax.

Single window clearance for Central and State level approvals.

Exemption from State sales tax and other levies as extended by the respective state

governments.

Employment, Investment and Exports in SEZ

The details of employment and investment generated in the Special Economic Zones are given

below

Direct Employment in Special Economic Zones (as on 30.09.11) :

1. SEZs in India provide direct employment to over 8,15,308 persons

2. The incremental employment generated by the SEZs in the short span of time since the SEZ Act came into force in February 2006, is of the order of 6,80,604 persons

Investment in Special Economic Zones (as on 30.09.11):

1. The Special Economic Zones notified under the SEZ Act, 2005 have already made an investment of ` 2,31,159 crore since the coming into force of the SEZ Act in February, 2006.

Export Performance:

1. The exports from the SEZs have been to the tune of 2,20,711.39 crore (as in 2010). Exports from the functioning Special Economic Zones during the 2003-2010 are in Table below:

SUCCESS STORIES OF INDIAN SEZs 1 Nokia Special Economic Zone (Telecom Equipment SEZ)

Physical Exports of USD2.2 billion6 in four years i.e from FY07 to FY10.

Investment of USD0.6 billion has already been made in this SEZ, out of which FDI is USD 0.2 billion.

Projected investment of USD0.6 billion and projected direct employment of 20,000 persons.

2 Mahindra City SEZ (Apparel and fashion accessories; IT/Hardware; Auto-ancillary)

Physical Exports worth USD0.5 billion in four years i.e from FY07 to FY10.

Direct employment provided to 16,257 persons.

Investment of USD0.4 billion has already been made in this SEZ, out of which FDI is USD41.5 million.

Projected investment of USD0.5 billion and projected direct employment of 57,236 persons.

3 Apache SEZ Development India Private Limited (Footwear SEZ)

Physical Exports worth USD31.3 million in four years i.e from FY07 to FY10.

Investment of USD115.4 million has already been made in this SEZ, out of which FDI is USD89.2 million.

Projected direct employment of 20,000 persons.

4 Reliance Jamnagar Infrastructure Limited (Multi-product SEZ)

Physical Exports worth USD15.7 billion in two years i.e from FY09 to FY10.

Investment of USD8.1 billion has already been invested in this SEZ, out of which FDI is USD15.2 million.

Projected investment of USD7.6 billion

SEZ IN CHINA From the 1980s, special economic zones (SEZ) played an instrumental role in the integration of

China to the global economy and in its economic development. Their setting aimed at attracting

foreign investments and technology (many through the setting of joint ventures), provide

employment, utilize Chinese and imported resources, and support capital formation. The bulk

of the output was to be exported to foreign markets, underlining that SEZ were part of an

export oriented strategy that has characterized many Asian economies since World War II

(Japan being the first to develop such a strategy in the region).

The following incentives were offered to foreign investors: Labor. The ability to use the Chinese

vast pool of low cost labor was a powerful incentive to locate in SEZs. Foreign firms have also

the right to hire and fire labor, which was different from the then prevailing Chinese lifetime

system of public or collective firms. Land use. SEZs were physically developed as planned

entities with infrastructures and access to a container port complex (airports played a more

significant role later) so that parts and raw material could easily be brought in for processing

and shipped to foreign markets. A degree of protection of private property was also significant,

since until 2004 there was no constitutional protection of private property in China outside

SEZs. SEZs offered reduced corporate income tax rate, including income tax exemptions for

foreign nationals working in SEZs. No custom duties were levied on imported materials and

parts as long as they were for re-exports.The development of SEZ went through several stages

which were linked with the setting and expansion of major container port infrastructure:In

1980, the first four SEZs were established in proximity to Hong Kong (Shenzhen), Macau

(Zhuhai) and Taiwan (Shantou and Xiamen). Their location was aimed at attracting "overseas"

Chinese capital and also as a showcase for the potential impacts of such a reform. This was

dramatically different from the centrally planned policies that have taken place since the

setting of the People's Republic of China in 1949. These SEZs were also close to Hong Kong, the

only modern port facility of the time, which had effective access to the global shipping network.

By 1984, the SEZ model was judged to be successful and could be expanded. The initial setting

of the four SEZs was solely concerning southern China, so 14 coastal port cities, from the Dalian

to Beihai, were selected to become SEZs. This triggered the development of modern port

infrastructures, particularly container ports, which were essential to support an export-oriented

strategy.The importance of specific economic clusters was acknowledged in 1985 when the

status of SEZ was expanded to the Yangtze River Delta, the Pearl River Delta, and the Xiamen-

Zhangzhou-Quanzhou Triangle (Min River delta). This also provided additional space for the

setting of industrial districts. In time, the Pearl River Delta would become the world's most

important manufacturing cluster. The development of manufacturing clusters was also

accompanied by the development of port terminal clusters in these deltas, particularly for the

Yangtze River Delta and the Pearl River Delta.In 1988, the status of SEZ was expanded to Hainan

Province which mostly developed the touristic and agribusiness sectors, which became the fifth

SEZ.

By the late 1990s, the province would become an important touristic destination for domestic

tourism. Since their inception, SEZs and their positive economic impacts were solely a coastal

endeavor with interior provinces lagging behind. By the late 1980s, a substantial migration of

labor from interior to coastal provinces was beginning to be observed. In an attempt to

counterbalance this trend, six Yangtze River ports and 11 border cities were granted the SEZ

status, in addition to all the capital cities of interior provinces and autonomous regions. Yet,

accessibility to port infrastructures and foreign markets remained the dominant factor in the

dynamism of SEZs and comparatively, limited development took place in interior provinces until

the 2000s.By 1992, 60 SEZs have been set in China, including 5 initial SEZs, 15 coastal port cities,

8 river port cities, 19 inland cities and 13 border cities. Then, the process received wide

adoption, particularly through the coastal provinces of China. Ten years later, by 2005, there

were 210 national development zones and 1,346 provincial development zones. China's

geography of production is therefore strongly coordinated by its proximity to coastal areas and

their capabilities to access global markets through port and airport terminals. The most

successful Special Economic Zone in China, Shenzhen, has developed from a small village into a

city with a population over 10 million within 20 years.

SEZ IN TAIWAN In Taiwan, the development has received this kind of free economic zones as export processing

zones. The concept of export processing zones appeared on the country in the 60's. While the

bulk of Taiwan's exports amounted to agricultural products. There was no infrastructure

needed for industrial development. To improve the investment climate and accelerate

industrial development, the government took part of the country under the export processing

zones, where the intention was to create industrial infrastructure and to introduce simplified

procedures for investment along with providing tax incentives.

The law establishing export processing zones and management was adopted by Parliament in

January 1965. The first zone is an area of about 68 ha was established in 1965-1968 close to the

port Kaosyung, the following two – in Nantz (98 hectares) and Taygunge (26 ha) – have begun

to operate in 1969. By April 1997 the total number of enterprises in these zones was 220.

Currently planned are three special zones in Chungtao, Chengkunge and Syaokane.

By April 1997 total investment in the three export processing zones in Taiwan amounted to 1.7

billion dollars, of which the joint ventures accounted for 54%, and net foreign and purely

domestic investments – 46%. This indicates that the export processing zones have greatly

contributed to attracting not only foreign but also domestic investors.

In Taiwan, the costs of establishing the three zones, including the purchase and development of

land management and operation of zones, as well as the loss of the budget as a result of

exemptions on taxes and duties amounted to about $ 3 billion

Foreign trade

The activities of export processing zones has contributed significantly to the expansion of

foreign trade of Taiwan. In the years 1985-1996 total exports from the zones of greater than $

49 billion, averaging about 4.1 billion year.

Tax benefits

In Taiwan, companies are exempt from customs duties on imports of raw materials, spare parts,

components and equipment imported for use by enterprises registered there. In addition,

granted tax holidays on corporate income tax liability. Period covered by this tax benefit in

Taiwan up to 5 years.

Employment

In April 1997 directly at enterprises zones worked almost 55.5 thousand people. Job creation in

the zones, in turn, leads to increased employment in ancillary industries beyond.

Revenue

Revenues of Taiwan in the form of taxes and duties, payment of licenses for construction,

contributions for compulsory insurance of workers, interest on loans reached approximately 5.9

billion Taking into account the wages paid to workers, domestic procurement, payment of

transportation revenues received by Taiwan's three zones, approximately 10.3 billion dollars

Taiwan is also an example of successful use of zones to attract investment and promote

economic and social development.

TAIWAN'S SCIENCE-BASED PARKS

1. The Hsinchu Science Park (HSP) was established in 1980 by the National Science Council

called Taiwan's Silicon Valley. Over 430 companies (including many listed on TAIEX) employing

over 130,000 people are located within the park, and paid in capital totaled US$36.10 billion in

2008

Since 1980, the government has invested over US$1 billion in the park's infrastructure

2. The Southern Taiwan Science Park (STSP) was established in 1996 focus on integrated

circuits (ICs), optoelectronics, and biotechnology.

3. The Central Taiwan Science Park (CTSP) was established more recently in 2003 which

focuses on ICs, optoelectronics, and biotechnology, with the optoelectronics industry

accounting for 78% of its revenue in 2008

These three science parks alone have attracted over NT$4 trillion (US$137 billion) worth of

capital inflow, and in 2010 total revenue within the parks reached NT$2.16 trillion (US$72.8

billion).

TAIWAN OTHER INDUSTRIAL PARKS

The Linhai Industrial Park, established in Kaohsiung in 1960, focusing on other industries

including base metals, machinery and repairs, nonmetallic mineral products, chemical products,

and food and beverage manufacturing.

The Changhua Coastal Industrial Park, located in Changhua County, is a newer industrial cluster

with many different industries such as food production, glass, textiles, and plastics

The complete lists of industrial and science parks in Taiwan are:

Central Taiwan Science Park

Hsinchu Science Park

Kaohsiung Science Park

Nankang Software Park

Neihu Science Park

Tainan Science Park

Taiwan Free Trade Zone

Among more than 600 Free Trade Zones and similar special administrative regions throughout

the world, Taiwan FTZ is the most competitive.

The unique geographical advantage, strong transport capacities, the highly efficient customs

clearance system, strong manufacturing capabilities, and the extraordinary B2B infrastructure

of Taiwan enable enterprises to integrate business flow, logistics, cash flow, and information

flow with swift processes in manufacturing, ordering, transport and sales to meet the demand

of supply chain.

Far Glory Air Cargo Park

The Park includes import/export cargo customs clearance, cargo handling, warehousing,

logistic, value-added park, operational display and business conference center.

This Park transports through air, land and sea, and combines logistic, human resources,

business and finance information into one, making it the most competitive Free Trade Port with

cargo Park in the whole world. Hence realizing the vision of entering the world stage with

“Develop Locally, Position Globally”.

Port of Kaohsiung Free Trade Zone

It is an essential point on American, European, and Asian navigation routes– make Kaohsiung

the foremost gateway and cargo hub for Taiwan’s imports and exports.

The Kaohsiung FTZ offers the following advantages:

1. Vast areas of adjoining land, providing opportunities for achieving a multiplier effect

through cooperation.

2. Repackaging, processing, and other value-added functions can be expanded in

combination with the offshore shipping center and logistics center mechanisms.

3. With privatization, dock operations offer high-efficiency, low-cost, and high-quality

services.

Port of Taichung Free Trade Zone

Taichung Port Free Trade Zone exploitative area amounts to 536ha, divided into two phases

and three exploitative areas.

This is the first international harbor which has been designed and built by Taiwanese engineers.

Software and hardware construction in Taichung Port Free Trade Zone :

Software and hardware facilities hereunder for free commercial harbor area dealing with

relevant business through computer connection and electronic material transmission mode are

in the process being constructed.

Taipei Port Free Trade Zone

Taipei Port was elevated to be the auxiliary port of Keelung Port on January 8th, 2004. Currently

there are 14 operational wharves, including 2 container wharves.

The overall planning land area reaches 1038 hectares.

Keelung Free Port

Keelung was opened as a commercial port in 1863 and a naval defense headquarters was set up

here in 1872. It has already been more than one hundred years since the port began to

operate. Keelung Port has made great progress and ranks now as one of the major ports of the

world.

Free Economic Pilot Zones

Agricultural goods from mainland China that are currently banned from Taiwan may soon be

imported through Taoyuan airport, six free-trade ports and an agricultural technology park. This

liberalization is part of a plan to promote high-tech logistics, medical services, agricultural

processing and finance.

The first phase of the plan, under which 13 regulations on foreign and mainland professionals,

land use and import procedures will be loosened by year-end.

Phase Two will kick off after a special Act governing the zones' operations, being drafted by the

Council of Economic Planning and Development, is approved by parliament.

The Act is expected to offer businesses tax breaks, free up capital flow and allow the tariff-free

import of previously restricted agricultural and industrial raw materials to be processed and

exported as Made-in-Taiwan products.

One of the anticipated features is that mainland businesses will also be allowed to invest in the

zones, subject to approval from Taiwanese authorities, without being limited to a 20 per cent

stake, as stipulated under current rules.

Taiwan's determination to liberalize trade and join regional free trade areas, namely the Trans-

Pacific Partnership that now gathers 13 countries, including Singapore and the United States,

and the Regional Comprehensive Economic Partnership, comprising 16 states in the Asian

region including Asean members.

Taiwan Strait West Coast Economic Zone

Taiwan is formally known as the Republic of China, including the Taiwan island group.

Fujian-Taiwan

Fujian is one of the wealthier provinces of China. Xiamen was one of the first cities in China to be opened up to foreign trade and investment as a Special Economic Zone (SEZ) in 1979. Because of the closeness both geographically and culturally with Taiwan, the Xiamen SEZ targeted Taiwan to attract Taiwan business people’s investment and facilitate bilateral trade. As of December 2005, Fujian received US$ 3.9 billion of foreign direct investment from Taiwan. Over the past twenty-five years, the Fujian province has maintained close business and trade connections with Taiwan. In terms of foreign trade, in 2004, Fujian’s imports and exports registered US$ 47.6 billion, an increase of 34.6 percent over the previous year. Of that, the exports reached US$ 29.4 billion, a rise of 39.1 percent; and the imports US$ 18.2 billion, a rise of 27.9 percent. During the National People’s Congress (NPC) held in Beijing in March 2006, NPC deputies advocated that Fujian should be defined as a special zone for Taiwan by implementing the Economic Zone proposal and other political experimental proposals for unification across the Taiwan Strait which was accepted and Fujian was declared as special economic zone for Taiwan.

INDIA AND CHINA SEZ COMPARED Indian policymakers' ongoing fascination with special economic zones was inspired by China's

roaring success with these enclaves of galvanized production. New Delhi has sanctioned close

to 200 SEZs. Exactly six Sez have been started in china since 1979, Shenzhen, Zhuhai, Shantou,

Xiamen, Hainan and Pudong.

China's success in attracting oodles of foreign direct investment and becoming one of the top

exporting countries of the world hinged on the careful implementation of its SEZ policy. More

than two decades later, India, too, is trying to tread on the same ground.

There are, however, certain fundamental differences in the Indian and Chinese approaches to

SEZs, which make it difficult to say for sure that Indian SEZs will be able to recreate the Chinese

magic. Size, location, flexible labour laws and stable policies are the factors primarily

responsible for making Chinese SEZs attractive to foreign investors.

In India, it is the fiscal sops being offered to developers and units which are the primary driving

force. The Chinese government started building SEZs way back in 1979. The idea behind the

SEZs was to experiment with liberal policies in certain ear-marked regions while insulating the

rest of the economy from their influence. The government identified huge tracts of land, near

the coastal region, and started building mega cities with all required infrastructure.

Stringent labour laws applicable in China were relaxed in the regions and foreign investors were

wooed with sops and the promise of stability. Though India had a head-start in the direction by

building its first export processing zone in 1969 with certain minimum infrastructure and fiscal

sops (seven more followed later), it could not muster enough political will to build full-fledged

SEZs with foreign territory status in the matters of international trade till the turn of the

century.

In 2000, former trade minister late Murasoli Maran announced that India should try to replicate

the Chinese success story in SEZs and announced an SEZ policy. However, when five years later

the SEZ Act was passed by Parliament and rules were framed, what India had was a policy very

different from China's.

As opposed to five mega SEZs built by the Chinese government (the largest being Shenzhen

built over 49,500 hectares), India opened its doors to private players and allowed sector-

specific SEZs to develop on just 10 hectares of land. As a result, India has as many as 173

operational SEZs with about 55 more having received approvals. The economies of scale, which

seems to have worked so well in China by reducing production costs, may not have the same

effect in Indian SEZs.

In China, the government chose the location for SEZs with a lot of thought with all five located

near the coastal region. This makes it easier for SEZ units to export their products and import

inputs. In India, SEZs are being built all over the country, wherever land can be acquired by

developers. This has also led to allegations of land-grabbing and conversion of productive

agricultural land by developers. This had led the Centre to make it mandatory that all proposals

should have a certificate from the state government notifying that the land being used is non-

agricultural for at least 90%.

Flexibility in labour laws, which played an important role in attracting foreign investors, is

absent in Indian SEZs. This is one of the prices India is having to pay for the advantages of a

federal democratic government.

India has, however, tried to make up for all the disadvantages by offering attractive fiscal sops.

Tax holidays for SEZs in India are longer and steeper than those given by China. This had given

rise to some dissent from the finance ministry which had complained that the fiscal loss would

be immense.

COMPARISON Issue China India Taiwan

Size Very big. Typically in hundreds of hectares.

Even 10 hectares will do.

A mixed bag varying from 28 hectares to 100 hectares

Location Well thought out and located only on coasts. To facilitate exports and imports easily.

Anywhere. No restriction.

Ports specially those near to china.

Labour laws Relaxed in the SEZs. Flexibility is totally absent.

Relaxed and compulsory insurance of workers

Policy regime Experimentation of liberal policies in the specified areas while insulating them from the rest of the country.

Based on fiscal sops. Policy to liberalize trade and join regional free trade areas.

Investors Basically foreigners who are wooed with sops and promise of stability in policy.

Basically locals. Not foreign investor driven; which should have been the case.

Mix of foreign and local investors.

Commencement In 1979 In 1965 with the export processing zone concept. But failed to muster courage in giving these regions foreign territory status till the year 2000 when Murasoli Maran announced the SEZ policy.

First zone is an area of about 68 ha was established in 1965-1968.

Number of SEZ Only six: Shenzhen, Zhuhai, Shantou, Xiamen, Hainan and Pudong as of 1979, 212 in 2013

Any where and any number. 28 operational in 2006 and 173 in 2013

Including all the FTZ, SBIP and FEZ 18 zones are operational as of 2013.

Tax holidays Present. Longer and steeper than in China

Granted tax holidays on corporate income tax liability

REFERENCES

www.sezindia.nic.in/

http:// sez.icrindia.org/

http://commerce.nic.in/

www.infodrive.com

www.reuters.com

chineseculture.about.com

www.google.com

http://en.wikipedia.org/wiki/Special_economic_zone

http://en.wikipedia.org/wiki/Special_economic_zone#India

http://en.wikipedia.org/wiki/Special_economic_zone#China

https://people.hofstra.edu/geotrans/eng/ch5en/conc5en/China_SEZ.html

Breslin, S. 2009. Understanding China’s Regional Rise: Interpretations, Identities and Implications. International Affairs85 (4): 817–835. Chinese Overseas (Africa) Economic and Trade Cooperation Zones and China –Africa Development Fund. 2010. Newsletter of Joint Meeting of Chinese overseas (Africa) Economic and Trade Cooperation Zones and China–Africa Development Fund. No. 2, July. http://www.prologis.com/docs/research/asia/China_Special_Economic_Zones_National_Industrial_Parks_Door_Openers_to_Economic_Reform.pdf