Export Processing Zones
Export Processing Zones

Often relating closely to general concerns about globalization and labor is the practice of granting certain kinds of tax and other regulatory exemptions to international investors through Export Processing Zones (EPZs). EPZs are special arrangements—often a distinct geographic area near a port—which are set up to promote export industries. These are often assembly plants using low priced labor to bring together components from different countries so that a new product can then be exported. The EPZ’s often apply a different set of regulatory rules from the rest of the country. They are typically established by developing country governments with the explicit purpose of attracting foreign investment.

In many cases, host governments will invest in infrastructure to help guarantee reliable electricity or water supplies, which may not be universal. Often they will also allow “one stop shops” where companies can complete all their necessary paperwork, and will exempt the facilities from customs or duties on items they import. EPZs are found in many middle-income nations, as well as the least developed countries.

But labor advocates charge that EPZs are created to evade national labor laws, that workers within EPZs are not allowed to organize, and that they receive lower wages. EPZs are also known as “free trade areas” in many countries, and in Mexico they are referred to as “maquiladoras.”

However, a study by the International Labor Organization (ILO)—an international institution which is part of the UN and includes representatives of governments, business, and labor—has found that while the occurrence of these practices in EPZs are disturbing, they “are not common to all employers in export-oriented factories.”

In fact, the ILO says these practices are present in a minority of cases. In addition, the study noted that in one country where many reports of violations had been recorded, “the majority of those disputes involved foreign enterprises from non-OECD countries [i.e, other developing countries].” The study also found that workers in the EPZs, even without being unionized, were nonetheless better paid and enjoyed amenities and working conditions of a higher standard than workers outside the zones.

Nonetheless, the ILO recognizes that the conduct of employers and the condition of workers in EPZs is a serious concern. This raises the important question of whether globalization leads corporations to transfer production to countries with the lowest wages. Stating the proposition this simply, the answer is clearly no.  Investment is most attracted to countries that have an overall favorable environment for capital. Labor conditions and wages are just parts of a larger equation. Other factors include the skill level of the work force, access to markets through transportation infrastructure, tax policies, overall political and economic stability, and the prevalence of corruption.

When asking whether it is beneficial to locate production in developing countries for those sectors that do specifically seek low wage labor, one should also consider the effect that this new production will have on the recipient country labor market. Before workforces can be organized to demand better protection, there must first be a workforce. Although incidents of sweatshop labor have not been uncommon and are very disturbing, there is also evidence that international investment in labor-intensive industries, in the long term, tends to raise wages and strengthen the bargaining power of local workers.


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