Special Economic Zones and WTO law © Prof.Dr.Werner Meng

(c) Prof.Dr.Werner Meng Literature Creskoff, S., Walkenhorst, P., Achieving WTO Compliance for Special Economic Zones in Developing Countries, World Bank, PremNotes Nr. 134 (2009) id., Implcations of WTO Disciplines for Special Economic Zones in Developing Countries, World Bank Policy Research Working Paper 4892 (2009) Akinci, G., Crittle, J, Special Economic Zones, World Bank (2008) Engman, M, Onodera, O, Pinali, E., Export Processing Zones, OECD (2007)

(c) Prof.Dr.Werner Meng Examples Kaliningrad (Russia) Shenzen, Macao, Hongkong etc. and now Shanghai (China) Over 2300 SEZ in 119 developing countries in China (local) zones In Vietnam over 125

(c) Prof.Dr.Werner Meng Different Variations of SEZ Export processing zone Special industrial zone (manufacturing SEZ) Technology parks Recreation zones Port SEZs (sea, air, rivers) Free Trade zone

(c) Prof.Dr.Werner Meng Different advantages in SEZ Less taxes and customs duties Less state control Less bureaucracy More possibilities of doing business

(c) Prof.Dr.Werner Meng SEZ in WTO countries WTO law restrains the freedom of states to set up and structure SEZs SEZs are not prohibited But they are conditioned by WTO law SEZs may thus be subject to disputes and WTO dispute settlement States will have to stand checks of their SEZ policies by WTO organs

(c) Prof.Dr.Werner Meng WTO Problems? Subidies for activities in the SEZ (SCMA conformity?) Discrimination between foreigners (MFN principle - Most favored nation principle, Art. I GATT) Discrimination between foreigners and nationals (NT - national Treatment principle Art. III GATT) Elimination of quantitative restrictions (Art. XI) Transparency (Art. X GATT) The TRIMS Agreement, Art. 2 with Art. III 4 and XI 1 GATT Similar provisions in the GATS agreement

(c) Prof.Dr.Werner Meng SCMA Generally prohibited subsidies (Art. 3) Export subsidies (contingent in law or in fact upon export performance) see Annex I to SCMA Export subsidies (contingent in law or in fact upon export performance) see Annex I to SCMA Subsidies contingent upon import substitution or domestic content requirements (the use of domestic over imported goods) Subsidies contingent upon import substitution or domestic content requirements (the use of domestic over imported goods) Other subsidies are countervailable (actionable, Art. 5-7) If granted by states or on their behalf If subsidies are specific (Art. 2) not: generally applicable tax incentives for the national economy

(c) Prof.Dr.Werner Meng Export Subsidies - Examples Contingent on exportation, in law or in fact (Art. 3.1 (a) SCMA) List of examples in Annex I to SCMA Direct subsidies Bonus through currency retention schemes Preferential transport and freight charges Preferential products and services (e.g. transport) for export special direct tax deductions for exports Exemption or remission of indirect taxes on exports Exemption, remission or deferral of prior-stage cumulative taxes for pre-products or - services Export guarantees or insurances at inadequate premium conditions Export credits below the market conditions

(c) Prof.Dr.Werner Meng Import substitution Advantages contingent on the use of domestic over imported products (Art. 3.1 (b) SCMA)

(c) Prof.Dr.Werner Meng Relevant exceptions SCMA Note 1 („shall not be deemed to be a subsidy“) the exemption of an exported product from duties or taxes borne by the like product when destined for local consumption e.g. import duties, indirect taxes for products and pre-products produced or stored in a country the remission of such duties or taxes in amounts not in excess of those which have accrued

(c) Prof.Dr.Werner Meng Other exceptions in SCMA Poor countries (Art. 27 SCMA): 27.2 a and Annex VII a: Least developed countries 27.2 a and Annex VII b: Countries with income per capita of less then 1000 $ per annum 27.4: countries with extended transition period for export subsidies Grandfather rights (Art. 28 SCMA)

(c) Prof.Dr.Werner Meng Art. I GATT Most - favored - nation principle No discrimination btw. foreign countries concerning imports or exports of good relating e.g. to duties or sales taxes

(c) Prof.Dr.Werner Meng Art. III GATT No discrimination btw. national and foreign goods Once duties are paid and other formalities settled e.g. requirement to use national goods instead of foreign ones (TRIMS agreement) making importation conditional on the amount of exports (TRIMS) export restrictions based upon a certain volume or value of local production

(c) Prof.Dr.Werner Meng Exemption of import duties Non - discriminatory btw. foreign countries (Art. I GATT) Not only for products that are finished and then exported (3 SCMA) in foreign countries in the host state See the customs regime for the Kaliningrad region customs free importation but later payment of the import customs if goods are exported, to Russia (customs for pre-products) as well as to third countries (customs for the finished product) no discrimination by the origin of the imported products

(c) Prof.Dr.Werner Meng Treatment of investments If regulated in an investment treaty (bi- or multilateral) duty not to discriminate btw. foreign sources of investment privileges of all foreign investments in SEZs are admissible

(c) Prof.Dr.Werner Meng Questionable cases Tax privileges for production equipment ? Subsidies for infrastructure in the SEZ Cheaper materials or pre-products for production ? Governmental improvement of infrastructure? Aim of the protection? Contingency? Factual Effects?

(c) Prof.Dr.Werner Meng Control mechanisms TPRM - Trade Policy review mechanism Notification requirements (Art. 25 SCMA) Surveillance (Art. 26 SCMA) Transparency Requirement (Art. X GATT) Dispute Settlement Procedure