For a historical perspective, free or special trade zones actually predate World War I, leave alone WTO. SEZs have evolved from the initial export-oriented, small-fenced manufacturing enclaves into integrated zones of excellence intrinsically linked to the domestic market.
"Modern SEZs stand for productive environments, for new urban centres and not just infrastructure facilities," says Robert Haywood, director, World Economic Processing Zones Association. Thus, though linked fundamentally, Ireland's Shannon EPZ (240 hectares) differs in complexion from Shenzen (327 sq km) in China or Dubai's Jebel Ali (100 sq km) or even the Aqaba SEZ in Jordan.
Post 1960, such zones have been in vogue in developing Asian countries in an effort to shift from import substitution development strategy to export-driven growth. Moreover, restrictive economies like the Baltic states and China co-opted such a liberal model to attract FDI. And it's been successful. China, whose model India wants to emulate, attracted 15 times more fdi compared to India through its five SEZs. Similarly, exports from Shenzen alone, an estimated $35 billion, is equal to India's total export basket of Y2K.
Globally, governments have also promoted such zones as labs to experiment with policy reforms prior to their introduction across the country. Considering the difficulties of big-bang liberalisation, these pockets of superior infrastructure and flexible policy framework have often been key political tools which later found their way into other parts of the land as well. To quote Jiang Zemin, the Chinese president: "SEZ development is an important part of building socialism with Chinese characteristics—they solve the existing problems and speed up development."
In most countries, the government or its agencies have developed such zones by formulating preferential policies and incentives. According to Jim O'Gara, VP of Virginia-based consultants TSG, the broad policy framework that unites the new SEZs includes a low or no-tax regime with simplified procedures, duty-free imports and multi-market accessibility. "They accommodate rapid changes and the increasing proportional value of logistics," he says.
In a WTO-world, SEZs can act as vehicles for rapid development. Thus, for a late entrant like India, it's imperative to adopt the growth-oriented Chinese model that looks beyond mere net forex earnings and concentrates on the winning combo of exports with local market access.