2nd Annual International Conference of the World Free Zones Organization
10 May 2016
Good morning,
I’m honored to be with you for the 2nd annual conference of the World Free Zones Organization. It was only a few months ago that I had the pleasure to speak at a joint UNCTAD-WFZO event on the sidelines of MC10 in Nairobi.
It was in Nairobi in December that UNCTAD launched its report on “Enhancing the Contribution of EPZs to the SDGs.” And it is here today that I’d like to expand on some of the themes that are addressed in the report.
I encourage all of you to take a look at the report, which the ILO recently praised as an “innovative approach towards strengthening compliance with national and international labor standards.” I also welcome your feedback on the report.
Special economic zones and EPZs have become a central feature of the development strategies of many countries. Particularly in the era of Global Value Chains (GVCs), free zones have become important nodes that drive international trade.
The way trade is conducted has changed significantly over the past decades, driven by expansion of trade within Global Value Chains, services and investment.
Some 60 % of world trade today consists of intermediate goods and services.
In this context, free zones have acquired greater significance. Today, there are more than 4,000 export-oriented zones in the world.
A central challenge we face is how to make free zones “fit for purpose” in an evolving global environment. And also fit for purpose in light of the ambitious global goals the world has set for itself.
This past September, world leaders adopted a comprehensive set of goals – the SDGs – that define the world that we want by 2030. This comprehensive vision demands more from all stakeholders: from national governments, international organizations, civil society, the private sector – and free zones.
My proposition for you today is straight forward. If you, free zones, position yourselves as centers of excellence in corporate sustainability, you can both attract more investment and contribute to the SDGs.
Let me explain what I mean.
Increasingly, conventional tax incentives used by free zones are becoming incompatible with international trade law. Measures such as tax breaks for exports are no longer in line with WTO rules. And exemptions for some developing countries are expiring.
Free zones have to adapt to remain competitive.
They have to find new ways of offering cost advantages. And – more importantly – they have to do so while meeting higher demands for social and environmental responsibility.
In recent years, factory collapses, fires, worker unrest, and ecological tragedies have made headlines in developing countries.
New regulations and consumer demand are making higher standards of environmental and labor protection indispensable. And they are driving greater attention to corporate social responsibility in the supply chains of Multi National Corporation, (MNCs).
So how can free zones in best position themselves to remain attractive to MNCs and their suppliers?
I’d like to share three ways free zones can do this:
First, free zones can enhance competitiveness through a “role reversal”: switching from a narrow focus on cost advantages and lower standards to becoming champions of sustainable business practices. They can find a new basis for competitiveness by meeting demands that MNCs face to exercise sound social and environmental practices.
“Next generation” zones can carve out competitive advantages not only through the “hard” infrastructure – modern infrastructure and expedited permitting. They can complement these advantages with “soft” infrastructure – support for sustainable business practices for firms operating within their boundaries.
There is a second way free zones can position themselves to remain attractive to MNCs. They can be used to “pilot” or “test-drive” SDG-geared policies that have not yet been adopted nation-wide. For example, in countries with highly regulated energy sectors, free zones could experiment with the commercial generation and distribution of renewable energy.
For the time being, I cannot disclose any details, but UNCTAD is currently offering advice on a project of this nature in the Caribbean region.
Third, free zones can play a pioneering role in creating and fostering clean-tech clusters for innovation. This is an approach that could work especially well in developing countries where the advanced infrastructure required for these activities is not widely available.
In partnership with national research institutions and universities, these clusters could develop and keep local talent. Retaining a skilled local workforce in booming clean-tech clusters would contribute to broader economic and social development.
Ladies and gentlemen,
The world is changing. And free zones have no choice but to adapt to new realities. It is our hope that free zones can pivot from a narrow focus on lower costs and standards to broader support for sustainable business practices.
UNCTAD can work with you to foster a “race to the top” among free zones around the world. We offer a “Framework for Sustainable Economic Zones” that complements the WFZO’s “Free Zones of the Future” concept. Our advice and training on investment policies, promotion practices, and trade facilitation are also relevant in this regard.
What’s clear is that a strategic re-orientation among free zones is essential in the era of deepening global value chains.
It is essential for free zones to continue playing their role as nodes of global commerce. And it is essential to meet the ambitious goals of the SDGs.
Thank you for your attention.
