11 - Export Processing Zones: The ASEAN Experience

Summary

I. Introduction

Export processing zones (EPZs) began to make their appearance in Southeast Asia in the early 1970s, when several countries in the region shifted their industrialization and trade strategies in favour of manufactured exports. Several member countries of the Association of Southeast Asian Nations (ASEAN) have established EPZs. Singapore may be considered as one big EPZ, in the sense that industries in this city-state enjoy certain privileges which are quite similar to those offered to EPZs elsewhere in the region. Brunei has no EPZs. The other four ASEAN countries, namely Malaysia, Indonesia, the Philippines, and Thailand, have a number of EPZs. It will indeed be an interesting exercise to systematically study their experience from which some valuable lessons may be learned.

EPZs refer to designated industrial estates specializing in the production of manufactures meant mainly for exports, and constitute enclaves within the economy enjoying favoured treatment with respect to imports of intermediate goods, corporate taxation, provision of infrastructure, and waivers from certain regulations.

While a wide definition of EPZ, as adopted by the World Export Processing Zones Association would include the Singapore and Hong Kong city-states, a narrow definition would restrict the use of the term EPZ to a distinct physical area which is cordoned off. In Malaysia, these zones are referred to as free trade zones (FTZs), as the term emphasizes the enclave nature of the operation, that is free from the trade and customs regime of the country. None the less, we shall use the term “export processing zones”, as the main activity of the zones is processing for exports rather than trading as such.

The enclave nature of the operation makes the EPZs particularly attractive to transnational corporations (TNCs), although the investments in the zones are not entirely foreign. TNCs are closely associated with EPZs, as the latter make it possible for TNCs to spread out their production facilities on a world-wide basis.