[1][2] The benefits a company gains by being in a special economic zone may mean that it can produce and trade goods at a lower price, aimed at being globally competitive.
[9]: 51 Researcher Zongyuan Zoe Liu writes that "[t]he success of these cities as 'red' treaty ports represented another step in China's overall reform and opening-up plan while legitimizing the leadership of the CPC over the Chinese state and people.
This influx of capital can generate substantial economic activity, including job creation within the zones and in related sectors such as logistics, transportation, and services.
For instance, despite the economic growth they bring, SEZs may not always lead to a significant reduction in unemployment rates, as some regions may experience a mismatch between job creation and local labor market needs.
Many companies operating in these zones focus on manufacturing goods for international markets, helping to increase a country’s exports, which can improve the trade balance and generate foreign exchange earnings.
The establishment of SEZs often leads to improvements in transportation networks, utilities, and communication systems, which can have positive effects beyond the zone itself, benefiting the wider economy.
Critics argue that these zones often benefit large multinational corporations disproportionately while providing limited gains for local businesses and communities.
Furthermore, these tax breaks often fail to deliver proportional benefits, as many foreign firms bring their own labor force, limiting local job creation and exacerbating inequalities.
[16] Finally, while SEZs are heralded for their ability to attract Foreign Direct Investment (FDI), their broader economic implications often reveal significant shortcomings.
For instance, Ireland's Shannon SEZ, while successful in drawing foreign investment, has been criticized for perpetuating "tax haven" dynamics that weaken EU fiscal cohesion.
[18] Many zones are deliberately positioned near borders to facilitate cross-border trade by allowing businesses to leverage tariff advantages and access multiple markets efficiently.
For instance, companies operating in border zones can easily source raw materials from neighboring countries or export finished goods to nearby markets.
Conversely, SEZs in non-EU countries may appeal to businesses seeking lower labor costs, less stringent regulations, or tax incentives that might not comply with EU competition rules.
These zones must operate transparently and ensure non-discriminatory treatment to avoid unfair competition Economic and social cohesion is central to the EU’s regulatory framework, requiring SEZs to align with the Union’s objective of equitable regional development.
For example, the SEZ established in Italy’s Campania region explicitly targets underdeveloped areas, offering fiscal incentives and streamlined administrative processes to stimulate growth.
For instance, some countries offer aggressive tax incentives to attract Foreign Direct Investment (FDI), leading to a "race to the bottom" that exacerbates economic disparities between regions.
National authorities independently design these fiscal policies, often prioritizing immediate investment inflows over long-term equitable development[14] SEZs justify their breaches of EU principles by emphasizing their potential to generate significant economic and social benefits.
For instance, they argue that tax incentives and regulatory flexibility are critical for attracting Foreign Direct Investment (FDI) and creating jobs in economically lagging regions.
Its creation resulted in the establishment of 55,000 new jobs and a significant increase in FDI, particularly in the automotive sector, as it attracted major industry players like General Motors.
The success of the Polish SEZs can be attributed to their strategic design and the incentives offered, which facilitate the establishment and operation of businesses, thereby contributing to regional economic growth and enhancing the overall investment climate in Poland.
The Irish government also played a crucial role in the success of these zones, particularly through the Industrial Development Authority (IDA), which worked to position Ireland as an attractive destination for foreign investment.
The Irish experience shows how targeted tax incentives, robust infrastructure, and a business-friendly environment can transform a country into a leading player in attracting foreign direct investment.
Businesses within these zones enjoy various incentives, including exemptions from specific regulations and streamlined procedures for obtaining permits related to environmental, construction, and port operations.
However, challenges such as congestion at key transport nodes and access to intermodal facilities have been identified, which could impact the operational efficiency of businesses in the zone.
The Campania SEZ plays a significant role in Italy’s broader economic strategy, as highlighted by its inclusion in the National Recovery and Resilience Plan.
From the EU’s perspective, Albania’s SEZs are significant for fostering economic stability and growth in the Western Balkans, a region with strategic importance for European integration.
Additionally, employers can deduct 150% of wages and social security contributions paid to employees during their first year of activity, providing a significant incentive to reduce labor cost.
Among its development goals, the Albanian government is focusing on specific zones like Koplik and Spitale to stimulate regional economic activity and generate jobs.
Ultimately, the ZTSE aim to leverage a combination of fiscal incentives, regulatory flexibility, and targeted development strategies to boost productivity and drive economic growth in Albania.
The preferential treatment granted to businesses within these zones can lead to regulatory arbitrage, where companies exploit differences in laws to their advantage, often at the expense of environmental and labor standards.