How do you solve a problem like protectionism? With a U.S. president threatening a trade war, populism dominating political headlines in Europe, and decreasing popularity of trade deals, think-tankers and political pundits are scrambling for ways to escape a vicious circle towards ever-higher barriers to trade. Turning this development around may take a long time. In the mean time, though, countries may still create spaces where the barriers do not apply.
Article: Is It Time That America Adopted Special Economic Zones? | The Daily Caller by Lotta Moberg
Enter the special economic zone, or “SEZ.” An SEZ is a geographical area where investors enjoy tariff exemptions and other kinds of tax breaks. By making particular areas of a country more attractive for investors, the zones can spur production and exports and create numerous employment opportunities. As I write in my book on the topic, “The Political Economy of Special Economic Zones,” SEZs can serve as the economic lifeline for otherwise closed countries.
SEZs come about in many different circumstances, but often in the context of adverse economic conditions. The first modern version emerged in Ireland in 1959 at the Shannon Airport. Thanks to new aircraft technology, planes flying between the U.S. and Europe no longer had to stop in Ireland to refuel. With its declining role in air traffic, the airport introduced an SEZ to attract investments and hence save the local economy.
Japan’s Prime Minister Shinzō Abe is using SEZs as a way to get around the country’s infamously rigid labor laws and restrictions on foreign workers. As part of his package of economic policies to revive Japan’s economy, Abe is introducing reforms in SEZs that meet too much popular resistance to be feasible when proposed on a national scale.
Or take the United States. It is a prime example of more-liberalized zones working as a counterweight to protectionism. It introduced SEZs in 1934, in response to the Smoot-Hawley Tariff Act. Under this law, tariffs rose to historic levels, which seriously damaged the country’s import-exporting businesses. These responded to their new predicament by convincing lawmakers to create Foreign Trade Zones, an American variation on the SEZ concept.
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Lotta Moberg is the Director of Economics at Refugee Cities.