Export Processing Zones

Export processing zones (EPZs) are geographically defined areas where goods are produced for export to other countries. They are known by a variety of different names, including free zones, free trade zones, special economic zones, maquiladoras, and export platforms. Political leaders in host countries treat these zones as enclaves that have different rules and regulations from the rest of the country. In this way, the zones are outside the customs territory of the country. Private investors are encouraged to set up factories and other export activities via nonpayment of duties, favorable tax regimes, special laws, exemptions, and infrastructure subsidies that make the zones attractive. The number of EPZs worldwide has expanded rapidly since 1960, when the first one (the Shannon Free Zone) was built in Ireland. A decade later there were 10 host countries, and by 1995 there were 70.

EPZs have been especially important and highly criticized in developing countries, where they are created for a variety of reasons. The central motivation of government officials may be to create jobs; attract flows of foreign direct investment (FDI); increase foreign exchange earnings; or promote export-led industrial development, technology transfer and linkages to other economic activities, or some combination of these outcomes. By these metrics, EPZs have had success in some developing contexts.

Many different kinds of manufacturing and service activities exist side by side in EPZs, although labor-intensive operations such as electronics assembly and apparel are quintessential activities. Such labor-intensive sectors often hire a predominantly female workforce, so that many EPZs end up with a gender division of labor in which women occupy many of the rank-and-file jobs and form a majority of the work-force, sometimes as high as 80%. Unions are banned in some EPZs and discouraged in many others; in this way, wages are held artificially low and working conditions may be poor. Critics also argue that competition between EPZs creates a “race to the bottom” for workers and communities that depend of the wages of assembly plant workers.

Many developing countries first designed EPZs that looked like industrial parks with subsidized infrastructure such as factory space, communications systems, water/sewer networks, and electrical power. More recent examples in Zimbabwe and Guatemala use innovative spatial arrangements that are geographically flexible and use stand-alone factories as EPZs. This approach allows companies on which EPZ status is conferred to locate wherever they desire. This is a highly flexible tool, enabling companies to operate from convenient locations while enjoying EPZ benefits. The result is a patchwork pattern of customs regulation. From a geographic perspective, the spatial flexibility will be an interesting phenomenon to assess and analyze. In all contexts, EPZs are inherently spatial. Therefore, bringing a geographic perspective to bear on understanding the social outcomes, labor practices, and governmental regulations associated with EPZs may be useful.

Although there is much controversy about the benefits of EPZs to host economies and the impacts on quality of life, EPZs remain an attractive option for many policymakers wishing to promote employment, inward FDI, and export-led industrial development. These policymakers use a geographic approach and carve out special districts in their countries for export expansion.

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