Export Processing Zones

Also known as free trade zones, export processing zones (EPZs) are industrial areas within a country designed to encourage the establishment of a labor-intensive export manufacturing sector. Firms that locate in EPZs depend on a high proportion of imported inputs that are processed by a (low-cost) local labor force and then exported. Many of the firms located in EPZs are either multinational corporations or are local firms linked to the supply chains of multinationals.

The number of EPZs worldwide has grown rapidly since the establishment of the Shannon Free Trade Zone in Ireland in 1959. In 1970, 10 countries hosted EPZs, but by 2003, the International Labour Organization documented that 106 countries in the world hosted some form of EPZ.

EPZs now play an important role in the export-led development strategies that have been pursued by a number of states across the developing world. States seek to attract investment in EPZs by granting of incentives such as exemption from import duties, tax concessions, removing restrictions on offshore borrowing, exempting various national laws (these often include laws relating to labor rights), and providing high-quality infrastructure in the zones.

There is considerable debate concerning the pros and cons of EPZs. Supporters point to the role that EPZs have played in promoting rapid economic growth and highlight how EPZs bring employment opportunities and the potential role that these firms play in transferring new technologies into the local economy. Critics have argued, however, that levels of technology transfer are limited because the firms remain largely insulated from the local economy. Furthermore, the jobs found in EPZs are mainly low-skill, assembly-line production jobs paying [Page 305]low wages. One worry is that because a key motivation for firms to invest in EPZs is the low cost of labor in the local economy, they will relocate to an EPZ in another country once labor costs start to rise. Concerns have also been raised about the lack of labor rights, long working hours, low pay, and harsh working conditions.

Around eighty percent of workers in EPZs are women. Firms have often deliberately targeted women workers in their recruitment strategies and may even establish hostels to house female workers migrating to industrial regions. Female workers are the employees of choice because they are regarded as better suited to monotonous assembly-line production; by viewing women as secondary income earners (working to supplement the family income rather than as the major breadwinner), employers can justify low rates of pay. Although the EPZ firms generally pay better than other forms of employment available to women such as domestic service, women working on EPZs are generally confined to the lowest paid, most labor-intensive forms of employment. Indeed, some would suggest that the EPZ model perpetuates, and even globalizes patterns of gender inequality.