Vol. 2 No. 5                                "India is the cradle of the human race... " - Mark Twain
December 2007 "Canada is one of the oldest federations the planet still has up and running." - Roy MacGregor

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 Special Economic Zones: A Detailed Critique
Part I

C. R. Bijoy  [IDN]

Profits at Any Cost, Accumulation by Disposession and 
Subversion of Democracy

No other economic 'reform' in India has seen such a rapid expansion of militant protests and conflicts as Special Economic Zones (SEZs). Local inhabitants, particularly in Raigad (Maharashtra), Jhajjhar (Haryana) and Nandigram (West Bengal) cutting across caste, class and party affiliation rose up in revolt, with Nandigram seeing the most militant uprising leading to at least 14 deaths in police firing on 14 March 2007. These come in the wake of growing struggles against land acquisitions for industries met nonchalantly with deadly state terror, as in Kashipur, Lanjigarh and Kalingangar in Orissa, Singur in West Bengal or Bastar in Chattisgarh turning central India into a war torn zone.  

The intensification of the expropriation of livelihood resources of the masses since the 1990s with the launch of the New Economic Policy, followed by what is popularly referred to as ‘globalisation’, which in fact is liberalization, privatization and globalization, facilitated by the troika – the World Bank, International Monetary Fund and World Trade Organisation – has seen an  outburst of conflict between the state and the people. The rapid accumulation of capital leading to over-accumulation, the emergence of finance capital as the engine of change and control, and the materialization of the marauding global capital for accumulation through dispossession as a distinct outgrowth for control of resources and market are set to change the political discourse of geographies and her peoples.  

SEZ that promises to usher in a new era of rapid growth and employment as never before evoke intense debate. The West Bengal government has put all SEZ's on hold. The plans for a large multi product SEZ in Kalinga Nagar has been dropped by the Orissa government. Rehabilitation policies are being revised by Punjab and Haryana. Maharashtra government is planning to reduce the size of the planned MahaMumbai SEZ. The Finance Ministry and the Reserve bank of India are unhappy with the SEZ policy on grounds that the policy offers excessive exemptions which will lead to revenue loss and spur real estate speculation. The Rural Development Ministry objected to the large-scale acquisition of agricultural land threatening spinning off further food insecurity. The IMF and the Asian Development Bank have criticised the tax exemptions being provided making SEZ ‘business-friendly’ rather than ‘market-friendly’, inherently violating market principles and market reform which they ardently promote. 

A number of patch work remedies are proposed. Avoidance of acquisition of prime agricultural land, improvement in the compensation package offered in rehabilitation, offer of shares in the companies in the project to the displaced, compensation for agricultural labourers and sharecroppers besides land owners, ceiling on the area of SEZ's and no land acquisition by the state governments but instead the private developer to buy land at the market price directly from the land owners are some proposed remedies. The Parliamentary Committee on Commerce has demanded a freeze on new SEZs pending a fresh look at the policy, ban on use of irrigated crop land, a ceiling on the extent of land for SEZs and that too on lease rather than purchase. The Commerce Ministry meanwhile issued a new notification making SEZ developers responsible for the rehabilitation of displaced persons “as per the policies of the State government”. At the same time the Commerce Ministry has further liberalized exemption to now include contractors in SEZ units to claim exemptions to further promote SEZs while the Finance Ministry on the other hand is trying to tighten tax exemptions.  

The Manufacturing of SEZ, the High-Speed Engine of Growth

However, what is noteworthy is that SEZ policy, followed by SEZ Act and Rules, emerged and established without much parliamentary debate over the last eight years across both the National Democratic Alliance and the United Progressive Alliance regimes. The SEZ has, as its predecessor, the Export Processing Zones (EPZs) which are ‘industrial zones with special incentives to attract foreign investment in which imported materials undergo some degree of processing before being exported again’ (The International Labour Organisation, 1998). EPZs are 'enclaves' dedicated to the promotion of export processing, isolated and insulated from the domestic economy with relaxed and liberal state controls in import, infrastructure and, in some cases, labour laws, simplified bureaucratic procedure, and favoured treatment to foreign and often domestic investors. The investors are to process all intermediate imports within the zone and to export without adversely affecting the domestic economy, attract foreign investment into and promote exports from the industrial and manufacturing sector within these initiatives that are not be extended beyond a specified geographical area, namely a ‘zone’.  

EPZs emerged in response to the emergence of finance and global capital as the major economic players, the rapidly accumulating capital that seeks to move out to invest, the growing competition between developing nations to attract foreign direct investment and the thirst of capital to have an unfettered play in the pursuit of profit.  Around 1967 Western capitalism was faced with a crisis of stagnation in growth, co-existing with high rates of inflation creating an economic downturn and slump along with the over-accumulation of capital. To snap out of this crisis, capitalism evolved a mechanism where the adjustment process heavily depended on lowering the cost of labour, raw materials and production by migration of capital to the peripheral regions of South Asia in the form of EPZ. This led to the decision of US firms to locate assembly operations in low-cost East Asian locations in the 1960s, particularly South Korea and Taiwan, where the US had particular political and strategic interest besides influence. Both these countries established their first EPZs in 1965 around the same time as India. Now an international phenomenon, EPZs increased from 176 across 47 countries in 1986 to over 3,000 across 116 countries by 2002. This does not include the enormous numbers of industrial parks, free zones and other areas which strongly resemble EPZ's but are not officially declared as such. Three countries in particular –Taiwan, South Korea and China – are often cited as major successes in using EPZ's as part of their industrialisation strategy. 

South Korea under US occupation and Taiwan under the Kuomintang had gone through far-reaching land reforms freeing agricultural surpluses for use in industrialization with the virtual elimination of the feudal landlordism. EPZ formed a part of the larger domestic industrial and economic development of these countries through export-oriented strategy. Moreover the EPZs were not central to this strategy.  

Taiwan's first export-processing zone was set-up in 1965 in Chien-Jiang, Kaohsiung City, followed by the opening of more zones managed by Taiwan's Export Processing Zones Administration. Average annual growth in exports was high at about 61 percent from 1967-79 but new investment had largely dried up by the early 1980s with infrastructure becoming redundant, duty-free arrangements improving elsewhere in Taiwan, and investment migrating elsewhere in the Asian region in search of greener pastures in terms of higher returns per dollar of investment and lower wage rates. 

South Korea organized special industrial parks and export processing zones focused on the under-developed regions away from the high investment receiving Seoul. The industrial parks for export production and the export-promotion zones were initially expected to spearhead the development of capital-intensive heavy industries such as iron, steel and petrochemicals, but in the 1980s shifted focus to high-technology industries as computers, semiconductors, telecommunications and biotechnologies. But these zones waned in importance that by 1985 the SEZ manufactured good exports amounted to only 2.9 percent of the country's total manufacturing exports. 

In the case of China, the situation was different with a socialist command economy, state ownership of land in urban areas and village commune ownership (collectivization) of land in the rural areas, and strong labour security. EPZs for earning much needed foreign exchange earnings commenced in the 1960s and SEZs beginning in 1979 with four SEZs, at Shenzhen, Shantou, Zhuhai, and Xiamen. Hainan Island was opened as the fifth SEZ in 1984 when ‘open door’ economic privileges were also offered to fourteen coastal cities. This opening up was carried out while insulating the economy of the remaining region of the country, as a strategy for regional development and that too of the poorer southern coastal areas. The strategy adopted was liberalization in a gradual manner with SEZ as the vanguard of market socialism. Unlike South Korea and Taiwan, SEZ in China was of central political and economic importance. In 1981, China clamped a moratorium on further SEZs. Large scale foreign investment came in from Hong Kong, Macao and Taiwan to tap geographical proximity and economic advantages as wage rates. The 1987 Land Administration Law provided the country's first property rights with provincial governments, municipalities and SEZ's also empowered to create their own land regulations as long as they did not contradict the national legislation. 

By the 1990s these export promotion zones became import processing zones with net exports barely 16 percent of gross exports due to the high import component. Property markets emerged by 1991 with administrative allocation of land and rise of a speculative market in land rights. Only less than half the land transferred was actually developed. The ‘Zone fever’ spread with the provincial and local government declaring special zones that the number was estimated from 6000 to 8700 zones covering 15,000 square kilometers, often in violation of national or provincial regulations that more than 1000 such zones were cancelled by the national government. Uncontrolled speculative spin-offs forced the government to impose restrictions on the construction of hotels, restaurants and commercial buildings. Economic and Technical Development Zones (ETDZ) and National Industrial Development Zones for New and Advanced Technology (NIDZNAT), smaller high-technology oriented zones, sprung up close to the cities numbering 54 by 2006. 5 million hectares of arable land were transferred to such zones between 1986 and 1995.

By 1997 the government imposed a blanket moratorium on conversion of land-use across the country followed by a law in 1998 restricting conversion of agricultural land. The Hainan Development Bank that invested heavily in such zones closed down bankrupt. Some of the biggest public sector corporations faced financial crises and bankruptcies. The preferential tax treatment offered to investors are being removed and made uniform across the country. In Shenzhen, the biggest of all SEZs, a third of the workers received less than minimum wages and about half the firms owed workers wage arrears. Runaway pollution problems cost the country more than US$200 billion a year, roughly 10 percent of China's gross domestic product and pollution-related deaths is estimated at 750,000 annually.

[C. R. Bijoy is an activist and independent researcher.]

To be continued...  

* IDN is an acronym for GlobalomMedia's InDepthNews Service



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