Special Economic Zones in the OIC Region:
Learning from Experience
20
Box 6 - Flexibility of Labour Laws17 18
2.7.3 Lessons Learnt in Incentive Schemes
Whilst incentives are a key component of the SEZ model in increasing the attractiveness of a
location for investment, there are many examples of unsustainable models of incentive schemes
being deployed in a globally competitive environment. Given the exponential growth in zone
programmes globally in recent years, fiscal incentives are now an ineffective tool for
differentiation between SEZs. Policy makers therefore need to establish an incentive framework
that does not rely on the assumption that fiscal incentives will be the key differentiator between
their zone and competitors. 19
It has been observed that whilst conditions such as high quality infrastructure provision and
effective customs environments are strongly correlated with successful SEZ programme
outcomes measured by exports, investment and employment. In contrast, fiscal and financial
incentives were found to generally not be correlated with SEZ outcomes 20 , with greater
importance afforded to the wider investment climate.
The ‘ease of doing business’ is one of the key components of a successful investment climate and
this can be facilitated through the effective deployment of non-fiscal incentives and their ability
to streamline administrative and regulatory processes which undermine the competitiveness of
17 Korean Free Economic Zones, (2015
18 ProLogis, (2008) Research Bulletin: China’s Special Economic Zones and national Industrial Parks – Door Openers to
Economic Reform.
19 Farole, T and Akinci, A (2011) Special Economic Zones: Progress, Emerging Challenges and Future Directions.
20 Farole, T (2011) IBID.
Republic of Korea
Certain provisions of the national Labour Standard Act are not applicable to the Free Economic
Zones (FEZs) and therefore enterprises within the FEZs are not obliged to meet quotas for special
categories of workers such as elderly people. There is also greater flexibility to hire temporary
(outsourced) workers for longer periods.
Bangladesh
The labour laws within the Bangladesh EPZs are regulated by special EPZ labour laws; the EPZ
Workers Association and Industrial Relations Act 2010 which specifies the types of workers
welfare associations which are allowed within EPZ areas.
China
Enterprises within Chinese SEZs can enter into enforceable labour contracts with specific term
limits as well as having the right to dismiss unqualified or underperforming employees as well as
adjusting wage and compensation rates to reflect the market situation.