Companies that set up in a Free Zone in Malaysia can lease warehouses and factories at a lower cost, gain access to a skilled pool of labour and enjoy tax benefits. The FT noted that Malaysian Prime Minister Najib Razak had previously described Iskandar Malaysia as the "New Jersey" to Singapore's "Manhattan". The New Saudi Special Economic Zones | King & Spalding - JDSupra Similar to FIZs, FCZs are exempted from custom duties, sales tax and service tax for all imports that are re-exported or re-packaged for sale to other consumers. Recall the previous discussion on fintech, whereby emerging services SEZs offer to financial innovators the possibility to benefit from their incentives in a remote manner. The New Saudi Special Economic Zones. The Free Zone has attracted numerous investments from Chinese private companies. See Andrea Ariu, Florian Mayneris, and Mathieu Parenti, One Way to the Top: How Services Boost the Demand for Goods, 123 Journal of International Economics 103278 (2020). The NCER has a strategic development plan for 2021-2025, which covers six priority sectors: As of July 2020, the NCER has created over 150,000 jobs and attracted 120 billion ringgit (US$29 billion) in cumulative investments. All developed countries undertook commitments in all sub-sectors of financial services. Farole, T. (2011). The ECER Master Plan (2018-2025), highlights the investment corridors strategies for its next leap of growth, aiming to leverage its strategic location as the next gateway to ASEAN and the Asia Pacific. Since many MNCs are located in a Free Zone in Malaysia, there will be a transfer of managerial or technical skills to Malaysian employees when MNCs hire them. Rather, tapping on network externalities, connectivity, and stability would be the decisive factors for establishment. See WTO, World Trade Report 2019 (Geneva: World Trade Organization), at 25. See also Bloomberg News, China Unveils Plans to Further Open up Banking and Insurance Sectors, 1 May 2019, https://www.bloomberg.com/news/articles/2019-05-01/china-unveils-plans-to-further-open-up-banking-and-insurance?mc_cid=aaa6381a0b&mc_eid=05b8cc192e. In the case of financial services, the positive effects can potentially be even more compelling: first, this is certainly the case with countries of small size where practically the entire territory functions as an SEZ; second, financial services liberalization with SEZs could lead to direct or indirect financing of export operations, thereby contributing to economic growth. Such possibilities and combination thereof have been explored by various countries around the world as a way to attract financial institutions facilitating the establishment and expansion of international financial centers. They will also only be required to pay custom duties if the cargo exported from the port is meant for domestic consumption. Pagoh is also the location of the first integrated Higher Education Hub in the ASEAN region and currently houses four Public Higher Education Institution campuses, namely Tun Hussein Onn University of Malaysia (UTHM), Universiti Teknologi Malaysia (UTM), International Islamic University Malaysia (IIUM) and Tun Syed Nasir Polytechnic (PTSN), with various common facilities such as sports complexes, libraries and convention halls that can accommodate up to 10,800 students. For instance, Dubai pioneered in 2000 by establishing the first non-trade free-trade zone (FTZ) in the Gulf region. It's known for its beaches, rainforests and a mix of Malay, Chinese, Indian and European cultural identities. Overall, the regulation of technology and by technology in the financial sector calls for smart approaches by regulators to address the potential for regulatory arbitrage (leading to a race to the bottom) and market fragmentation (leading to divergent supervisory practices). The mushrooming of SEZ is also an indication of aggressive industrial policy, which many times can be the result of long-term planning among regulators, state officials and local authorities. Two reasons for this choice is Chinas sheer size, but also its managed capitalist approach that is followed by the Chinese State. such as tax exemption from custom duties and excise duties for most goods and services. Instead, most Free Zones are controlled at the state level instead of the federal level. Malaysia has territorial disputes in the South China Sea mainly with the People's Republic of China. Depending on the sector, approval from the Chinese Ministry of Commerce (MOFCOM) may be needed, thereby rendering the benefits of the negative list inapplicable for specific foreign investments. Anti-deforestation npr-PPMs and Carbon Border Measures: Thinking About the Chapeau of Article XX GATT in Times of Climate Crisis, International Economic Law in the Asian Century, About Journal of International Economic Law, III. The Bayan Lepas FIZ is connected to Georgetown, the capital city of the Malaysian state, Penang, via the Bayan Lepas Expressway and sits right next to the Penang International Airport. Services SEZs, in particular, can be inscribed within the qualitative transformation of SEZs driven by these trends and is an expression of contemporary services unilateralism, in an attempt to gain global competitive advantage in the digital era. All programmes will take an inclusive approach where increased access to employment opportunities and entrepreneurship will be carried out to benefit of all Malaysians. Attracting and promoting the growth of Fintech startups and firms have become the holy grail for regulators around the world. See Andrew Moody, Shanghai Rising, China Daily, 2 November 2020, http://www.chinadailyasia.com/article/148067. Issued in Washington, DC, on May 5, 2023. In the period 201017, 1.2 billion people, mostly located in developing countries, obtained a financial or mobile money account for the first time.31 In recent years, China has moved to become the worlds most digitized financial system, whereas India, through India Stack, invests in digital infrastructure to improve financial inclusion rates. The Pagoh Special Economic Zone (PSEZ) Phase 1, a joint initiative by the Federal Government, Johor State Government and master developer, Sime Darby Property Berhad (Sime Darby Property), was launched by the Prime Minister, YAB Tan Sri Muhyiddin Yassin, on 27 March 2021 in Johor. See Arpita Mukherjee and Avantika Kapoor, Indias Experience with the SEZs: Status, Concerns and Way Forward, in Julien Chaisse and Jiaxiang Hu (eds), International Economic Law and the Challenges of the Free Zones (Alphen aan den Rijn: Kluwer, 2019), at 75. This means that these obligations always have to be read in combination with a given WTO members schedule of commitments. Further, the NCER is considered the rice bowl of Malaysia as it produces one-third of the countrys paddy demand, thus showcasing the NCERs role in fulfilling Malaysias food security program. The country's first Special Economic Zone are expected to contribute RM23 billion to the national GDP and create 220,000 new jobs in the ECER. It is more than 50 years since the establishment of the first modern special economic zones (SEZs). including the most recent legal, tax and accounting changes that affect your business. Generally, manufacturing activities are conducted in a FIZ while trading activities are conducted in an FCZ. Established in 2006, Iskandar Malaysia is the main development corridor in the state of Johor and is three times the size of Singapore. The port can handle cargo capacity of up to 1.2 million TEUs and houses the worlds largest palm oil storage facility. The creation of such clearly designated areas in Shenzhen, Zhunai and Shantou, Xiamen, and in Hainan constitutes an important turning point in the Chinese economic growth and further integration in the global economy. Construction cranes stand on a property development at Iskandar Malaysia in Johor Bahru. See also Jeanne Huang, Nationwide Regulatory Reform Starting from Chinas Free Trade ZonesThe Case of the Negative List of Non-conforming Measures, in Julien Chaisse (ed. To date, there are no reported disputes relating to financial services supply within SEZs. LMWs will enjoy the same benefits as factories that operate in a FIZ in Malaysia. Hydrogen Economy Powering a Sustainable Future, Expanding Horizons: Empowering Malaysian Companies Through Cross Border Investment. ARB/95/3, Decision on Liability (2 September 1998); and Antoine Goetz and Others v The Republic of Burundi (II), ICSID Case No. It offers a tour dhorizon in sections II and III that identifies patterns, successes, and limits of regulatory practices within the SEZ ecosystem that shape trade in financial services and decisions made by financial institutions. All rights reserved. [6], territorial disputes in the South China Sea, Territorial disputes in the South China Sea, "Presidential Decree no. 5117 (b); 49 CFR 1.53 (b) ). The country is multi-ethnic and multi-cultural. Malaysia-Thailand Trade and Economic Relations - ASEAN Briefing Some of the more popular FIZs in Malaysia includes the Bayan Lepas Free Industrial Zone and Pasir Gudang Free Industrial Zone. While FIZ focuses on the manufacturing of goods and other industrial activities, FCZ focuses on the trading and transportation of goods to other locations. Malaysia investigating possible looting of World War II British - WRAL Maritime Boundaries Geodatabase: Maritime Boundaries and Exclusive Economic Zones (200NM), version 11. Crucially, the Understanding would oblige embers to allow established financial service suppliers to offer in their territory any new financial service. The most popular Free Trade Zones in Malaysia are the Bayan Lepas Free Industrial Zone for high-tech firms; the Pasir Gudang Free Industrial Zone for shipbuilding and heavy industry activities; the Port of Tanjung Pelepas (PTP) Free Zone and the Port Klang Free Zone for port and shipping activities; and the Digital Free Trade Zone (DFTZ) for e-commerce companies. Indonesia's government has made the development of the country's special economic zones (SEZ) a priority policy with the aim of attracting over US$50 billion in foreign investment over the next decade, particularly for SEZ-oriented manufacturing. For instance, it was found that in the aftermath of the IndiaExport-Related Measures WTO Panel ruling, SEZ units and developers established in India considered that Indias SEZ are not as attractive as SEZs in countries such as Thailand, China, or Vietnam due to the WTO non-compliance and the possibility for countervailing duties under the Agreement on Subsidies and Countervailing Measures (SCM).71 SEZ competitors rather abolish any mandatory export requirements (Thailand), and instead turn towards improving the quality of services they provide to investors or totally distinguish tax holidays and other fiscal incentives from the SEZ framework (Vietnam). [3] Since the 1990s, Malaysia occupies 5 of the Spratly Islands. The Free Zone will serve as a designated area for businesses to carry out commercial and industrial activities under the supervision of the. The Northern Corridor Economic Region was established to accelerate economic growth in the northern regions of Peninsular Malaysia. Over 60% of these imports were components of manufacturing activity. The service sector has been subject to subsequent waves of liberalization in 2015, 2017, 2019 and, more recently, in 2020, leading to a significant increase of the share of trade in services in Chinas GDP. See WTO Secretariat, Economic Effects of Services Liberalisation: Overview of Empirical Studies, S/C/W/26/Add.1, Background Note, 29 May 1998. Generally, manufacturing activities are conducted in a FIZ while trading activities are conducted in an FCZ. Report Objective: This report provides a review and analysis of the findings from the scoping study on the proposed Malaysian-Thailand Special Border Economic Zone (SBEZ). See The International Financial Services Centres Authority, 2019, No. At the same time, and to avoid any challenges under the MFN principle, certain countries have inscribed MFN exceptions that shield their treatment of financial suppliers in SEZs from any legal challenge under the GATS. Just like any unilateral action in commercial matters; however, SEZs may artificially lead to shifting trade patterns, causing spatial compartmentalization of trade conduct, and affecting negatively the distribution of benefits within a given country and across territories. Such services grew faster than traditionally traded services such as transport or tourism, whereby physical proximity and the concept of territory remains significant. In these five economies, financial services exports through commercial presence grew by 70% in the period from 2005 to 2017. The creation of services-only SEZs (coined fourth generation SEZs)8 in countries such as China, India, or the Philippines, but also smaller countries with no interest or capacity in manufacturing is a relatively recent phenomenon. See Mukherjee and Kapoor, above n 10, at 75. This equally suggests that services used by SEZ-established companies active in manufacturing activities could potentially escape the WTO scrutiny, thereby circumventing the very essence and raison dtre of the multilateral trade regime. Services SEZs rise as the quest for skilled resources within and outside GVCs and full service requests by investors intensify. Contrary to investors in manufacturing, service suppliers may opt for transferring personnel along with their investment, be it a financial institution, a payment service supplier, or a law firm. The procrastination in adopting such disciplines is also in sharp contrast with the rules-based advocacy in international trade law. The gift link for this subscriber-only article has expired. See National Letter, No 123, 2020, http://www.gov.cn/zhengce/content/2020-09/07/content_5541291.htm?mc_cid=047288de83&mc_eid=bfbb6731f5. ), Chinas International Investment StrategyBilateral, Regional and Global Law and Policy (New York: Oxford University Press, 2019), at 87. See Olaoye Kehinde, Goetz v. The Republic of Burundi I & II: How Foreign Investors Challenge Free-Zone Regimes, in Julien Chaisse and Jiaxiang Hu (eds), International Economic Law and the Challenges of the Free Zones (Alphen aan den Rijn: Kluwer, 2019), at 317. Special Economic Zones in ASEAN: The Cases of Lao PDR, Malaysia, and Myanmar: 10.4018/978-1-7998-7619-9.ch006: Most of the ASEAN Member States have been implementing special economic zones (SEZ) to attract investments, create jobs, and to encourage exports. Whereas the initial pace of liberalization was not satisfactory, the most recent liberalization attempts in the financial sector mentioned earlierand amidst the pandemicappear to bear fruit: with trading volumes of about US$290 trillion, Shanghai has just overtaken Tokyo as the third most important IFSC, after New York and London. This means that the company will still have to employ a director who resides in Malaysia. The FT said domestic manufacturing fell by 41 per cent in 2016, although foreign manufacturing investment rose. It furthers the University's objective of excellence in research, scholarship, and education by publishing worldwide, This PDF is available to Subscribers Only. See The Economist, Political Priority, Economic GambleSpecial Economic Zones, 4 April 2015. The competition for attracting such financial innovators in ones jurisdiction is very intense. The 430-acre Industrial Park in the first phase will offer 212 industrial lots, The launching ceremony of the Pagoh Special Economic Zone Phase 1 also saw the signing of a Letter of Intent between Sime Darby Property and representatives from companies that have agreed to locate their business activities in the soon-to-be developed Industrial Park and Entrepreneurship Park. US$37.00 (paperback) Citable URL http://dx.doi.org/10.22617/TCS210449-2 Mapping out and assessing the economic performance of SEZs across the subregion, the publication highlights the threats they face from digital technologies, rising competition for foreign investment and international trade standoffs. See Bart de Meester, The Global Financial Crisis and Government Support for Banks: What Role for the GATS?, 13 (1) Journal of International Economic Law 27 (2010). Services are currently immune to any challenges under the GATS relating to the distortive effects of fiscal and other incentives from which service suppliers benefit. There are minimal customs control in FTZs to facilitate the export of goods by Multinational Corporations (MNCs). The Free Zone also provides tax incentives and financial benefits to business owners as well as supporting infrastructure such as leased office blocks, light industrial units and prepared industrial land for the construction of warehouses and factories. Read more about this topic: Special Economic Zone In this competitive environment, frictions in the application of the measures may arise leading to the launch of complaints by investors themselves or by their states on their behalf in order to protect their economic interests.61, Investors retain certain rights to file lawsuits based on an international investment agreement and claiming (indirect) expropriation or a breach of fair and equitable treatment standards.62 For instance, in Goetz v Burundi,63 the claimants challenged the withdrawal of a free zone certificate in the aftermath of political change in Burundi. Expansion of existing zones such as the Shanghai Pilot FTZ and creation of new ones should be expected, as the Chinese authorities look into ways to diffuse the benefits of further economic growth to additional parts of the country, ensure coherence among the different types of focus of such zonesat least to a certain extentbut also to increase the share of trade in services in their economy. Special economic zone - Wikipedia The following Eight EPZs are in operation: Adamjee Export Processing Zone, Siddhirganj, Narayanganj Chittagong Export Processing Zone, South Halishahar, Chittagong Comilla Export Processing Zone, Comilla Dhaka Export Processing Zone, Savar, Dhaka Ishwardi Export Processing Zone, Ishwardi, Pabna Dezan Shira & Associates helps Past, Present, and Future of Special Economic Zones and Their Impact