special economic zones and wto law © prof.dr.werner meng

Special Economic Special Economic Zones and WTO Zones and WTO

lawlaw

© Prof.Dr.Werner Meng © Prof.Dr.Werner Meng

(c) Prof.Dr.Werner (c) Prof.Dr.Werner Meng Meng

LiteratureLiterature

Creskoff, S., Walkenhorst, P., Achieving WTO Compliance Creskoff, S., Walkenhorst, P., Achieving WTO Compliance for Special Economic Zones in Developing Countries, for Special Economic Zones in Developing Countries, World Bank, PremNotes Nr. 134 (2009)World Bank, PremNotes Nr. 134 (2009)

id., Implcations of WTO Disciplines for Special Economic id., Implcations of WTO Disciplines for Special Economic Zones in Developing Countries, World Bank Policy Zones in Developing Countries, World Bank Policy Research Working Paper 4892 (2009)Research Working Paper 4892 (2009)

Akinci, G., Crittle, J, Special Economic Zones, World Bank Akinci, G., Crittle, J, Special Economic Zones, World Bank (2008)(2008)

Engman, M, Onodera, O, Pinali, E., Export Processing Engman, M, Onodera, O, Pinali, E., Export Processing Zones, OECD (2007)Zones, OECD (2007)


ExamplesExamples

Kaliningrad (Russia)Kaliningrad (Russia)

Shenzen, Macao, Hongkong etc. and now Shanghai (China)Shenzen, Macao, Hongkong etc. and now Shanghai (China)

Over 2300 SEZ in 119 developing countriesOver 2300 SEZ in 119 developing countries

in China 660 + 1350 (local) zonesin China 660 + 1350 (local) zones

In Vietnam over 125 In Vietnam over 125


Different Variations of SEZDifferent Variations of SEZ

Export processing zoneExport processing zone

Special industrial zone (manufacturing SEZ)Special industrial zone (manufacturing SEZ)

Technology parksTechnology parks

Recreation zonesRecreation zones

Port SEZs (sea, air, rivers)Port SEZs (sea, air, rivers)

Free Trade zoneFree Trade zone


Different advantages in SEZDifferent advantages in SEZ

Less taxes and customs dutiesLess taxes and customs duties

Less state controlLess state control

Less bureaucracyLess bureaucracy

More possibilities of doing businessMore possibilities of doing business


SEZ in WTO countriesSEZ in WTO countries

WTO law restrains the freedom of states to set up and WTO law restrains the freedom of states to set up and structure SEZsstructure SEZs

SEZs are not prohibitedSEZs are not prohibited

But they are conditioned by WTO lawBut they are conditioned by WTO law

SEZs may thus be subject to disputes and WTO dispute SEZs may thus be subject to disputes and WTO dispute settlementsettlement

States will have to stand checks of their SEZ policies by WTO States will have to stand checks of their SEZ policies by WTO organsorgans


WTO Problems?WTO Problems?

Subidies for activities in the SEZ (SCMA conformity?)Subidies for activities in the SEZ (SCMA conformity?)

Discrimination between foreigners (MFN principle - Most Discrimination between foreigners (MFN principle - Most favored nation principle, Art. I GATT)favored nation principle, Art. I GATT)

Discrimination between foreigners and nationals (NT - Discrimination between foreigners and nationals (NT - national Treatment principle Art. III GATT)national Treatment principle Art. III GATT)

Elimination of quantitative restrictions (Art. XI)Elimination of quantitative restrictions (Art. XI)

Transparency (Art. X GATT)Transparency (Art. X GATT)

The TRIMS Agreement, Art. 2 with Art. III 4 and XI 1 GATTThe TRIMS Agreement, Art. 2 with Art. III 4 and XI 1 GATT

Similar provisions in the GATS agreementSimilar provisions in the GATS agreement


SCMASCMAGenerally prohibited subsidies (Art. 3)Generally prohibited subsidies (Art. 3)

• Export subsidies (contingent in law or in fact upon export Export subsidies (contingent in law or in fact upon export performance) see Annex I to SCMAperformance) see Annex I to SCMA

• Subsidies contingent upon import substitution or domestic content Subsidies contingent upon import substitution or domestic content requirements (the use of domestic over imported goods)requirements (the use of domestic over imported goods)

Other subsidies are countervailable (actionable, Art. 5-7)Other subsidies are countervailable (actionable, Art. 5-7)

If granted by states or on their behalfIf granted by states or on their behalf

If subsidies are specific (Art. 2)If subsidies are specific (Art. 2)

not: generally applicable tax incentives for the national not: generally applicable tax incentives for the national economyeconomy

(c) Prof.Dr.Werner (c) Prof.Dr.Werner Meng Meng Export Subsidies - Export Subsidies -

ExamplesExamplesContingent on exportation, in law or in fact (Art. 3.1 (a) Contingent on exportation, in law or in fact (Art. 3.1 (a) SCMA)SCMA)

List of examples in Annex I to SCMAList of examples in Annex I to SCMA

Direct subsidiesDirect subsidies

Bonus through currency retention schemesBonus through currency retention schemes

Preferential transport and freight chargesPreferential transport and freight charges

Preferential products and services (e.g. transport) for exportPreferential products and services (e.g. transport) for export

special direct tax deductions for exportsspecial direct tax deductions for exports

Exemption or remission of indirect taxes on exportsExemption or remission of indirect taxes on exports

Exemption, remission or deferral of prior-stage cumulative taxes for pre-Exemption, remission or deferral of prior-stage cumulative taxes for pre-products or -servicesproducts or -services

Export guarantees or insurances at inadequate premium conditionsExport guarantees or insurances at inadequate premium conditions

Export credits below the market conditionsExport credits below the market conditions


Import substitutionImport substitution

Advantages contingent on the use of domestic over imported Advantages contingent on the use of domestic over imported products (Art. 3.1 (b) SCMA)products (Art. 3.1 (b) SCMA)


Relevant exceptionsRelevant exceptions

SCMA Note 1 („shall not be deemed to be a subsidy“)SCMA Note 1 („shall not be deemed to be a subsidy“)

the exemption of an exported product from duties or the exemption of an exported product from duties or taxestaxes

borne by the like product when destined for local consumptionborne by the like product when destined for local consumption

e.g. import duties, indirect taxese.g. import duties, indirect taxes

for products and pre-productsfor products and pre-products

produced or stored in a countryproduced or stored in a country

the remission of such duties or taxes the remission of such duties or taxes

in amounts not in excess of those which have accruedin amounts not in excess of those which have accrued


Other exceptions in SCMAOther exceptions in SCMA

Poor countries (Art. 27 SCMA): Poor countries (Art. 27 SCMA):

27.2 a and Annex VII a: Least developed countries27.2 a and Annex VII a: Least developed countries

27.2 a and Annex VII b: Countries with income per capita 27.2 a and Annex VII b: Countries with income per capita of less then 1000 $ per annumof less then 1000 $ per annum

27.4: countries with extended transition period for export 27.4: countries with extended transition period for export subsidiessubsidies

Grandfather rights (Art. 28 SCMA)Grandfather rights (Art. 28 SCMA)


Art. I GATTArt. I GATT

Most - favored - nation principleMost - favored - nation principle

No discrimination btw. foreign countriesNo discrimination btw. foreign countries

concerning imports or exports of goodconcerning imports or exports of good

relating e.g. to duties or sales taxesrelating e.g. to duties or sales taxes


Art. III GATTArt. III GATT

No discrimination btw. national and foreign goodsNo discrimination btw. national and foreign goods

Once duties are paid and other formalities settledOnce duties are paid and other formalities settled

e.g. requirement to use national goods instead of foreign e.g. requirement to use national goods instead of foreign ones (TRIMS agreement)ones (TRIMS agreement)

making importation conditional on the amount of exports making importation conditional on the amount of exports (TRIMS)(TRIMS)

export restrictions based upon a certain volume or value export restrictions based upon a certain volume or value of local productionof local production


Exemption of import dutiesExemption of import dutiesNon - discriminatory btw. foreign countries (Art. I GATT)Non - discriminatory btw. foreign countries (Art. I GATT)

Not only for products that are finished and then exported (3 Not only for products that are finished and then exported (3 SCMA)SCMA)

in foreign countriesin foreign countries

in the host statein the host state

See the customs regime for the Kaliningrad regionSee the customs regime for the Kaliningrad region

customs free importationcustoms free importation

but later payment of the import customs if goods are exported, but later payment of the import customs if goods are exported, to Russia (customs for pre-products) as well as to third to Russia (customs for pre-products) as well as to third countries (customs for the finished product)countries (customs for the finished product)

no discrimination by the origin of the imported productsno discrimination by the origin of the imported products


Treatment of investmentsTreatment of investments

If regulated in an investment treaty (bi- or multilateral)If regulated in an investment treaty (bi- or multilateral)

duty not to discriminate btw. foreign sources of investmentduty not to discriminate btw. foreign sources of investment

privileges of all foreign investments in SEZs are admissibleprivileges of all foreign investments in SEZs are admissible


Questionable casesQuestionable cases

Tax privileges for production equipment ?Tax privileges for production equipment ?

Subsidies for infrastructure in the SEZSubsidies for infrastructure in the SEZ

Cheaper materials or pre-products for production ?Cheaper materials or pre-products for production ?

Governmental improvement of infrastructure?Governmental improvement of infrastructure?

Aim of the protection?Aim of the protection?Contingency?Contingency?Factual Effects?Factual Effects?


Control mechanismsControl mechanisms

TPRM - Trade Policy review mechanismTPRM - Trade Policy review mechanism

Notification requirements (Art. 25 SCMA)Notification requirements (Art. 25 SCMA)

Surveillance (Art. 26 SCMA)Surveillance (Art. 26 SCMA)

Transparency Requirement (Art. X GATT)Transparency Requirement (Art. X GATT)

Dispute Settlement ProcedureDispute Settlement Procedure

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