© Prof.Dr.Werner Meng
Special Economic
Zones and WTO law
(c) Prof.Dr.Werner
Meng
Literature
Creskoff, S., Walkenhorst, P., Achieving WTO Compliance for
Special Economic Zones in Developing Countries, World Bank,
PremNotes Nr. 134 (2009)
id., Implcations of WTO Disciplines for Special Economic Zones in
Developing Countries, World Bank Policy Research Working
Paper 4892 (2009)
Akinci, G., Crittle, J, Special Economic Zones, World Bank (2008)
Engman, M, Onodera, O, Pinali, E., Export Processing Zones,
OECD (2007)
(c) Prof.Dr.Werner
Meng
Examples
Kaliningrad (Russia)
Shenzen, Macao, Hongkong etc. and now Shanghai (China)
Over 2300 SEZ in 119 developing countries
in China 660 + 1350 (local) zones
In Vietnam over 125
(c) Prof.Dr.Werner
Meng
Different Variations of SEZ
Export processing zone
Special industrial zone (manufacturing SEZ)
Technology parks
Recreation zones
Port SEZs (sea, air, rivers)
Free Trade zone
(c) Prof.Dr.Werner
Meng
Different advantages in SEZ
Less taxes and customs duties
Less state control
Less bureaucracy
More possibilities of doing business
(c) Prof.Dr.Werner
Meng
SEZ in WTO countries
WTO law restrains the freedom of states to set up and structure SEZs
SEZs are not prohibited
But they are conditioned by WTO law
SEZs may thus be subject to disputes and WTO dispute settlement
States will have to stand checks of their SEZ policies by WTO organs
(c) Prof.Dr.Werner
Meng
WTO Problems?
Subidies for activities in the SEZ (SCMA conformity?)
Discrimination between foreigners (MFN principle - Most favored
nation principle, Art. I GATT)
Discrimination between foreigners and nationals (NT - national
Treatment principle Art. III GATT)
Elimination of quantitative restrictions (Art. XI)
Transparency (Art. X GATT)
The TRIMS Agreement, Art. 2 with Art. III 4 and XI 1 GATT
Similar provisions in the GATS agreement
(c) Prof.Dr.Werner
Meng
SCMA
Generally prohibited subsidies (Art. 3)
•
Export subsidies (contingent in law or in fact upon export performance) see
Annex I to SCMA
•
Subsidies contingent upon import substitution or domestic content
requirements (the use of domestic over imported goods)
Other subsidies are countervailable (actionable, Art. 5-7)
If granted by states or on their behalf
If subsidies are specific (Art. 2)
not: generally applicable tax incentives for the national economy
(c) Prof.Dr.Werner
Meng
Export Subsidies Examples
Contingent on exportation, in law or in fact (Art. 3.1 (a) SCMA)
List of examples in Annex I to SCMA
Direct subsidies
Bonus through currency retention schemes
Preferential transport and freight charges
Preferential products and services (e.g. transport) for export
special direct tax deductions for exports
Exemption or remission of indirect taxes on exports
Exemption, remission or deferral of prior-stage cumulative taxes for pre-products or services
Export guarantees or insurances at inadequate premium conditions
Export credits below the market conditions
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Meng
Import substitution
Advantages contingent on the use of domestic over imported products
(Art. 3.1 (b) SCMA)
(c) Prof.Dr.Werner
Meng
Relevant exceptions
SCMA Note 1 („shall not be deemed to be a subsidy“)
the exemption of an exported product from duties or taxes
borne by the like product when destined for local consumption
e.g. import duties, indirect taxes
for products and pre-products
produced or stored in a country
the remission of such duties or taxes
in amounts not in excess of those which have accrued
(c) Prof.Dr.Werner
Meng
Other exceptions in SCMA
Poor countries (Art. 27 SCMA):
27.2 a and Annex VII a: Least developed countries
27.2 a and Annex VII b: Countries with income per capita of less
then 1000 $ per annum
27.4: countries with extended transition period for export subsidies
Grandfather rights (Art. 28 SCMA)
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Meng
Art. I GATT
Most - favored - nation principle
No discrimination btw. foreign countries
concerning imports or exports of good
relating e.g. to duties or sales taxes
(c) Prof.Dr.Werner
Meng
Art. III GATT
No discrimination btw. national and foreign goods
Once duties are paid and other formalities settled
e.g. requirement to use national goods instead of foreign ones
(TRIMS agreement)
making importation conditional on the amount of exports (TRIMS)
export restrictions based upon a certain volume or value of local
production
(c) Prof.Dr.Werner
Meng
Exemption of import duties
Non - discriminatory btw. foreign countries (Art. I GATT)
Not only for products that are finished and then exported (3 SCMA)
in foreign countries
in the host state
See the customs regime for the Kaliningrad region
customs free importation
but later payment of the import customs if goods are exported, to Russia
(customs for pre-products) as well as to third countries (customs for the
finished product)
no discrimination by the origin of the imported products
(c) Prof.Dr.Werner
Meng
Treatment of investments
If regulated in an investment treaty (bi- or multilateral)
duty not to discriminate btw. foreign sources of investment
privileges of all foreign investments in SEZs are admissible
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Meng
Questionable cases
Tax privileges for production equipment ?
Subsidies for infrastructure in the SEZ
Cheaper materials or pre-products for production ?
Governmental improvement of infrastructure?
Aim of the protection?
Contingency?
Factual Effects?
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Meng
Control mechanisms
TPRM - Trade Policy review mechanism
Notification requirements (Art. 25 SCMA)
Surveillance (Art. 26 SCMA)
Transparency Requirement (Art. X GATT)
Dispute Settlement Procedure