Export processing zones: A review in need of update
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Export Processing Zones:
A Review in Need of Update
Takayoshi Kusago
Zafiris Tzannatos
Social Protection Discussion Paper No. 9802
January 1998
Social Protection Group
Human Development Network
The World Bank
Washington, DC
1
TABLE OF CONTENTS
REFERENCES.............................................................................................................................................. 2
1. INTRODUCTION .................................................................................................................................... 4
2. DEFINITION AND BROAD TRENDS OF EPZS................................................................................. 5
2-1.
2-2.
DEFINITION ...................................................................................................................................... 5
BROAD TRENDS ............................................................................................................................... 5
3. ISSUE 1: INVESTMENT AND TYPES OF INDUSTRY IN EPZS.................................................... 6
3-1.
INCENTIVE SCHEME ......................................................................................................................... 6
3-2.
FOREIGN OWNERSHIP ...................................................................................................................... 8
3-3.
TYPES OF INDUSTRY: LABOR-INTENSIVE INDUSTRY? ...................................................................... 8
3-4. COMPOSITION OF LABOR IN EPZS ............................................................................................................ 9
4. ISSUE 2: TECHNOLOGY TRANSFER ............................................................................................. 12
4-1.
4-2.
BACKWARD LINKAGES .................................................................................................................. 12
HUMAN RESOURCES DEVELOPMENT (EDUCATION AND TRAINING)............................................... 13
5. ISSUE 3: WORKERS IN EPZS ........................................................................................................... 16
5-1.
WAGES .......................................................................................................................................... 16
5-2.
WORKING CONDITIONS.................................................................................................................. 18
Hours of Work........................................................................................................................................... 18
Health and Safety...................................................................................................................................... 18
5-3.
WORKERS’ VOICE ......................................................................................................................... 19
6. ISSUE 4: OVERALL ECONOMIC IMPACTS OF EPZS ................................................................ 20
7. CONCLUSIONS ..................................................................................................................................... 22
APPENDIX : DATA SOURCES AND NOTES ....................................................................................... 24
REFERENCES
Annex 1:
Annex 2:
Annex 3:
Annex 4:
The Evolution of Terminology
Internationally Used Definitions
Ratification of Selected ILO Conventions
Countries by ILO Conventions and EPZ Status
BIBLIOGRAPHY
2
LIST OF TABLES
TABLE 1: THE EVOLUTION OF EPZS OVER TIME ........................................................................................ 6
TABLE 2: MAJOR FISCAL, PHYSICAL AND ADMINISTRATIVE INCENTIVES OFFERED BY EPZS ................. 7
TABLE 3: INVESTMENT IN EPZS BY COUNTRY OF ORIGIN (%) ................................................................... 8
TABLE 4: DISTRIBUTION OF INVESTMENT BY SECTOR IN SELECTED EPZS (%) ........................................ 9
TABLE 5: SHARE OF WOMEN IN EPZ EMPLOYMENT (%) ........................................................................... 9
TABLE 6: CHANGES IN THE COMPOSITION OF WORKERS BY SKILLS IN MALAYSIA (%) ......................... 10
TABLE 7: DISTRIBUTION OF EMPLOYMENT IN EPZS BY MANUFACTURING SECTORS (%)...................... 11
TABLE 8: THE SHARE OF LOCAL RAW MATERIALSA IN TOTAL RAW MATERIALS FOR PRODUCTION IN
EPZS ..................................................................................................................................................... 12
TABLE 9: WOMEN’S AGE AND EDUCATION IN EPZS .................................................................................. 13
TABLE 10: TRAINING FOR WORKERS IN EPZS ........................................................................................... 14
TABLE 11: INTERNATIONAL WAGE COMPARISON ..................................................................................... 17
TABLE 12: WAGE COMPARISON: EPZS VS. NON-EPZS INDUSTRIES (YEAR) ........................................... 17
TABLE 13: WAGE COMPARISON: EPZS VS. NON-EPZSA ACROSS INDUSTRIES ........................................ 17
TABLE 14: WORKING HOURS IN EPZS ....................................................................................................... 18
TABLE 15: HEALTH ISSUES IN EPZS ........................................................................................................... 19
TABLE 16: TRADE UNIONS IN SELECTED COUNTRIES EPZS ..................................................................... 20
TABLE 17 : BENEFITS-COSTS ANALYSIS OF EPZS1 .................................................................................... 21
3
1. Introduction
In the last three decades, the effects of export-oriented industrialization have called into
question the once popular import substitution strategies. This change has been parallel to
the development of Export Processing Zones (EPZs). Though initially found in a small
number of countries, mainly ASEAN ones, such as Hong Kong (China), Republic of
Korea, and Singapore, EPZs are now found in more than 90 countries.
EPZs role is typically seen as an instrument for expanding and modernizing the host
economy through additional investment/capital formation, technology transfer and
employment generation. In addition to these direct effects, EPZs are expected to create
rippled effects upon the rest of the economy. EPZs have been often described as the
“engine of outward-oriented economic growth” which, though debatable as a general
proposition, has been nevertheless associated with the significant industrial development
in some countries, especially smaller ones such as Singapore, Republic of Korea, Taiwan
(China), Hong Kong (China), Panama, Dominican Republic, and Mauritius.
The experiences of EPZs mainly in East and Southeast Asia, Latin America and African
regions have been evaluated over the wide range of issues such as the level of
employment creation, technology up-grading and foreign exchange earnings at the macro
level, and firm and industrial performance, wages and working conditions and industrial
relations at the micro level. These evaluations have taken place in the context of
macroeconomic modeling during liberalization (Young, 1987; Miyagiwa, 1986), costbenefit analyses (Warr, 1983, 1987a,b, 1989) industrial relations and labor market
functioning (ILO/UNCTC, 1988), and gender (Elson & Pearson, 1981; Elson, 1990;
Joekes, 1987; Pearson, 1990). A warning here is that many of these studies are
unavoidably dated in a literature that is updated quickly due to the surge of EPZs across
the world. However, a valid observation is that EPZs are not a static phenomenon, in the
sense that the economic conditions in which they operate change over time and this
affects their characteristics. For example, though EPZs are initially dominated by female
employment, the share of women subsequently declines, and the wage advantage or
disadvantage of workers in some of EPZs (compared to wages outside them) can
disappear or even be reversed over time.
More generally, many findings are country and time specific as is often the case in the
economic literature. The way forward seems to be for specific country research to use a
multi-disciplinary approach. For example, some studies identify poor employment
conditions in EPZs but omit comparisons with conditions outside the EPZs or, carried by
labor economists and human resources specialists, fail to appreciate other effects of EPZs
(such as macro and industrial ones). Other studies focus on precisely the latter, that is,
the effects on industrial performance and exports and the macroeconomy at large without
paying due respect to efficiency gains that would arise from more sensible use of labor in
EPZs. Therefore, a clear research agenda lies ahead that needs to be policy focused: what
are the lessons from the experiences of EPZs that policy makers can utilize to reduce the
apparently chaotic labor conditions that globalization has set in force so that economic
growth in some sectors or countries can be associated with gains for workers within and
outside of EPZs.
The objective of this paper is to update some issues and studies on EPZs. It first provides
a brief overview of trends in EPZs and then discusses a series of issues such as
investment and types of industry in EPZs (incentive scheme, foreign ownership, types of
4
industry and labor composition), technology transfer (backward linkages and skill
formation), and workers in EPZs (wages, working conditions and trade unions). Lastly,
we will discuss lessons from different EPZ experiences and future agenda in the section.
2. Definition and Broad Trends of EPZs
2-1. Definition
Though phenomena similar to EPZs have been known to exist in various forms for a
century or so, it was only since the 1970s that they gained momentum. This has been
accompanied by the use of different terms over time and space, and there are at least 19
different terms related to EPZs. Among the most popular ones are Free Trade Zone,
Export Processing Free Zone, Free Export Zone, Industrial Free Zone, Special Economic
Zone (China) and Maquiladora (Mexico) (See Annex 1 for the evolution of terminology
over time).
In this paper, we define an EPZ as 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 producing mainly for export, benefit from a certain number of fiscal
and financial incentives (ILO/UNCTC, 1988).
Other definitions abound though all retain the main characteristics outlined above. For
example, according to UNIDO (1980), EPZs are relatively small, geographically
separated areas within a country, the purpose of which is to attract export-oriented
industries by offering them favorable investment and trade conditions as compared to
other parts of the host country (See Annex 2 for other definitions currently in use).
2-2. Broad Trends
Only two dozen countries had some form of EPZ(s) in 1975. On the latest count, such
countries number 93 of the 173 for which information exists (WEPZA, 1997). These
trends are mirrored in employment creation. There were 800,000 workers in EPZs in
1975 and 1.9 million in 1986. The latest available information (ibid.) suggests an
employment figure of nearly 4.5 million (Table 1). In addition, there are 14 to 40 million
Chinese employed in “special economic zones.” The robustness of the employment
growth in EPZs can be better put in context by focusing on 14 countries (Bangladesh,
India, Indonesia, Malaysia, Pakistan, Philippines, Republic of Korea, Sri Lanka, Taiwan,
Thailand, Togo, Dominican Republic, Mauritius and Mexico) that have been more active
with EPZs than average. EPZ employment in these countries increased fivefold in just 15
years from 209,629 in 1975 to 567,434 in 1986 and 985,700 in 1990 (Amirahmadi and
Wu, 1995: 837).
EPZs are quite concentrated geographically with most of them located in just two
continents. Latin America and the Caribbean is the home of 48 percent of worldwide
EPZs while Asia boasts another 42 percent. In terms of employment, the former employ
1.2 million workers while the latter 3 million. Africa has another 250,000 workers
(ICFTU, 1997).
5
Table 1: The Evolution of EPZs Over Time
1975a
1986a
No. of Countries with EPZs 25
47
No. of EPZs
79
176
Employment (millions)
0.8
1.9
Notes and Sources: See Appendix
1995b
73
500
n.a.
1997c
93
n.a.
4.5
Most EPZs have been established along very similar characteristics such as high share of
MNCs in value added, dominance of a few industries in employment and production,
limited worker representation, minimal use of local raw materials and low share of sales
in the domestic economy. However, few of these characteristics perpetuate at least, after
some critical point in time. The changing nature of EPZs was noted early in the literature
(for example, ILO/UNCTC, 1988) and is also confirmed in the next sections.
3. Issue 1: Investment and Types of Industry in EPZs
3-1. Incentive Scheme
Developing countries set up various kinds of incentive packages to attract MNCs from
developed and/or middle-income countries. These incentives are usually divided into
“hard” and “soft” ones. Hard incentives include the provision of physical infrastructure
and services necessary for manufacturing: roads, power supplies, transport facilities, and
so on. Soft incentives include tax allowances and special trade concessions. Table 2
summarizes the incentives for investors in EPZs, ranging from duty free imports of raw
material and capital equipment, tax holidays, infrastructure facilities, reducing red tape
and so on. The picture is rather uniform: all countries listed in the table offer tax
exemptions for certain numbers of years after investment in EPZs. With the exception of
China, at least 4 years of tax holidays are offered, and investors in Jamaica can enjoy
unlimited duration of tax holidays. Several countries simplify also the administrative
procedures governing EPZs and set up a one-stop shop to streamline licensing and
customs procedures.
6
Table 2: Major Fiscal, Physical and Administrative Incentives Offered by EPZs
Malaysia1,2 Korea1,3 Philippines1, Sri
Jamaica6
1,5
4
Lanka
Tax Exemption
Yes
Yes
Yes
Yes
Yes
Tax Holiday Period
8-10 years 5 years
4-6 years
5-15
years
Indefinite
Duty Free on Imports
Equipment
Yes
Yesa
Yes
Yes
Yes
Machinery
Yes
Yes
Yes
Yes
Yes
Parts/Spares
Yes
Yes
Yes
Raw Materials
Yes
Yes
Yes
Yes
Yes
Duty Free on Exports
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Unrestricted
Repatriation
of
Profits
Reducing red tape
Yes
Simple procedure
Yes
Yes
One-stop shop
Yes
Others
VAT
exemptionb
(Notes and Sources: See Appendix)
7
China1,9,
Mauritius11
Yesc
1-5 years
Nod
20 years
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
-
Yes
-
Yes
Trinidad
Tobago7
Yes
Dominican
Republic8
Yes
15-20 years
Yes
Yes
Yes
Yes
Yes
Yes
-
Training
subsidy
10
3-2. Foreign Ownership
Investors in EPZs come from relative few, albeit diverse, countries as evidenced
from the share of investment by country of origin (Table 3). In the three Asian countries
listed in the table, investors from Japan and US are dominant. Interestingly, NICs’ share
is not negligible. This suggests that, during the course of economic growth, NICs
transform their own domestic industrial structure into more capital intensive and move
labor-intensive production to other developing countries (Malaysia, Thailand, and
Philippines). In the case of Mauritius, NICs’ share, 38%, represents mostly investment
from Hong Kong, which has been a unique feature in the Mauritian development of EPZs
since 1970. Another rather unique feature of Mauritius is the high share of local
ownership in EPZs.
Table 3: Investment in EPZs by Country of Origin (%)
Origin of
Malaysia
Republic
Philippine
1
Investor
1990
of Korea s
19912
19963
Local
14.2
27.2
12.6
Japan
36.6
68.9
22.2
US
17.7
0.7
35.6
Other Western Economies 12.6
5.5
NICs
15.8
18.3
Others
3.1
3.1
5.8
Total
100.0
100.0
100.0
Notes and Sources: See Appendix.
Mauritius
19844
43.0
2.3
11.2
38.0
5.5
100.0
Though not shown in the table, MNCs from different countries invest in different sectors
in host countries. Japanese MNCs invest heavily in electronics and textiles industries in
Malaysia and the Republic of Korea. However, their US counterparts invest in electronics
in Malaysia but very little in the Republic of Korea.
3-3. Types of Industry: Labor-intensive Industry?
EPZs usually consist of labor-intensive industries (Table 4). If electronics, textiles,
handbag, and jewelry are counted as assembly-line/labor-intensive operations, the ratio of
investment made in labor intensive industries to the total investment in EPZs comes to
66-68% in Masan (Korea), Kaohsiung (Taiwan (China)), Lat Krabang (Thailand) and
56% in Shenzhen.
Although the majority of EPZs are in labor-intensive industry, there have been some
changes in the industrial composition of and investment in EPZs over time. Following
the same definition of the labor intensive industry above, the ratio of labor intensive
industry in employment declined in many countries: from 70% to 65% in Korea, from
67% to 47% in China, from 89% to 76% in Malaysia, and from 92% to 62% in Sri
Lanka. Indeed, Zhu (1992: 298) examined the level of labor-intensity, the number of
employees divided by US$1,000 capital, and calculated that the ratio fell from 0.26
(1973) to 0.18 (1988) in Masan and from 0.64 (1969) to 0.13 (1990) in Kaohsiung.
8
Table 4: Distribution of Investment by Sector in Selected EPZs (%)
Rep.
of Taiwan
China:
Thailand:
Korea:
(China):
Shenzhen
Lat Krabang
Industry
1989
1991
Masan
Kaohsiung
1990
1990
Chemical
3.6
11.5
11.1
Electronics
65.7
56.0
47.0
17.7
Food
5.2
6.7
Footwear
3.0
Textiles/Garments 2.6
12.3
9.1
17.7
Handbag
15.6
Jewelry
15.6
Machinery
1.6
8.8
7.7
Metals
11.0
9.6
4.2
Non-metal
0.4
4.3
2.9
Precision
12.3
2.1
0.3
Others
3.4
3.3
12.1
15.6
Notes and Sources: See Appendix.
3-4. Composition of Labor in EPZs
Share of Female Workers
Employment creation is regarded as one of the primary goals for the host country.
Pursuing this goal has proven particular beneficial to women’s employment. Table 5
shows the proportion of women in the work force in EPZs. Across the countries listed in
the table, women’s share to total employment in EPZs is substantially higher than both
the economy as a whole and the manufacturing sector outside the EPZs.
Table 5: Share of Women in EPZ Employment (%)
All
EPZ
Non-EPZ
economy
Manufacturing
Malaysia1,2 1980
33.4
75.0
35.6
1990
35.5
53.5
47.2
Korea1,3
1987
40.4
77.0
41.7
1990
40.8
70.1
42.1
37.1
74.0
N.A.
Philippines1, 1980
4
1994
36.5
73.9
45.2
Sri Lanka1,5 1981
36.0
86.3
29.8
1992
46.4
84.8
46.0
Mauritius1,6 1984
30.7
78.9
N.A.
1987
34.4
66.2
N.A.
Notes and Sources: See Appendix.
9
However, an obvious trend in the table is that the proportion of women in EPZs has
declined over time. This might be related to changes in technology and the industrial
composition of firms (labor-intensive to capital-intensive; light- to heavy-industry) and
also in wages. As wages rise, more men are attracted to EPZ employment. In addition,
as production requirements increase, there are job openings in more attractive
employment types (such as supervisors or skilled workers), and men’s resistance to work
in EPZs declines. This explanation seems prima facie relevant to Malaysia. The share of
women workers in EPZs dropped from 75% in 1980 to 54% in 1990 as did also the share
of semi-skilled and unskilled workers from 81% to 67% in Table 6. The share of factory
operators to the total workers in EPZs declined as production changed from being laborintensive to capital-intensive.
Table 6: Changes in the Composition of Workers by Skills in Malaysia (%)
EPZs
Manufacturing Sector
1977
1990
1990
Managerial & Professional
1.0
4.7
4.0
Clerical
5.4
8.1
7.0
Supervisory & Skilled
12.6
20.3
37.0
Semi-Skilled & Unskilled
81.0
66.9
52.0
Notes and Sources: See Appendix.
Information on previous work experience is limited but most women who join
EPZs have no prior work experience. In local surveys, four out of five workers in Sri
Lanka and also in China are first-time job seekers. These patterns follow more or less
directly from the fact that the majority of women workers in EPZs are in their high teens
and twenties. This is slightly higher than previous findings (16-21 years old; ILO 1987)
and reiterates the finding that the characteristics of EPZs and their workers are changing
over time. In this respect, some countries (such as Mauritius) have seen the number of
married women working in EPZs rising over time.
The dominance of women workers in EPZs has led to concern about gender segregation.
Though this creates inefficiency to the extent that it arises from employment
discrimination, the short-run effects on women’s wages may be more complex (Sayed and
Tzannatos, 1997). For example, in Puerto Rico, segregation patterns have been found to be
consistent with median annual earnings of women that are quite close to those of men
(Presser and Kishor, 1991). An explanation for this is that women are offered more
opportunities for upward mobility when production is organized around strictly segregated
occupations than when women and men work together. Under such an arrangement,
women will be required to supervise other women and get better jobs than they would
otherwise have.
Changes in Employment Structure
In the same vein, Table 7 shows the distribution of employment and changes in its
industrial composition in five different EPZs/countries over time. Interestingly,
electronics were big players in Masan (Korea), Shenzhen (China) and Malaysia (overall)
but not in Sri Lanka or Mauritius. In the last two countries, textiles seems to have been
the leading sector.
10
Though the ranking of industries has hardly change, there have been significant
changes over time. One way to summarize the overall change in the industrial
distribution of employment is through the Duncan index of dissimilarity. In our case, the
index, D, can be defined as
D =
N
1
2
¦ |L
t0
i
- Lti1|
i=1
where i = 1,2,...,N is the total number of industries of interest, Lt0 and Lt1 are shares of
individual industries to total employment in the first and the last year respectively, and the
summation refers to the absolute differences in the industrial employment shares between
the two years (the sum of the differences, if conventionally calculated, will be zero: this
also explains why the resulting sum is divided by two as the formula double counts
differences). The minimum value of the index is zero; when the employment distributions
are the same across industries in the two years. The maximum value, unity, occurs when
there is complete dissimilarity (that is, industries that employed workers in year t0 do not
employ any workers in year t1, and all industries in year t1 are new). Since the index
varies from 0 to 1, it is often expressed as a percentage and is at times wrongly assumed to
show the percentage of workers who would have to be reallocated across sectors to achieve
the same employment distributions in the two years. The index is, however, something like
the correlation coefficient and does not have an immediate quantitative meaning
(Tzannatos, 1990).
Table 7: Distribution of Employment in EPZs by Manufacturing Sectors (%)
Korea
China
Malaysia
Sri
Lanka Mauritius (All)5,6
(Masan)1
(Shenzhen)1 (All)2,3
(All)2,4
3
Sector
1973 1985 1984 1989 1979 1990 1981 1992 19845 1991 19946
2
Chemical
3.3
Electronics
59.1 61.9
57.1
Food
4.9
Footwear
9.7 12.4
Textiles
10.6
2.7
9.9
Jewelry
Machinery
4.0
1.6
6.2
Metals
4.0
3.3
1.9
Non-metal
9.0
0.7
3.9
Precision
0.0 13.7
0.0
Rubber/Leath
er
Others
3.6
3.7
12.8
Total
100. 100.0 100.
0
0
Duncan
0.193
0.304
Index
Notes and Sources: See Appendix
2
4
6.9
31.0
2.6
74.8
0.4
0.5
64.8
0.8
2.0
4.5
15.6
14.3
11.0
90.0
6.1
4.3
2.0
1.2
1.8
1.5
0.2
0.1
9.4
1.3
30.3
100.
0
3.7
2.6
2.4 10.4
100.0 100.0
0.149
11
5
3.0
2.5
2.9
55.6
2.9
0.0
1.1
82.8
2.1
1.4
1.4
84.1
1.6
0.5
1.7
1.5
88.9
1.5
1.2
0.8
0.5
1.4
3.9
1.3
8.9
2.2 18.9
100. 100.
0
0
0.364
12.8 10.7
5.4
100.0 100. 100.0
0
0.030
0.087
The value of the index (last row, Table 7) suggests that changes in the industrial
composition of employment are generally significant over time (save in Mauritius during
the 1984 and 1991 period). This confirms that EPZs are transforming relatively quickly
over time despite the apparent dominance of particular sectors (such as electronics or
textiles).
4. Issue 2: Technology Transfer
4-1. Backward Linkages
The activities of EPZs are expected to create at least some linkages between them and the
rest of the economy and accelerate industrialization growth in the host country. There are
two main types of such linkages: utilization of domestic raw material inputs and
subcontracting arrangements with domestic firms.
Host countries vary with respect to local sourcing (the share of domestic raw materials to
total raw materials used by firms in EPZs). Some have high level of local sourcing, such
as, the Republic of Korea, Taiwan (China) and Malaysia, while others have low, such as,
Sri Lanka, China, and Mexico (Table 8). Interestingly, the countries with higher ratio of
local content experienced a leap from low level of local sourcing to high level over a
short period. This happened over four years (3.3% in 1971 to 24.4% in 1975) in the
Republic of Korea and over 5 years (2.7% in 1982 to 17.7% in 1987) in Malaysia. Where
local sourcing is limited, such as in the case of Maquiladoras in Mexico, slow delivery,
high prices and poor quality have been cited as the main reasons (Brannon, James and
Lucker, 1994).
Subcontracting has been rather limited across the countries listed in Table 8 except for the
Republic of Korea. Korea set up “outzone processing scheme,” which allows the
enterprises in EPZs to use non-EPZ firms for their production of exported goods. The
limit was initially set at no more than 30% of the total production value but is now raised
to 60%. Since firms in Korea can secure imported inputs for exported products free of
duty, irrespective of status (EPZ, non-EPZ), the firms in EPZs can competitively produce
their products under this scheme. This scheme also creates some incentives for local
forms to upgrade their products to meet world standards (Healey and Lutkenhorsts, 1989:
28-32).
Table 8: The Share of Local Raw Materialsa in Total Raw Materials for Production in EPZs
Country
EPZ
Industry
Malaysia1
Penang
Rep. of Korea2
Masan
All
Electronics
All
Local Sourcing of Inputs
Year %
Year
%
1976 0.2
1987 17.7
1976 2.8
1987 17.9
1971 3.3
1985 32.3
Taiwan (China)3
Total
All
4
Sri Lanka
Total
All
China4
Buji
All
Mauritius5
Total
Garment
Notes and Sources: See Appendix
1967 2.1
1979 0.0
Limited
1982 41.0
12
1979
1991
28.3
3.8
N.A.
N.A.
Subcontracting
Very Limited
Very Limited
Very
active;
Outzone
Schemeb
Non-existent
4-2. Human Resources Development (Education and Training)
One of the objectives for the host country to set up EPZs is technology transfer. This
could be realized through new capital equipment but also through up-grading/refining the
educational system (which can then supply more adaptable workers to particular
production requirements) and additional training on- and off-the job. It is not easy to
evaluate the effectiveness of the local educational system on technology transfer but, as
the previous discussion on educational upgrading of the labor force in EPZs suggests,
better educated women are prime candidates for employment in EPZs. The educational
attainment of workers in EPZs has changed dramatically over time, which is associated
with the improvement of school enrollment in the host countries. In the case of the
Republic of Korea, 95% of the women workers have now completed high school
compared to only 20% in the 1970s. Taiwan shows the same trend following the
introduction of Nine Years Free Education System in the 1970s. In the case of Sri Lanka,
54% of women workers in EPZs have completed GCE (General Certificate of Education:
grade 10), while only 40% of male workers in EPZs attained the same levels of
education. This might imply the local labor market is limited to women with higher
educational background (Table 9).
Table 9: Women’s Age and Education in EPZs
Country
Sri Lanka
Malaysia
China5
Korea
Taiwan8
Age
In 1985, 76 % of women
below 25 years (48%
outside EPZs).1
In the late 1980s, the
majority of women were
16-25 years old4
In 1986, 97 % of below 23
years old (78% of men)5
In 1990, 85 % of women
below 30 years old (45% of
men) 6
In 1990, average age of
overall work force 27 years.
Education
In 1989, 54 % of females had General
Certificate of Education (GCE)2
In the late 1980s, most had 6-11 years
education (Primary to Form 5)4
In 1986, 74 % of the women had completed
secondary school.5
80% of the work force (overall) completed the
middle school in 1970s and 95% in 1990. 7
In 1968, 57 % had only elementary school. In
1990, 86% had more than elementary
education.
Dominican
Republic9
Mauritius
71 % of women below 30
years (58% economy wide
40% of women below 25
years old, (60% of men)
Notes and Sources: See Appendix.
Also, some enterprise training does take place in EPZs. As is shown in Table 10, training
for factory operators is mainly on-the-job and lasts from a few weeks to usually no more
than three months. The training is mostly task-specific and geared to enhancing
productivity and efficiency in the firm’s operation. The specificity of training is
13
understandable as is also its short duration: workers in EPZs have usually short tenures,
and training is negatively associated with higher turnover.
Table 10: Training for Workers in EPZs
Country
China (Shenzhen)1
Training provided
3-month on-the-job training for operators (1 month for class and 2
months for production practice); Over 80 adult education
institutes (1990) but with weak linkages between the needs in the
enterprises in the EPZ and the skills provided in the institutes.
Republic of Korea
3-month on-the-job training for operators; Overseas training for
1
(Masan)
skilled workers (mainly in Japan)
Malaysia2
3-month on-the-job training for operators; QCCs (Quality
Control Circles): giving monetary and other incentives (gifts,
medals and commendation letters, etc.) for identifying problems
and suggesting ways of solving them); Little training for computer
programming, technical engineering and design work.
Mauritius3
3-month on-the-job training for operators (trainee status: 75%
minimum salary; Lack of trained intermediate workers
Philippines4
1 day to a few weeks on-the-job training for operators; Some
enterprises (Japanese) rotate operators to make them familiar with
between 10 and 18 interrelated tasks (3-month rotation)
5
Sri Lanka
1-3 months on-the-job training for operators
Taiwan
3-month on-the-job training for operators; Cooperative training
(Kaohsiung)1
programs between school/college and the enterprise in the EPZ.
School/college provide general education; and the enterprises
provide special technology training; Some overseas training
Thailand
(Lat 3-month on-the-job training for operators; Off-the-job training:
Krabang)1
study and experiment in the classroom and laboratory for some
workers; Overseas training (at parent company) for core
employees in management and technology
Notes and Sources: See Appendix.
In some cases, workers in EPZs receive more substantial training but this is typically
restricted to the higher end of skills. For example, MNCs may send local employees to
their headquarters or elsewhere for middle and, more often, higher management training
and advanced technician training. But this tends to be at a small scale. In Taiwan, only
1,500 workers received overseas training between 1968 and 1986 - hardly more than 80
on average in a single year.
In other cases, training may spread broader than enterprise programs. In the Shenzhen
SEZ (China), adult education institutes were established to improve technical and
vocational skills for workers in the zone but the linkage between the skills taught at the
institutes and the skills demanded at the factories has yet to be established. In Taiwan
(China), some cooperative training programs between school/college and the enterprises
in the EPZs are being developed. These programs leave technical training to be provided
at the factory rather than at the institution.
14
Box 1
Foreign Investment and Skills
Foreign investment helps growth...
The emergence and expansion of growth triangles in East Asia (such as the SingaporeBatam-Johore, the already agreed Penang-Sumatra-South Thailand and the planned
Sabah/Sarawak-Sulawesi-Sulu) offer benefits to participating countries without loss of
economic sovereignty. The triangles are more dynamic than national EPZs because they
can exploit greater economies of scale and the comparative advantages of more than one
country. Capital, technology and managerial skills usually come from investing countries.
Land, infrastructure and labor comes from the host countries. The driving force for
triangles comes from newly industrialized countries that want to relocate labor-intensive
production to lower wage economies. The benefits to host countries are job creation,
skills development, technology transfer and industrial discipline with spill over effects on
the national economies.
For Indonesia (as much as for the Philippines, Thailand and Vietnam in the future)
growth triangles can prove instrumental for job expansion in the short run and technology
transfer in the longer run. Positive effects of FDI upon TFP and overall growth are well
documented in Indonesia.
...but it does not always require specialized skills
Young female senior secondary school graduates who intend to work for two years
in the island of Batam enter into a 6-month apprenticeship contract with the recruiting
company before they are offered a regular contract by their employer. Prior to this
apprenticeship, the perspective workers must receive training by the Ministry of
Manpower. An initial condition for getting employment in Batam is that the worker
should be unmarried.
The recruiting company places workers in an “apprenticeship training location”, in
most cases the site of the eventual employer. During the apprenticeship period the worker
is paid reduced wages (Rp 99-105,000 per month instead of Rp 120-135,000 per month
for regular employees). No formal test is administered at the expiration of the initial 6month contract. In fact, it is unlikely that workers qualified at the senior secondary
education level are unable to perform satisfactorily in routine assembly-type work. If the
worker wants to terminate her employment, she has to pay compensation to the recruiting
company equal to the wages already received. She will also be responsible for her return
air fares.
At the end of the two-year employment, most workers are discharged or leave. No
certificate is awarded for the training they received first, by the Ministry of Manpower
and second, during their six-month apprenticeship with the firm. In fact, they have
acquired no skills other than those than any worker would get during the ordinary course
of employment.
Company provided apprenticeships do not always impart skills -- at times they can
be a way of paying lower wages.
15
Sources: Tzannatos and Sayed (1996)
A study examining training programs of enterprises in Maquiladoras of Tijuana, Mexico,
found that enterprises engage in various forms of training including management skills,
production processes, quality control, product design, equipment maintenance and use
and would even take place at universities (Raafat et al., 1992). The study further
examined training given to Mexican employees according to the nationality of the
parental companies that was Japanese, American (US) or Mexican. It found that
Japanese companies provide on- and off-the-job training more than American and
Mexican companies. It also found that Mexican companies provide most formal training
to technical workers (55% of technical workers received the training) unlike the Japanese
companies (17%) and the American ones (32%).
Irrespective of the reasons that give rise to such differences, this case study suggests that
training practices and the course of technology transfer within factories in EPZs is not
uniform and can lead to little upgrading. Though the logic behind short, focused,
employer-driven and -provided training is understandable, some point out that this type
of training does not help the workers to develop the skills needed to pursue better career
prospects after they stop working in EPZs (Abeywardene et al, 1994; Sivalingam, 1994).
This phenomenon is highlighted in Box 1. This adds to the description of “footloose”
industries in EPZs, and raises the issue of employment insecurity since most EPZs
provide mainly assembly-type jobs. In some cases, factories in EPZs close down after
the lapse of tax holiday periods which indicates that this factor is more important than the
loss of the skills they imparted upon their workers.
5. Issue 3: Workers in EPZs
5-1. Wages
Wages and other employment conditions tend to be inferior in EPZs to those
adopted by the same firms or in industries in countries where the headquarters of MNCs
are located. For example, with respect to wages the evidence confirms the common sense
expectation that indeed wages are lower in countries where per capita incomes are lower.
Table 11 presents such a comparison in electronics and textiles, which are two major
industries in EPZs, between some developing countries in East Asia and USA and Japan.
The location of EPZs in countries where relatively cheap labor exists is not unexpected,
though this fact alone is not usually sufficient to attract MNCs in developing countries.
In general, there is no single factor that explains the location of EPZs in one country or
region rather than another, though labor costs should be a consideration to international
investors. Other factors include the existence of physical infrastructure (such as
electricity, water supply and transportation including seaports and airports) and political
stability.
16
Table 11: International Wage Comparison
(Index of Average Hourly Earnings: US=100)
Country
Electronics
Garments
Hong Kong
14
23
Republic of Korea
13
13
Malaysia
6
n.a.
Philippines
4
4
Japan
86
78
USA
100
100
Notes and Sources: See Appendix
More interestingly, wages also vary between EPZs and non-EPZs in the same
country. For example, in the indicated years (Table 12), wages in EPZs in Taiwan
(China) and Mauritius were lower than outside. However, this finding is far from
universal as in China, Thailand and Sri Lanka, wages in EPZs are higher than outside the
EPZs on average. Interestingly, in the cases of Republic of Korea and Malaysia, wages
in EPZs were initially lower than in non-EPZs but became higher after some point in
time.
Table 12: Wage Comparison: EPZs vs. Non-EPZs Industries (Year)
EPZs > Non-EPZs
China (1989)a,1
Thailand (1990)a,1
Sri Lanka (1992)c,2
EPZs < Non-EPZs
Taiwan (China) (1988)a,1
Mauritius (1986)d,3
Reversals
Republic of Korea
(lower before/higher after 1987)b,4
Malaysia
(lower in 1979b,5 vs. higher in
1990b,6)
Notes and Sources: See Appendix
An examination of wage differences within a country (Malaysia: Table 13)
produces an even more complex picture: EPZ wages in textiles and electronics are higher
than outside but lower in food, beverage and tobacco and plastic products. The Malaysian
case shows also that wages in textiles are lower than in electronics suggesting that
differences also exist between different industries within EPZs.
Table 13: Wage Comparison: EPZs vs. Non-EPZsa Across Industries
(Malaysia 19901; Monthly wage in RMb)
EPZs
Food, beverage and tobacco
644
Electrical & electronics
920
Plastic products
425
Textiles
821
Notes and Sources: See Appendix
Non-EPZs
706
709
551
726
These comparisons are hampered by the fact that differences in wages have not been
standardized for differences in working conditions, level of skills and sophistication of
production and, most importantly, local labor market conditions. This applies also to
17
comparisons between other aspects of employment such as hours of work that are
examined next.
5-2. Working Conditions
Hours of Work
Table 14 shows the length of work in EPZs in different countries. Although it lists
only four country cases, long hours of work seem to be common at first sight but what is
also interesting is that they tend to become shorter over time. However, as mentioned in
the previous section, information on the length of the work week of workers outside the
EPZs is not known.
Table 14: Working Hours in EPZs
Country
Malaysia
Working Hours
23% of employees worked more than 48 hours. Night shift for women
are common among operators.1
China
Average working hours vary from 54 to 77 hours per week. 2
Philippines
In the early 1980s, 50% of the work force worked longer than the
standard 48 hours per week, almost one-quarter more than 60 hours per
week and 5% more than 70 hours per week.. Average hours came to
53.9 hours per week (national average in industry 43.7 hours). Night
shift for women permitted. 3
Republic of In 1977, 50% of the workers worked more than 8 hours and 30.1% more
Korea
than 15 hours per day. 3 Until the 1980s, overtime work and the threeshift system were common. Overtime work has been since gradually
reduced and many enterprises moved to two-shift system. Now, average
hours range between 8 to 10 hours per day.
Mauritius
Legal normal working hours in EPZs is 45 hours per week. Compulsory
overtime weekly is limited to ten hours per week since 1987. Beyond
ten hours, the consent of the workers is required.5
Notes and Sources: See Appendix
Health and Safety
Another indicator of labor conditions in EPZs is measurable health problems among
factory workers in EPZs. Table 15 lists the types of health problems and their cause in
different countries. There seem three types of problems. First, those that are associated
with the organizational arrangements in EPZs and their social repercussions (such as
incidences of mass hysteria). Second, those that could more accurately be described as
occupational and industrial diseases (for example, eyesight problems in electronics
industry or back pain in many assembly type works). Third, those that relate to the health
and safety standards in the establishment. But, as in the case of wages and hours of work,
there are no comparative statistics for similar work undertaken outside the EPZs.
18
Table 15: Health Issues in EPZs
Country
Malaysia
Issue
Mass hysteria. Eyesight of electronics workers affected overexposure to
light rays.1 Conditions in the textile industry worse than in electrical and
electronics.2
Republic of In the early 1980s in electronics factories, 88% of workers had chronic
Korea
conjunctivitis because of toxic fumes and dust; 47% were shortsighted
and 19% had astigmatism because of microscopic work.1
Philippines
Workers complained of fatigue, inadequate ventilation, dust, fumes and
unpleasant odors.3 But recently the situation has improved, the main
complaint being lack of air-conditioning.4
Sri Lanka
No governmental hospital/dispensary in EPZs. Though 60% of firms
had a first aid box, only 13% had medical units. Workers in EPZs had
more health problems than those outside EPZs. Causes include short
rest periods due to overtime and night shift, lack of air-conditioning and
excessive heat generated from machines.5
Mauritius
Asthma caused by dust and poor ventilation in garment factories, and
noise problems in spinning factories. Medical facilities vary firm by
firm.6
Notes and Sources: See Appendix.
5-3. Workers’ Voice
Moving from wages and employment conditions to unionization, Table 16 presents
information on trade unions in selected countries. Though the “intensity” of unionization
is hard to measure, most of the ten countries listed in the table do allow some form of
trade unions to operate in EPZs. The Republic of Korea prohibited trade unions or even
labor disputes in EPZs before 1987 but subsequently relaxed these restrictions, and union
membership rose. Malaysia’s firm stance toward workers in electronics industry is very
unique though, the argument goes, the wage level in the industry is much higher than
other industries and electronics provide much better working conditions than other
industries (Rajah: 1996:33). Sri Lanka and Jamaica stand rather closer to the Malaysian
government with regards to attitudes toward unions in EPZs. On the other hand, the
Philippines and Taiwan (China) have allowed trade unions in EPZs without constraints
on their activities.
An interesting finding is that there are no significant differences between a
country’s attitude towards labor standards and its decision to establish an EPZ. Annex 3
presents a list of 173 countries and whether they are signatories of ILO’s international
conventions and EPZs hosts. Of the nearly 50 tests presented in Annex 4, only one is
significant at the 5 percent level and another two at the 10 percent level. In short, it is not
countries that show disrespect for labor standards that host EPZs (though some may
apply double standards between the enclave and outside establishments). This may
suggest that factors other than labor (such as incentives, infrastructure, administrative
arrangements, political stability and so on) are more important for the location of EPZs in
one country or another compared to totally free use of labor by employers and MNCs.
19
Table 16: Trade Unions in Selected Countries EPZs
Country
Republic
Korea1
Malaysia2
Status
of Permitted
Permitted
Philippines3
Permitted
Taiwan (China)4 Permitted
Thailand4
Sri Lanka5
Unionization rate
74% for all workers
85% of
(1990)
Comments
Since 1987. Higher unionization
rates for women (83%) than men
(55%)
Unions
not
allowed
in
electronics
workersa Collective agreement
Discouraged
Permitted
Low
There are also company-based
“joint consultative councils”.
Jamaica6
Permitted
Resistance of employers
7
Mauritius
Permitted
12% of workers in 57% outside EPZs (1989)b
EPZs
Dominican
Permitted
Resistance of employers to the
Republic8
establishment of unions
El Salvador
Permitted
Employers do not hire union
members
Notes and Sources: See Appendix.
6. Issue 4: Overall Economic Impacts of EPZs
Evaluating the impact of EPZs in the host country is a daunting task. In addition to data
problems, the discussion in the previous sections suggests that EPZs can be better viewed
as a process than an end-product. Nevertheless, with some modifications to the
conventional benefits-costs analysis, some interesting empirical results emerge (Warr
1989).
The approach consists of comparing economic performance of an economy with
EPZs against the hypothetical performance of the economy without EPZs. Warr assumes
that EPZs are enclaves within each host country, and that there is a transfer of funds and
resources between these enclave EPZs and the economy of the host country. The
analysis is more macro than micro, in the sense that it does not address income
distribution issues. The net estimated benefits include the net gain to the host country
with respect to employment generation, foreign exchange earnings, greater utilization of
local materials, additional capital equipment and additional tax revenues collected from
the MNCs (when applicable). The costs include administrative and maintenance costs of
the EPZs, and the required additional physical and administrative infrastructure.
20
The following equation summarizes the net benefit as defined by Warr (1990:151):
N t = ( Lt w + M t PM + E t PE + Rt + Tt ) S F* − ( Lt w * + M t PM* + E t PE* + Bt S K* ) − At − K t
where: N = Net benefit
Lt = employment in year t;
w = wage paid;
Mt = domestic raw material used in year t;
PM = price paid for this raw material;
Et = utilities (e.g. electricity) used in year t;
PE = price paid for these utilities;
Rt = interest and principal repayments of domestic loans in year t;
Tt = taxes paid in year t;
SF* = ratio of the social value of foreign exchange to the official exchange
rate;
*
w = shadow price of labor;
PM* = shadow price of domestic raw material;
PE* = shadow price of utilities;
Bt = domestic borrowing in year t;
SK* = ratio of the shadow price of capital to its market price;
At = the administrative costs of the zone in year t;
Kt = capital cost (including maintenance) of EPZ physical infrastructure in
Table 17 shows the results of Warr’s benefits-costs analysis of three EPZs in East
and Southeast Asia, Bataan (Philippines), Masan (Korea), and Penang (Malaysia) for the
1972 to 1982 period.
Table 17 : Benefits-Costs Analysis of EPZs1
Bataan
(Philippines)
Overall Net Benefit
Negative
Infrastructure costs
High
Foreign Exchange Earnings Steadily increase
Tax Revenue
Low
Domestic Suppliers
Very Limited
Employment Creation
Substantial
Notes and Sources: See Appendix.
Masan
Penang
(Republic of (Malaysia)
Korea)
Positive
Positive
Moderate
Low
Substantial
Substantial
Low
Limited
Increase
Very Limited
Moderate
Substantial
The main conclusion of this exercise was that overall net benefits were positive for
Masan and Penang but those for Bataan EPZ were found to be negative. With respect to
specific findings, the comparison across the three EPZs indicated the following:
(1) Infrastructure costs were a major determinant of outcomes. In the Philippines,
infrastructure costs in the Bataan EPZ were very high, because the government chose an
isolated area that required operations from grounding all the way up to buildings and
provision of utilities. On the other hand, Masan (Korea) and Penang (Malaysia) used
existing infrastructure or selected the locations near pre-existing industrial areas and kept
these costs at a minimum.
21
year t.
(2) Foreign exchange earnings steadily increased and employment creation was
substantial. All three zones were projected to further contribute to foreign exchange
earnings and employment creation.
(3) Use of domestic raw material was very limited. The local suppliers to Bataan and
Penang did not appear to have or expected to increase their linkages with the MNCs
operations in the EPZs. In the case of Masan, local suppliers were projected to increase
over time.
Though useful in many respects, the analysis has limitations arising from the quality of
data and also from the fact that price distortions affect the calculations of shadow prices.
Also, for the simplicity, the calculations were based on the total employment in EPZs but
didn't clarify types of employment and their wage levels. Nevertheless, this exercise
provided results that were largely in accordance with expectations both in terms of
direction and also in terms of variation between the three zones.
7. Conclusions
EPZs are a relatively new phenomenon but becoming more important over time as a
vehicle of attracting foreign investment in light manufacturing. In doing so, host
countries expect to benefit from employment creation, additional foreign earnings and
technology transfer.
For countries in early stage of industrialization, EPZs provide an efficient and productive
way of absorbing surplus labor. In fact, this seems to be one of the clearer conclusions in
the literature, that is, the employment impact of EPZs. But during the course of industrial
development and economic growth, the resulting ability of the economy to absorb surplus
labor in more general ways reduces the effects of EPZs. The gradual decline in the
interest of Korea and Taiwan (China) in this type of enclave development attests to this.
Thus, whether the creation or expansion of an EPZ would lead to substantial employment
gains would depend on the stage of economic development of the host country.
Nevertheless, our conclusion here is that EPZs have contributed significantly to the
employment of the less skilled workers though their potential to solve the massive
employment problems in many developing countries is rather limited.
In creating new employment, host countries increase their foreign earnings in the form of
wage payments to their workers. In some sense, EPZ workers are indirectly paid in
foreign currency and, from an economic perspective, this is similar to the direct export of
labor. Under certain conditions, EPZs can be preferable to emigration given the social
effects in the host country and in the country of origin of MNCs that often accompany
this dislocation of labor.
Where effects are less encouraging is with respect to technology transfer. Though EPZs
expose domestic producers to practices of international enterprises, the direct link
between the presence of EPZs and significant technology upgrading is yet to be
established in a firm way. The limited role of such externalities is corroborated by the
fact that backward linkages from the zones to the domestic economy are often weak, and
the use of domestic raw materials by EPZs has not been significant. Indirectly, though,
EPZs may have a role to play through some demonstration effects. For example,
Governments may come closer to realizing the benefits of a more liberal environment
that reductions in red tape and removal of restrictions to trade create. If this is the case,
then the most significant contribution of EPZs would not be in the form of their direct
22
effects within the enclaves and trickle down effects on domestic manufacturing outside
the zones, but from the creation in the host country of a more open and internationally
competitive economy.
A final issue is labor conditions in EPZs. It is understandable that to attract foreign
investments, governments of developing countries would offer various incentives including
the waiver of import tariffs, favorable tax treatment, and exceptions to firms located within
the EPZs from certain industrial production regulations that apply to their counterparts
outside the zones. But when such regulations apply to labor outside EPZs, it is not obvious
from a social perspective that such regulations should be relaxed in the factories operating
within the EPZs. It has been particularly in relation to labor standards in the EPZs that the
arguments for deregulation have been contested - such arguments are often based on the
simplistic assumption that labor legislation is distortive and detrimental to efficiency. In a
more realistic setting, policy makers need to know more about which particular types of
legislation (the right to organize, minimum wage fixing, employment security rules, antidiscrimination and equality provisions, health and safety regulation, maternity or other
social benefits) are detrimental to efficiency and equity considerations. A question that has
not been addressed so far is whether labor market regulations have helped or hindered the
maturing process of EPZs, including for instance whether they have encouraged higher
value added export production, technology upgrading, and closer integration with other
sectors of the economy. Another question is whether the short-term benefits of workers in
EPZs outweigh the longer-terms costs upon their health. When this is an issue, then the
efficiency of individually contracting between employers and workers is reduced due to
myopia (of workers), and this can be corrected through some form of intervention. In
considering the impact and implications of labor legislation, it is important to analyze both
the cost aspects of interventions as well as the benefits to be derived.
23
Appendix : Data Sources and Notes
Table 1:
Sources:
a
Kreye et al. (1987: 10-11)
OECD (1996)
c
WEPZA (1997)
b
Table 2:
a
Notes:
All firms in Korea engaged in exporting are able to secure their
imported inputs free of duty. This includes firms by supplying
intermediate products to EPZ firms for production of their exported
products (Healey and Lutkenhorst 1989:9).
b
Value-added tax exemption for purchases of raw materials
supplies and semi-manufactured products from local suppliers.
c
Vary with the types of the enterprises in the zones. For
foreign-invested manufacturing enterprises are exempt from
taxes for the first two profit making years and pay tax at a
50 percent reduced rate for a further three (World Bank,
1994:249).
d
The enterprises in the EPZs have to pay 15% corporate
income tax as long as they stay there.
Sources:
1
ESCAP/UNCTC (1985: 22-23)
Anazawa (1985: 103-104)
3
Oh (1993: 5-10)
4
Remedio (1996: 6)
5
Abeywardene (1994: 6)
6
World Bank (1988: 4-5)
7
Long (1986: 17-18)
8
Kaplinsky (1993: 1855)
9
Chen (1993: 262)
10
World Bank (1994: 249)
11
WTO (1995: 65)
2
24
Table 3:
Sources:
1
Calculated from Sivalingam (1994:11)
Calculated from Oh (1993:20)
3
Calculated from Remedio (1996:15)
4
Calculated from Hein (1988:21)
2
Table 4:
Notes:
Sources:
The data relate to specific zones
All data are from Zhu (1992: 223)
Table 5:
Sources:
1
ILO Yearbook of Labour Statistics (1989, 1995)
Sivalingam (1994:21)
3
Oh (1993:23)
4
Remedio (1996:13)
5
Abeywardene et al. (1994:15)
6
Annual digest of statistics (CSO, 1991)
2
Table 6:
Sources:
Sivalingam (1994: 20-21)
Table 7:
Sources:
1
Zhu (1992: 297)
Maex (1985: 35)
3
Sivalingam (1994: 19)
4
Abeywardene et al (1994: 14)
5
The World Bank (1992: 75)
6
Kothari and Nababsing (1996: 56)
2
Table 8:
a
Notes:
Raw materials include paper, paperboard, printing, cloth, thread,
trimmings, chemicals, plastic products, services (transport,
communications, etc.). Break-down of these data are not available.
b
The government of the republic of Korea allow subcontracting
arrangements between the enterprises in EPZs and those outside the
EPZs. The partial processing outside the EPZs did not exceed 60 %
(used to be 30%) of the total manufacturing process, calculated in
terms of production cost. The goods processed or produced by the
outzone activity were components or intermediate products for
production processes finalized in the EPZs (Healey and
Lutkenhorst, 1989: 28).
c
The Board of Investment introduced a system of selectively targeting
industries and activities which are expected to create linkage in 1991.
Those include: textiles, to form linkages with the garment industry
and agriculture, to foster linkages with agroindustrial units
(Abeywardene et al., 1994 (19)).
Sources:
1
Rajah Rasiah (1991: 104)
Healey and Lutkenhorst (1989:24-32)
3
Anazawa (1985-86:125)
4
Abeywardene et al. (1994: 17-19)
5
Willmore (1994)
2
Table 9:
Sources:
1
Goonatilake and Goonesekere (1988: 190)
Abeywardene et al (1994:33)
3
Lee (1984:221)
4
Sivalingam (1994: 49)
2
25
5
This is based on the data collected in Buji SEZ
(Yonghong, 1989:358-60)
6
Calculation based on the data from Oh (1993: 24)
7
This is based on the data collected in Masan EPZ
(Zhu, 1992: 284)
8
This is based on the data collected in Kaohsiung EPZ
(Zhu, 1992: 285-6)
9
Castro (1993: 34-35)
10
Kothari and Nababsing (1996: 60-61)
Table 10:
Sources:
1
Zhu (1992:284-290)
Sivalingam (1994:50)
3
Hein (1988:53-54)
4
Remedio (1996:28)
5
Abeywardene et al (1994:36)
2
Table 11:
Sources:
1
Table 12:
Notes:
a
Comparisons are based on average national manufacturing
wage level.
b
Comparisons are based on average wage level outside
EPZs.
c
Comparisons are based on average industrial wage level
outside EPZs.
d
Comparisons are based on average wage level in some
industries (Garment, Gardener and Mason) outside EPZs.
Sources:
1
Notes:
a
Non-EPZs mean average wage of workers in the same
industry outside the EPZs
b
1 RM (Malaysian Ringgit) is approximately equal to
US$0.4
Sources:
1
Sources:
1
Table 13:
Table 14:
Lee (1984: 38)
Zhu (1992: 301-316); Shenzhen EPZ for China, Lat
Krabang for Thailand and Kaohsiung for Taiwan (China).
2
Abeywardene et al (1994: 20)
3
Hein (1988: 47)
4
Oh (1993: 28)
5
Lee (1984: 82-83)
6
Sivalingam (1994: 41)
Sivalingam (1994: 41)
Sivalingam (1994: 40-42)
Yonghong (1989: 361)
3
Maex (1985: 57)
4
Oh (1993: 28-29)
5
Hein (1988: 49-50)
2
Table 15:
Sources:
1
Lee (1984: 39)
Sivalingam (1994: 42-43)
3
1984 study conducted by the Ministry of Labor and
Employment
2
26
4
Remedio (1996: 29)
Goonatilake and Goonesekere (1988: 201-203)
6
Hein (1988: 52-53)
5
Table 16:
Notes:
a
b
Sources:
This data is from Kaohsiung EPZ.
Unionized ratio are calculated from the data in Martens et al.
(1994: 79-80).
1
Oh (1993: 30-31)
Sivalingam (1994:43-45)
3
Lee (1984:41)
4
Zhu (1992: 332-338)
5
Abeywardene et al (1994: 23)
6
Long (1986: 57)
7
Martens et al. (1994: 79-80)
8
Romero (1995: 272-73)
2
Table 17:
Sources:
Warr (1984, 1987a, 1987b)
27
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30
Annex 1: The Evolution of Terminology
Term
Free trade zone
Foreign trade zone
Industrial free zone
Free zone
Maquiladoras
Export free zone
Duty free export processing zone
Export processing free zone
Free production zone
Export processing zone
Special economic zone
Tax free zone
Tax free trade zone
Investment promotion zone
Free economic zone
Free export zone
Free export processing zone
Privileged export zone
Industrial export processing zone
Main users and date of first use
Traditional term since nineteenth century; ILO (1982)
Individual authors (R.S.Toman, 1956; W.Dymsza, 1964),
India (1983)
Ireland (pre-1970), UNIDO (1971), Liberia (1975)
UNCTAD (1973), USAID (1982), United Arab Emirates
(1983)
Mexico (early 1970s)
Ireland (1975), UNIDO (1976)
Republic of Korea (1975)
UNIDO (1976), UNCTAD (1983)
Starnberg Institute (1977)
Philippines (1977), Harvard University (1977), APO
(1977), WEPZA (1978), UNIDO (1979), Malaysia
(1980), Pakistan (1980), Singapore (1982), UNCTC
(1982), ILO (1983), The Economist (1979)
China (1979)
Individual authors (W.H. and D.B. Diamond, 1980)
Individual author (D.B. Diamond, 1980)
Sri Lanka (1981)
Individual author (H.Grubel, 1982)
Republic of Korea (1983)
OECD (1984)
Individual author (N.N. Sachitanand, 1984)
Individual author (P.Ryan, 1985)
APO
ILO
OECD
UNCTAD
UNCTC
UNIDO
USAID
WEPZA
Asian Productivity Organization
International Labour Office
Organization for Economic Co-operation and Development
United Nations Conference on Trade and Development
United Nations Centre on Transnational Corporations
United Nations Industrial Development Organization
United States Agency for International Development
World Export Processing Zone Association
Source:
ILO/UNCTC (1988: 5)
31
Annex 2: Internationally Used Definitions
UNIDO (United Nations Industrial Development Organization)
an EPZ is a relatively small, geographically separated area within a country, the
purpose of which is to attract export-oriented industries, by offering them especially
favorable investment and trade conditions as compared with the remainder of the host
country. In particular, the EPZs provide for the importation of goods to be used in the
production of exports on a bonded duty free basis (UNIDO, 1980).
UNCTAD (United Nations Conference on Trade and Development)
EPZs are industrial estates which form enclaves within the national customs territory
and are usually situated near an international port and/or airport. The entire production of
such zones is normally exported. Imports of raw materials, intermediate products,
equipment and machinery required for export production are not subject to customs duty
(UNCTAD, 1985: 10).
ILO (International Labour Office) /UNCTC (United Nations Centre on Transnational
Corporations)
an EPZ could be defined here as 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 producing mainly for export benefit from a certain number of fiscal and
financial incentives (ILO/UNCTC, 1988: 4).
The World Bank
an export processing zone is an industrial estate, usually a fenced-in area of 10 to 300
hectares, that specializes in manufacturing for export. It offers firms free trade conditions
and a liberal regulatory environment (World Bank 1992: 7).
WEPZA (World Export Processing Zone Association)
EPZs are all government authorized areas such as free ports, free trade zones, custom
free zones, industrial free zones or foreign trade or any other type of zone, as the Council
may from time to time decide to include (Statutes of the WEPZA, ID/W.6/266/6, 28th
February 1978).
Annex 3: Ratification of Selected ILO Conventions by Country EPZ Status
Forced Labour
Convention/Year
Afghanistan
Albania
Algeria
Angola
Antigua and Barbuda
Argentina
Armenia
Australia
Austria
Azerbaijan
Bahamas
Bahrain
Bangladesh
Barbados
Belarus
Belgium
Belize
Benin
Bolivia
Bosnia and Herzegovina
Botswana
Brazil
Bulgaria
Burkina Faso
Burundi
29/
1930
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
105/
1957
x
x
x
x
x
x
87/
1948
98/
1949
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Freedom of
Association
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Equal
Treatment
100/
1951
x
x
x
x
x
x
x
x
x
111/
1950
x
x
x
x
x
x
x
x
x
x
Minimu
m Age
138/
1973
Minimum
Wage
26/
1928
131/
1970
Work Night
Hours Work
1/
1919
x
x
89/
1948
81/
1947
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Safet
y
Healt
h
155/
1981
x
x
x
x
x
x
Labour
Inspectio
n
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
EPZ
Status
*
Yes/
No
N
N
N
Y
Y
N
N
Y
Y
N
Y
N
Y
N
N
N
Y
N
Y
N
N
Y
Y
N
Y
Cambodia
Cameroon
Canada
Cape Verde
Central African Republic
Chad
x
x
x
x
x
x
x
x
x
x
Forced Labour
Convention/Year
Chile
China
Colombia
Comoros
Congo
Costa Rica
C-te d’Ivoire
Croatia
Cuba
Cyprus
Czech Republic
Denmark
Djibouti
Dominica
Dominican Republic
Ecuador
Egypt
El Salvador
Equatorial Guinea
Eritrea
Estonia
Ethiopia
x
x
x
x
x
x
x
x
Freedom of
Association
29/
1930
x
105/
1957
87/
1948
98/
1949
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Equal
Treatment
111/
1950
x
x
x
100/
1951
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Minimu
m Age
138/
1973
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Minimum
Wage
26/
1928
x
x
x
x
x
x
x
x
131/
1970
x
x
x
x
Work Night
Hours Work
1/
1919
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
89/
1948
x
x
x
x
Labour
Inspectio
n
81/
1947
Safet
y
Healt
h
155/
1981
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
34
x
N
N
N
Y
N
N
EPZ
Status
*
Yes/
No
Y
Y
Y
N
N
Y
N
Y
Y
Y
N
Y
Y
N
Y
Y
Y
Y
N
N
N
N
Fiji
Finland
France
Gabon
Gambia
Georgia
Germany
Ghana
Greece
Grenada
Guatemala
Guinea
Guinea-Bissau
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Forced Labour
Convention/Year
Guyana
Haiti
Honduras
Hungary
Iceland
India
Indonesia
Iran, Islamic Republic of
Iraq
Ireland
Israel
Italy
Jamaica
Japan
Jordan
29/
1930
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
105/
1957
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Freedom of
Association
87/
1948
x
x
x
x
x
98/
1949
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Equal
Treatment
100/
1951
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
111/
1950
x
x
x
x
x
x
x
x
x
x
x
x
35
x
x
x
x
x
x
Minimu
m Age
138/
1973
x
x
x
x
x
Minimum
Wage
26/
1928
x
131/
1970
x
x
x
x
x
x
x
x
x
x
x
x
Work Night
Hours Work
1/
1919
89/
1948
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Labour
Inspectio
n
81/
1947
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Safet
y
Healt
h
155/
1981
x
x
x
N
Y
Y
N
N
N
Y
N
Y
N
Y
N
N
EPZ
Status
*
Yes/
No
N
Y
Y
Y
Y
Y
Y
Y
N
Y
Y
Y
Y
Y
Y
Kazakhstan
Kenya
Korea, Republic of
Kuwait
Krgyzstan
Lao People’s Democratic Republic
Latvia
Lebanon
Lesotho
Liberia
Libyan Arab Jamahiriya
Lithuania
Luxembourg
Madagascar
Malawi
Malaysia
Mali
Malta
Mauritania
Mauritius
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Forced Labour
Convention/Year
Mexico
Moldova, Republic of
Mongolia
Morocco
Mozambique
Myanmar
Namibia
Nepal
29/
1930
x
x
x
105/
1957
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Freedom of
Association
87/
1948
x
x
x
x
x
x
x
98/
1949
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Equal
Treatment
100/
1951
x
x
x
x
111/
1950
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Minimu
m Age
138/
1973
x
x
x
x
x
Minimum
Wage
26/
1928
x
x
x
36
x
x
x
131/
1970
x
x
x
x
Work Night
Hours Work
1/
1919
89/
1948
x
x
x
x
x
x
x
x
x
x
Labour
Inspectio
n
81/
1947
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Safet
y
Healt
h
155/
1981
x
Y
Y
Y
Y
N
N
Y
Y
N
Y
Y
N
N
N
N
Y
N
Y
N
Y
EPZ
Status
*
Yes/
No
Y
Y
N
Y
Y
N
Y
N
Netherlands
New Zealand
Nicaragua
Niger
Nigeria
Norway
Oman
Pakistan
Panama
Papua New Guinea
Paraguay
Peru
Philippines
Poland
Portugal
Qatar
Romania
Russian Federation
Rwanda
Saint Lucia
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Saint Vincent and the Grenadines
San Marino
Sao Tome and Principe
Saudi Arabia
Senegal
x
Forced
Labour
Convention/Year
29/
1930
105/
1957
x
Freedom of
Association
87/
1948
98/
1949
Equal
Treatment
100/
1951
111/
1950
37
x
x
x
Minimu
m Age
138/
1973
Minimum
Wage
26/
192
8
Wor
k
Hour
s
131/
1/
1970 1919
Nigh
t
Wor
k
89/
1948
Labour
Inspecti
on
81/
1947
N
N
Y
N
Y
N
N
Y
Y
N
N
Y
Y
Y
Y
N
Y
Y
N
Y
N
N
N
N
Y
Safety
EPZ
Health Status*
155/
1981
Yes/
No
Seychelles
Sierra Leone
Singapore
Slovakia
Slovenia
Solomon Islands
Somalia
South Africa
Spain
Sri Lanka
Sudan
Suriname
Swaziland
Sweden
Switzerland
Syrian Arab Republic
Tajikistan
Tanzania, United Republic of
Thailand
The Former Yugoslav Republic of
Macedonia
Togo
Trinidad and Tobago
Tunisia
Turkey
Turkmenistan
Uganda
Ukraine
United Kingdom
United Arab Emirates
United States
Uruguay
Uzbekistan
Venezuela
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
38
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
N
N
N
Y
Y
N
N
N
Y
Y
Y
N
N
Y
N
Y
N
Y
Y
N
Y
Y
Y
Y
N
N
N
Y
Y
Y
Y
N
Y
Viet Nam
Freedom of
Association
Forced
Labour
Convention/Year
Yemen
Yugoslavia
Zaire
Zambia
Zimbabwe
TOTAL
Note:
Sources:
Equal
Treatment
Minimu
m Age
29/
1930
105/
1957
87/
1948
98/
1949
100/
1951
111/
1950
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
128
125
142
x
121
x
119
133
Table of ratification concerning the ILO’s fundamental conventions
No. 1
No. 26
No. 29
No. 81
No. 87
No. 89
No. 98
No. 100
No. 105
No. 111
No. 131
No. 138
No. 155
Hours of Work (Industry) Convention, 1919
Minimum Wage-Fixing Machinery Convention, 1928
Forced Labour Convention, 1930
Labour Inspection Convention [and Protocol, 1995], 1947
Freedom of Association and Protection of the Right to Organize Convention, 1948
Night Work (Women) Convention (Revised) [and Protocol, 1990], 1948
Right to Organise and Collective Bargaining Convention, 1949
Equal Remuneration Convention, 1951
Abolition of Forced Labour Convention, 1957
Discrimination (Employment and Occupation) Convention, 1958
Minimum Wage Fixing Convention, 1970
Minimum Age Convention, 1973
Occupational Safety and Health Convention, 1981
*EPZ Status:
Y = Countries with EPZs; N = Countries without EPZs.
ILO (1997) International Labour Conference 85th Session.
Report III(part2) Lists of Ratifications by Convention and by Country (as at 31 December 1996)
39
138/
1973
51
Minimum
Wage
26/
192
8
131
/
197
0
x
x
x
x
x
x
100
40
Wor
k
Hour
s
1/
1919
Nigh
t
Wor
k
89/
1948
x
x
x
x
Labour
Inspecti
on
81/
1947
x
x
x
x
Y
Safety
EPZ
Health Status*
155/
1981
x
x
52
64
119
27
Yes/
No
Y
Y
N
N
Y
Y = 93
N = 80
Annex 4: Percentage of Countries Which Have Ratified Selected ILO Conventions
by EPZ Status and Statistical Test for the Differences Between Having or Not
EPZ(s)
Conventions
29 Forced Labour
105 Forced Labour
87 Freedom of Association
98 Freedom of Association
100 Equal Treatment
111 Equal Treatment
138 Minimum Wage
26 Minimum Wage
131 Minimum Wage
1 Work Hours
89 Night Hours
81 Labour Inspection
155 Safety Health
Number of Countries
Notes:
ALL
No
EPZs
EPZs
Major1
Others1
Significance Tests2
(p-value)3
(1)
(2)
(3)
(4)
(5)
(2) vs. (3)
(2) vs. (4)
(4) vs. (5)
.82
.70
.69
.77
.74
.72
.29
.58
.23
.30
.37
.69
.16
173
.78
.68
.69
.72
.74
.71
.32
.55
.21
.32
.36
.62
.14
94
.87
.72
.68
.82
.73
.73
.27
.61
.25
.28
.38
.77
.18
79
.83
.61
.50
.78
.67
.56
.17
.67
.28
.22
.56
.78
.17
18
.89
.75
.74
.84
.75
.79
.30
.59
.25
.30
.33
.77
.18
61
.093
.563
.911
.119
.876
.755
.444
.473
.535
.563
.808
.026
.489
.576
.590
.156
.629
.532
.237
.148
.374
.583
.394
.151
.166
.773
.606
.284
.088
.606
.498
.092
.242
.563
.796
.537
.103
.950
.896
1. Countries with EPZs are classified as “Major” countries if the number of workers
in own EPZs exceeds 10,000. Otherwise countries are labeled as “Others.”
2. The null hypothesis tested here is that the means of the two populations represented
by the selected two samples are equal, that is, there is no difference in Government
practices with respect to agreeing to a labor standard and to allowing an EPZ in their
territory. To test this hypothesis, t-statistic is calculated as:
t=
X 1* − X 2*
S12 S22
+
N1 N 2
where Xi* is the sample mean of group i, Si2 is the ith group’s variance, and Ni is the
ith group’s sample size. The resulting t-value is then compared to two-tailed
probability (p)-value for the t-value is obtained and listed in the table above. The
results suggest that the null is rejected only in one case (indicated in bold): countries
that have ratified the Labour Inspection convention (#81) have higher probability of
having an EPZ.
3. The p-values listed in this annex are at 5% significant level.
Sources:
Data are obtained from ILO (1997) and WEPZA (1997).
40
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