Economic zones - Solomon Star News

Economic zones

22 April 2015

Dear Editor - It was the beginning of Easter when I first read the DCC Government was considering the possibility of establishing free economic zones in the Solomon Islands to encourage foreign investors to create businesses aided by incentives to set up shop, transfer R&D technology and, in so doing, provide local job opportunities and aid the economy.

I immediately lent my support to the government’s proposals indicating I had witnessed such schemes in operation in Thailand and gave one example of a large manufacturing plant initiated by Taiwanese investors and where 10,000 Thai men and women had successfully gained long-term employment and benefits.

As the government in the Solomon Islands appears increasingly keen to pursue the idea of creating economic zones, as evidenced by the words of the Prime Minister last week when meeting in Honiara with a group of Chinese businessmen from the Skyline Business Council, I would like to add a few more words about the Thai situation.

By way of some background let me start by saying I am not a professional with a degree in macroeconomics but merely a retiree who has spent the last ten years in the Bangkok area as a volunteer English teacher assisting many young adults, men and women, to improve their English speaking skills and writing abilities.

Thailand has a population of over 67 million and there is no shortage in the labour pool.  There has been some degree of inability, however, by the workforce in regions that have been designated by the Thai government as economic zones to communicate proficiently in English.  This has been an area in which I have been able to play a part since qualifying with a certification in teaching English as a foreign language.

For my own understanding, and for the benefit of readers, I have had to refer to the Wikipedia, free encyclopedia to get a grasp of what is termed a ‘special economic zone’ and this is the answer.

“The term special economic zone (SEZ) is commonly used as a generic term to refer to any modern economic zone. In these zones business and trades laws differ from the rest of the country. Broadly, SEZs are located within a country's national borders. The aims of the zones include: increased trade, increased investment, job creation and effective administration. To encourage businesses to set up in the zone, financially libertarian policies are introduced. There policies typically regard investing, taxation, trading, quotas, customs and labour regulations. Additionally, companies may be offered tax holidays.

The creation of special economic zones by the host country may be motivated by the desire to attract foreign direct investment (FDI). The benefits a company gains by being in a Special Economic Zone may mean it can produce and trade goods at a globally competitive price. The operating definition of an economic zone is determined individually by each country.”

Clearly from that definition the Thai government saw free economic zones as a planning tool, from the onset, to boost the country’s economic development.

The Thailand Board of Investment divided the country into three zones based on economic factors (with earnings and primary facilities as criteria in each zone).

Without going into great detail the zones carried certain incentives to investors, but to give an example of the kind of incentives in areas the Thai Government nominated as ‘free trade zones’ tax privileges took precedence.  Here is a quote from a government promotion.

“Free Trade Zone is the area allocated for commercial industry purpose and/or other types of business that benefit the country economy.

All items brought into the Free Zone will get tax privileges; subject to the law of tax exemptions;

Import duty exemption apply for

Machinery, equipments, tools and appliances including all spare parts to be used for industrial purposes, commercial purposes, or any other purposes that would benefit the economy of the country approved by the deputy of the Thai Customs Department

Imported items come into the country and transferred to the Duty Free Zone for industrial purposes, commercial purposes, or any other purposes that would benefit the economy of the country

Other imported items released from other duty free zone

Export duty emption for item released from duty free zone for exporting purpose

Value added tax exemption for imported items brought into duty free zone

Apply 0% for VAT calculation when bringing domestic items into duty free zone, exclusively for items with export duty or exempted export duty according to the Thai Customs Law

Exemption of Excise Tax for importing and manufacturing taking place in duty free zone

Exemption of Liquor Tax, stamp duty and other fees in accordance with the law of liquor, tobacco and gambling for importing and manufacturing taking place in the Duty Free Zone

Imported items or domestic raw materials, which are brought into duty free zone for manufacturing, mixing, packaging, etc. with the purpose of exporting the final product out of the Kingdom, are allowed not to abide by the law of standard quality control or quality certification or any other stamps requirement

Those items eligible for duty exemption or refund when export out of the Kingdom will also get duty exemption or refund when brought into duty free zone as same as when export these items out of the kingdom

Any items brought out of the duty free zone for domestic use or trade or transfer to parole warehouse or merchandise to an importer according to act 19 of the act of parliament on customs department (9th edition), year 1939, or those eligible for duty exemption according to the law of tariff or other laws, are considered importing into the Kingdom or completely imported when such items are relocated out of the free duty zone

Any items in the Duty Free Zone being used for consumption or for other benefits beyond the purposes set for duty free zone establishment are considered relocating such items out of duty free zone for domestic use or trade as same as the definition stated in the previous condition except for the relocation with an intension of elimination the damaged items or out of use items, taking place in the area of duty free zone approved by the deputy of the Thai Customs Department

Released items from duty free zone for importing into the kingdom are required to pay for tax, rate for tariff calculation based on the physical condition of such items and real time tariff rate as of the date when the items are released out of duty free zone will be applied. In case of bringing the existing domestic items, which are not eligible for duty exemption or refund, into the duty free zone, tax calculation is not needed for cost of such items.”

To add more would be confusing, if not already, but a general picture might have been achieved by listing the kind of incentives the Thai Government thought necessary.

More research I did, indicated that Free zones generally fall into one of four categories: free trade zones, export processing zones, special economic zones, or industrial zones.

 Free trade zones, typically located near seaports or airports, mainly offer exemptions from national import and export duties on goods that are re-exported. Local services gain, though there is little, if any, value added to the goods traded.

 Export processing zones go a step further by focusing on exports with a significant value added, rather than only on re-exports.

 Special economic zones apply a multi sect oral development approach and focus on both domestic and foreign markets. They offer an array of incentives including infrastructure, tax and custom exemptions, and simpler administrative procedures

 Industrial zones are targeted at specific economic activities, say media or textiles, with infrastructure adapted accordingly.

Thailand has all these types of zones.

Free economic zones have merit and, from my perspective, I have seen my students gain paid, regular employment and their whole social outlook and well being has changed for the better over the last decade.

Creating economic zones in the Solomon Islands might face challenges if there is an inadequate labour pool but with careful planning and with the right type of incentives it could bring about economic growth while boosting employment.

It is my wish to see the DCC Government succeed with its development plans.


Frank Short