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Implications of WTO disciplines for special economic zones in developing countries

Listed author(s):
  • Creskoff, Stephen
  • Walkenhorst, Peter

Many developing countries operate geographically delineated economic areas in the form of export processing zones, special industrial zones, or free trade zones. This paper provides an overview of the application of World Trade Organization disciplines to incentive programs typically employed by developing countries in connection with such special economic zone programs. The analysis finds that the disciplines under the Agreement on Subsidies and Countervailing Measures have the most immediate relevance for middle-income World Trade Organization members that are not exempt for certain"grandfathered"programs, but will also concern other developing countries in the future, as their exemption expires or their per-capita income passes a threshold of US$1,000. Incentives related to special economic zones can be broadly grouped into three categories: (i) measures that are consistent with the World Trade Organization, notably exemptions from duties and taxes on goods exported from special economic zones; (ii) measures that are prohibited or subject to challenge under World Trade Organization law, notably export subsidies and import substitution or domestic content subsidies; and (iii) and measures where World Trade Orgainzation consistency depends on the facts of the particular case. The paper provides a set of recommendations on how to eliminate questionable incentives. The single most important zone policy reform to achieve World Trade Organization compliance is to remove all requirements to export and permit importation of goods manufactured in special economic zones into the national customs territory without any restrictions other than the application of import duties and taxes.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4892.

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Date of creation: 01 Apr 2009
Handle: RePEc:wbk:wbrwps:4892
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  1. Michael Engman & Osamu Onodera & Enrico Pinali, 2007. "Export Processing Zones: Past and Future Role in Trade and Development," OECD Trade Policy Papers 53, OECD Publishing.
  2. Andrew Green & Michael Trebilcock, 2007. "Enforcing WTO Obligations: What Can We Learn from Export Subsidies?," Journal of International Economic Law, Oxford University Press, vol. 10(3), pages 653-683, September.
  3. Michael Daly, 2006. "WTO Rules on Direct Taxation," The World Economy, Wiley Blackwell, vol. 29(5), pages 527-557, May.
  4. Edward M. Graham, 2004. "Do export processing zones attract FDI and its benefits," International Economics and Economic Policy, Springer, vol. 1(1), pages 87-103, 03.
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