Today, in India there exist eight operational trade zones with another ten underway. These zones are called Special Economic Zones that are a modernized version of the old Free Trade Zones and Export processing Zones. Special Economic Zones were established when India shifted to the status of a semi-periphery region. Although such zones promise big bucks, they are still far from achieving their economic goals. This essay will look over the working nature of such zones to see if they will actually provide an helping hand in the country's economy and at what cost, by using A. Thothathri Raman and Prof. Parag Diwan's "Free Trade Zones (FTZs) to Special Economic Zones (SEZs) : The Great Indian Dream ." Most of the statistical numbers used in the essay follow from this book and few popular Indian newspapers.
I start with the definition of these zones, as given in the book. According to the International Council of Free Trade Unions (ICFTU), an export processing zone is "a clearly demarcated industrial zone, which constitutes a free trade enclave outside a country's normal customs and trading system where foreign enterprises produce principally for export and benefit from certain tax and financial incentives" [8-9]. In other words Free Trade Zones (FTZs) and Export Processing Zones (EPZs) are sites where foreign or domestic merchandise may enter without a formal customs entry or the payment of customs duty or government excise taxes. EPZs are dedicated to exports while FTZs handle imports also. No duty is charged if the final product is exported.
On the other hand Special Economic Zones (SEZs) have quite similar salient features as the FTZs or EPZs though under various moderate and strict restrictions. In the broadest of all definitions all the above three zones are almost synonymous. All the import/export operations of the SEZ units are on self-certification basis. According to the dept. of commerce and trade in India, "the units in the Zone have to be a net foreign exchange earner but they shall not be subjected to any pre-determined value addition or minimum export performance requirements. Sales by SEZ units shall be subject to positive foreign exchange earning and on payment of full Custom Duty and import policy in force ." Such steps are important as they are required to build up the economy of a developing nation. SEZ's are setup in the public, private, joint sector or by State Governments. Thus we can see that there is a local hand apart from the foreign investor's, in setting up an SEZ. To accomplish its goals, SEZs face major challenges of labor, technology and competition.
Labors policy stresses on observation of a minimal number of core basic labor standards, free trade unions and collective bargaining, workplace institutions capable of internalizing enforcement of labor standards, investment in education and training. These policies were laid when the FTZs came into being initially but none were even taken into consideration a decade ago....