Archives For Free trade zone

Shanghai Yangshan Deep-Water Port’s Phase IV container terminal started its trial operations last Sunday. The 550-acre, $1.8 billion facility is the latest expansion of the Port of Shanghai’s complex on Yangshan Island, which has deeper water than the port operator’s mainland terminals.

The Port of Shanghai is already the busiest for container traffic in the world, handling a record 37 million TEU in 2016, and the new automated Phase IV terminal will cement its leading position with an additional seven berths and 4-6 million TEU of capacity. Phase III began operations in 2008, but the global financial crisis delayed construction of the long-planned Phase IV until 2014.

According to Chinese state media, Phase IV is the world’s largest automated container terminal, with computer-controlled bridge cranes, AGVs and rail-mounted gantry cranes. All of the equipment is Chinese-made, and the facility also uses a Chinese-designed automated terminal management system. About 100 out of a total of 280 pieces of the automated equipment have already been delivered and are in testing.

“The automated terminal not only increases the port’s handling efficiency, but also reduces carbon emissions by up to 10 percent,” said Chen Wuyuan, president of Shanghai International Port Group, speaking to Xinhua.

Yangshan is the biggest deepwater port in the world. Phase I was finished in 2004, and the following year construction wrapped up on a 20-mile, six-lane bridge to connect the facility to the mainland. Extensive land reclamation allowed for the construction of Phases I through III on new ground adjacent to the islands of Greater and Lesser Yangshan, which were previously home to small fishing communities.

The port handles about 40 percent of Shanghai’s exports, and its operators hope to see it grow as a transshipment hub as well. As of 2016, it operates under a free trade zone status, which speeds up customs procedures and facilitates transferring or storing foreign-origin cargoes. Source: Maritime Executive, 11 December, 2017. Pictures: China State Media

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NanshaChina is planning to build a second Hong Kong city in Nansha, a district in southern China’s Guangdong province.

Preliminary plans indicate a city of around 100 square kilometres will be built to help alleviate the development problems currently experienced by Hong Kong due to land shortages, protests and environmental concerns. Hong Kong has an area of about 1,100 square kilometres and currently houses over seven million people.

The new city is expected to be developed into an international shipping hub. Its commercial importance will be boosted by the Guangdong free trade zone which was approved late last year. This zone will cover around 116 square kilometres.

China’s Xinhua news agency said the zone will deepen cooperation between Hong Kong and Macau which lies on the western side of the Pearl River Delta, across from Hong Kong. Nansha faces the sea and is 38 nautical miles from Hong Kong and 41 nautical miles from Macau. In December 2013, Nansha Port hit the record of 10 million teu since it was open in 2004.

Local media reports that the new city could be completed by 2020. It is expected to have a GDP of $64 billion. Source: Maritime Executive

sez.jpgThe Special Economic Zones (SEZ) Bill 2013, according to the government will support a broader-based industrialisation growth part and be a significant milestone in pursuit of the aspirations of the National Development Plan (NDP).

Rob Davies, Department of Trade and Industry Minister says, “The bill aims to support a balanced regional industrial growth path, along with the development of more competitive and productive regional economies.”

SEZs are defined as geographically designated areas of a country set aside for specifically targeted economic activities, supported through special arrangements and systems that are often different from those that apply to the rest of the country.

Says Davies, “The aim of the SEZ Bill seeks to boost private investment (domestic and foreign) to labour-intensive areas to increase job creation, competitiveness, skills and technology transfer along with exports of beneficiated products.”

The Bill introduces a variation of SEZ’s to cater for the various spheres of government at local, provincial and national level.

It also provides for the designation of the following types of SEZs:

  • Free Ports: duty-free areas adjacent to a port of entry where imported goods may be unloaded for value-adding activities, repackaging, storage and subsequent re-export, subject to special customs procedures.
  • Free Trade Zones: a duty-free area offering storage and distribution facilities for value adding activities within the SEZ.
  • Industrial Development Zone: a purpose-built industrial estate that leverages domestic and foreign fixed direct investment in value-added and export-oriented manufacturing industries and services. (To date there are five Industrial Development Zones (IDZs) – Coega, East London, Richards Bay, OR Tambo and Saldanha Bay).
  • Sector Development / Specialised Zones: a zone focused on the development of a specific sector or industry through the facilitation of general or specific industrial infrastructure, incentives, technical and business services primarily for the export market.

Source: Transport World Africa

aoAngola’s minister for trade, Rosa Pacavira states that Angola may only join the SADC Free Trade Zone only in 2017.

The minister said that joining the Free Trade Zone would only happen when Angola had finished its membership road map, which is currently being drawn up, but noted that Angola’s entry “remains on the government’s agenda as part of its regional integration policy.”

“We are drawing up a road map and we will see if, by 2017, Angola manages to join the Free Trade Zone, but for that we will have to create industry and internal capacity so that Angola can compete with other countries that are already part of the zone,” said Pacavira.

“If we open up the market now we will stop producing a lot of things that we need to produce, because if Angola joins up now we will have the whole of the SADC selling products here and we will not be producing them,” she said.

The SADC Free Trade Area was set up in Johannesburg in August 2007, at the 28th SADC summit, and currently includes South Africa, Botswana, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Swaziland, Tanzania, Zambia, Zimbabwe and Madagascar. The SADC countries that did not join are Angola, the democratic Republic of Congo and the Seychelles. Source: www.macauhub.com

Lagos Free Trade Zone

Lagos Free Trade Zone

So how come FTZs, IDZs, EPZs, etc are working in other African countries and not here in South Africa? This Day Live (Nigeria) offers some of the critical success factors which delineate such zones from the normal economic operations in a country. Are we missing the boat? The extent of economic and incentive offering can vary substantially between the different economic and trade zone models – some extremely liberal while others tend to the conservative. Obviously the more liberal and free the regulations are the more stringent the ‘guarantees’ and controls need to be. However, in today’s e-commercial world, risk to revenue can more than adequately be mitigated and managed with through risk management systems. Manufacturing and logistical supply chain operations are likewise managed in automated fashion. I guess the real issue lies in governments appetite for risk and more particularly its willingness to relax tax and labour laws within such zones. Furthermore, a sound economic roadmap demonstrating backward linkages to the local economy and outward linkages to international markets must be defined. Herein lies some of the difficulties which have plagued South African attempts at such economic offerings – no specific economic (export specific) goals. Limited financial/tax incentives for investors, and poor cooperation between the various organs of state to bring about a favourable investment climate.

Free Trade Zones (FTZs) are at the crux of the growth attributed to emerging markets. All the BRIC nations have used the FTZs as a buffer to economic meltdown particularly in the wake of the most recent financial and economic crises. The “great recession” of 2007 – 2009 saw the BRIC nations growing at the rates of 7% to 13%. Consequently, the importance of FTZs as well as maximizing opportunities therein cannot be over-emphasized. The literature defining FTZs vary, but they all have the following characteristics in common:

  • A clearly delimited and enclosed area of a national customs territory, often at an advantageous geographical location, with an infrastructure suited to the conduct of trade and industrial operations and subject to the principle of customs and fiscal segregation.
  • A clearly delineated industrial estate, which constitutes a free trade enclave in the customs and trade regime of a country, and where foreign manufacturing firms, mainly producing for export, benefit from a certain number of fiscal and financial incentives.
  • Industrial zones with special incentives set up to attract foreign investors, in which imported materials undergo some degree of processing before being re-exported.
  • Fulfilling their roles in having a positive effect on the host economy, regulators look at FTZs from a nationalist perspective. Inevitably, they seek the following benefits:
    • Creating jobs and income: one of the foremost reasons for the establishment of FTZs is the creation of employment.
    • Generating foreign exchange earnings and attracting foreign direct investment (FDI): measures designed to influence the size, location, or industry of a FDI investment project by affecting its relative cost or by altering the risks attached to it through inducements that are not available to comparable domestic investors are incentives to promoting FDI. Implicit in this statement lies the definition of FTZ. Other traits that are recognizable when discussing FDI’s include specially negotiated fiscal derogations, grants and soft loans, free land, job training, employment and infrastructure subsidies, product enhancement, R&D support and ad hoc exceptions and derogations from regulations. In addition to FDI, by promoting non-traditional exports, increased export earnings tend to have a positive impact on the exchange rate.
    • Transfer of technology: trans-national corporations (TNCs) are a dominant source of innovation and direct investment by them is a major mode of international technology transfer, possibly contributing to local innovative activities in host countries. It is a government’s primary obligation to its citizenry to provide attractive technology, innovative capacities and mastering, upgrading, and diffusing them throughout the domestic economy. Nevertheless, through national policies, international treaty making, market-friendly approaches, a host country gravitates from providing an enabling environment to stronger pro-innovation regimes that perpetually encourage technology transfer.

FTZs can be both publicly (i.e. government) and or privately owned and managed. Governments own the more traditional older zones, which tend to focus more on policy goals that are primarily socio-economic. They emphasize industry diversification, attracting FDI, job creation and the like. Privately-owned FTZs have the advantage of eliminating government bureaucracy, are more flexible, and are better prepared to deal with technological changes. The global trend towards privatization has made privately-run zones more popular and a number are highly successful. The role of government in the case of privately-run zones is to provide a competitive legal framework with attractive incentive packages that meet the World Trade Organization (WTO) requirements.

FTZ Operations in Nigeria

FTZs were established in 1991 in order to diversify Nigeria’s export activity that had been dominated by the hydrocarbon sector. By 2011, there were nine operational zones; ten under construction; and three in the planning stages. The governing legislation includes the Nigeria Export Processing Zones Act (NEPZA) and the Oil and Gas Export Free Zone Act (OGEFZA). Zones may be managed by public or private entities or a combination of both under supervision of the Authority. For the full article go to – This Day Live

Dubai Airport Free ZonefDi Magazine’s first global ranking of economic zones has awarded Shanghai Waigaoqiao Free Trade Zone the title of Global Free Zone of the Future 2010/11.

Shanghai Waigaoqiao Free Trade Zone (WFTZ), the largest free-trade zone in China, has been recognized by fDi Magazine as the ‘Global Free Zone of the Future 2010/11’. This is in part due to the large number of companies that have set up operations in Shanghai WFTZ; more than 9000 companies – accounting for one-third of all foreign companies moving into Shanghai – have set up in this zone. Shanghai WFTZ also came top in the categories of ‘Best Facilities’ and ‘Best Port Zone’.

Economic zones based in the United Arab Emirates dominated the Free Zones of the Future 2010/11 ranking, with seven of the top 25 zones coming from the UAE. Not only did Dubai Airport Free Zone rank as second overall, it also ranked second in the ‘Best FDI Promotion Strategy’ and ‘Best Transportation’ categories.

The top three in the ‘Best Economic Potential’ category was led by the city of San Luis Potosi in Mexico, followed closely by Industrial Estates in Thailand and the Jebel Ali Free Zone in the UAE. Clark Freeport in the Philippines, Togo Export Processing Zone, and Chittagong Export Processing Zone in Bangladesh were the top three in the ‘Best Cost Effectiveness’ category.

fDi Magazine’s rankings, which took more than four months to compile, ranked eight UAE zones in the ‘Best Transportation’ top 10, with Jebel Ali Free Zone and Dubai Airport Free Zone taking the top two positions and Dubai Media City and Dubai Knowledge Village ranking joint in third position. Dubai Media City, Dubai Airport Free Zone and Dubai Knowledge Village also claimed the top positions in the ‘Best FDI Promotion Strategy’ category.

The independent judging panel scored Dubai Knowledge Village, Dubai Media City and Ajman Free Zone (UAE) as the top three zones in ‘Best Incentives’.

South Carolina Foreign Trade Zones 21 & 38, topped the ‘Best Airport Zone’ category, followed by Aqaba Special Economic Zone (Jordan), Tanger Free Zone (Morocco), El Paso FTZ 68 (US) and Bahrain International Airport. Source: FDIntelligence.com

You can be forgiven if you have a clouded understanding of what an economic zone is. Countries develop different types of free economic zones (FEZs) as a tool to generate employment opportunities, promote and diversify exports, increase technology transfer and attract investment flows. Developing and emerging economies use FEZs as “economic laboratories”, “incubators” or showcases of a generally strong enabling environment and a competitive market for investment. In order to achieve the intended objectives of zones, governments offer a range of incentives from fiscal to regulatory such as export duty exemptions, streamlined customs and administrative controls and procedures, liberal foreign exchange policies and income tax incentives. Governments have been experimenting with the use of policy tools in ensuring the effectiveness of their zones; however they have not always been successful. Nowadays, governments are trying to move away from the traditional zones with the traditional set of objectives and policy tools to either more comprehensive or sector specific zones. In addition, they are trying to incorporate other development policy instruments to their policy packages to tackle other issues such as skills development, rural development and green growth while achieving the traditional objectives.

The first type of FEZs mostly took the form of free ports – customs free areas within seaports offering little more than warehousing and trade facilities. Over time, some free ports developed into customs-free zones in which light manufacturing and other processing took place. The next step was the development of export processing zones, which encourage more complicated manufacturing operations with the purpose of exporting. Later, special economic zones (SEZs) and specialized zones (SZs) evolved. SEZs offer a wider array of sectors including manufacturing and services that target both foreign and domestic markets. In addition, they permit on-site residence and provide all facilities to employees and hence could be viewed as standalone cities. On the other hand, specialized zones (SZs) focus on specific industries by providing the appropriate infrastructure and building on the concepts of clusters.

The terminology applied to free economic zones, in literature and common usage, is highly confusing. Words like “free zones”, “free trade zones”, “customs-free zones”, “special economic zones”, “export processing zones”, etc. are in practice used almost interchangeably. This reflects the implementing authorities’ linguistic preferences as much as functional differences between different kinds of zones.

Common to most FEZs is the fact that they are ring-fenced enclaves (with the exception of Single Factory/Private EPZs) that enjoy special regulatory, incentive and institutional frameworks that are different from the rest of the economy. The different classifications of FEZs are as follows:

  1. Free trade zones (FTZs; also known as commercial free zones): are fenced-in, duty-free areas, offering warehousing, storage, and distribution facilities for trade, trans-shipment, and re-export operations.
  2. Export processing zones (EPZs): are industrial estates aimed primarily at attracting export-oriented investments. They cover usually a wide array of manufacturing industries.
  3. Private zones/Single factory processing zones: provide incentives to individual enterprises regardless of location.
  4. Special economic zones (SEZs): are larger estates and could be considered cities on their own. They usually cover all industrial and service sectors and target both foreign and domestic markets. They provide an array of incentives ranging from tax incentives to regulatory incentives. In addition, they permit on-site residence.
  5. Specialized zones (SZs): targeted at specific sectors or economic activities. Examples of SZs include science/technology parks, petrochemical zones, logistics parks, airport-based zones, and so on. They may restrict the access of companies in non-priority sectors, and their infrastructure is mostly tailored according to their sectoral targets.

The distinction between the different kinds of zones must involve an element of judgment and sometimes zones fall in between categories. South Africa’s Industrial Development Zones (IDZs) combine elements of both 1 and 2 above. Most free zones restrict the access of certain categories of investors, without necessarily being classified as specialized zones. Also, it is not very clear how “special” a free zone’s regulatory environment must be before it can be classified as a SEZ. FEZs in their general definition can include a combination of characteristics from all the previously identified FEZs. I guess that while you still dont have a clear understanding of what an economic zone is, I hope the above has shed a little more light on the subject?