Export Processing Zones (EPZs) and Their Effects on the Growth of the "Globalization Project"

Allow me to begin this article by simply introducing some basic definitions. In general, the globalization project is referred to as the actions taken place by the government to participate in the world economy, usually through liberalization; giving out freedom of trade and cutting off custom restrictions. The process of expansion of international trade and financial flow, as well as flow of production factors for an economy such as foreign direct investments are the main acts under the globalization project in an economic sense. Some statistics available show that this global movement -the globalization project -has raised the living standards for many, benefitting people all across the world. But I would have to mention that at the same time, it also has promoted poverty across the globe (which will be discussed in this article as it continues). The globalization project has many aspects to itself which one in particular could be defined as the development of EPZs, the neoliberal economical approach towards the global market and adjustments plans such as the ones used at the time of debt crises.

Since the economic crisis in the west in the 1980s (will attend to this point as we continue with the rest of the article), export processing zones have become a very important part of neoliberalism development strategy, which once again falls under the globalization project. Entry to the global market appears to be a very tempting opportunity for many countries since it attracts foreign markets and raises the GDP, the income of the government through attraction of foreign currencies and the number of sales of the domestic goods on a greater scale. The improvements in sales of a country are relevant to the supply and demand figures for domestic products. The fact that the consumer demand rises when the market is expanded helps a country to increase its exports. EPZs are a well known method for the governments to gain easy access to the global market. Export processing zones are defined areas of a country that are designed to attract foreign investments accordingly; based what explained previously. The efforts start where government regulation, taxes and trade tariffs are lifted or are reduced. It is believed that through the entry in the world market, the economy of any country would benefit impressively without any losses, but when examined, globalization has some negative aspects towards the such nations. Such examples could be mentioned as: downgrading the social goals of the national development of a country and favouring the rich in order to help them earn more profit while the poor suffer even more. Thus, one could simply say that the acts of globalization promote poverty indirectly.

Practically, export processing zones (EPZs) are used as a strategy to promote economic development; therefore, EPZs are connected to the globalization subject through the elaboration of such developments. The goal of globalization is more varied that what it seems it would be. It could have been addressed to as the development of economy on the global scale, while the internals, national developments of a country are not much affected by the project. EPZs are helpful in order to achieve this goal and they allow countries reach out into the international market despite the negative aspect of employment and wages that EPZs might bring for the nations involved. The role of the state in labour-management relations and the type of workers employed in these export zones is another factor that could relate the growth of globalization project to EPZs. These roles are some critical variables which might affect the state’s capability to maximize the economic potential of EPZs, resulting in earning more money/profit. Then again the lack of regulations in these trade zones comes at a great cost to workers, affecting their rights, health issues and security, environmental standards of the workplace and social protections. Governments might increase their profits, but they may face some internal issues in the future instead. People at the EPZs are hired through short term contracts (example would be like three months contracts) which increases the amount of employee turnover is such regions. Companies in the EPZs also deny additional trainings for the workers. Not only this would increase the rage among the employees, but it would also create unrest; workers would more likely go on riots, especially since they want to obtain permanent jobs in comparison to a job that could let them off at any time. Ergo low-grade jobs are created at these countries. The solution to such a problem would be creating a production line. If manufacturing takes place, a need for high skilled employees and personnel would appear that demand higher wages. In this scenario, a multiplier effect on employment is taking place which expands the domestic market. This helps out such nations to develop much quicker and better, just like what the western nations did in order to achieve independency in their development stage/project.

The export processing zones/free trade zones tend to be an attraction for the capitalism ideology. They have minimal custom control and domestic taxes which help businesses benefit much more from their sales. Another attraction of EPZs is the negotiation option available to the employees. EPZs allow labour forces to organize themselves freely and bargain collectively, but mostly in the favour of the business though. Another factor would be that multinational firms involved in the globalization project benefit by collection of large sums of money earned as profit and are provided immense wealth through EPZs. EPZs encounter countless opportunities of trade with no limits that corporations could use for their benefits. As mentioned in “Development and Social Change” by Philip McMichael, EPZs mean more freedom for the business, but less freedom for people.

Sometimes EPZs are involved in exportation of resources and raw materials, a factor that makes the poor countries involved in the globalization project remain poor. Such nations are forced into exporting their commodities due to many factors which some of such reasons are argued about and are mentioned in this article as the audience follows on reading.

This ideology of neoliberalism uses a factor called debt. Many developing nations are in debt and poverty nowadays, partly due to the policies that some international institutions such as the World Bank or IMF have developed and spread around the globe. Debt is used by the rich nations around the globe to get in touch with the poor countries in order to gain access to their raw materials for cheaper prices. Basically debt management is being used by the wealthy nations as a tool to take away the poor nations independencies, and to make the unfortunate regions dependent on loans. When tariffs are in place, countries focus on the development of internal industries and they compete in order to increase their sales, but when in debt, tariffs and other controls are removed which results in increscent of cheaper exports (especially raw materials) and imports of finalized products from the other nations. When a country is in debt, it is forced to sell its products in mass amounts and for cheaper prices to be able to a pay certain portions of the loan payments as soon as possible. This strategy has affected the living standards of such nations for decades. An example of this trend would go back to the 1970s and 80s, during the “Lost decade”. The world experienced a debt crisis in which highly indebted countries, mostly developing Latin American nations were unable to repay their international debts. Mexico was the first to declare inability to pay off its debt, and the scandal spread to the rest of the world in a blink of an eye. To counter this, “structural adjustment ideology” (liberalization and privatization) was administered, run by IMF and the World Bank. Long-term commercial debts were involved in this situation which was accumulated in the public sector. The governments of such developing nations such as Mexico were not able to repay the money, so financial rescue operations were given priority to and became necessary. The crisis of 1980s was mostly caused by long-term loans that governments took from foreign forces/banks along with some official grants and loans that could have assisted out their nation’s private sector.

Also by the beginning of 1980s the world economy faced recession, and the inflation days were over. USA’s anti-inflation campaign was able to increase dollar’s interest rate in the 1979; therefore, debt service payments rose rapidly. Change in exchange rates was not the only reason behind the crisis though. As mentioned the world was facing a recession, so the demand for exports fell and lower terms of trade was faced. Highly in debt countries faced payment difficulties as the result and the crisis took place. Banks stopped lending out money and loans were terminated. That was where the World Bank and IMF started to financially rescue such nations from their debt problems. New lines of loans were introduced which later on led to the adjustment programs. The assumption was that the private sector would grow strong and would cover up for the debt payments if the role of the state was removed and industries were privatized. Instead such strategies led governments to drown further in debt. The crisis of 1980s was eventually solved though. One factor contributing in solving the dilemma was the discovery of Latin American niche products in the global capitalism. The other solution to the crisis was mostly reduction of the amount of debts owed, or simply cancellation of debts or rescheduling the payment dates by the World Bank.

When countries are highly in debt, they are forced to cut off the money supply on health and other services in order to pay off the debt. Such behaviour is not recommended since it has negative effect on the living standards of such nations. But on a second glance at the situation, the results of such actions seem to favour the western world, so not many people oppose against them. Prevention of such behaviour would cost the advanced countries their positions in the global market along with the other benefits which they may obtain such as enormous amounts of money they earn; therefore, such systematic strategies are still being used in the globalization project.

When countries are in debt, they have limited options to choose from. The IMF and the World Bank tend to provide financial assistance to the nations seeking it. Their debt management plan is to apply a neoliberalism economic ideology in order to retrieve the money loaned. They have come up with structural adjustment plans such as “liberalization” of the economy and resource extraction/export-oriented open markets. They have minimized the role of the state and the have encouraged privatization. The protectionism over domestic industries is revoked. In some cases even currencies are devalued. Even at times, EPZs are constructed and introduced which leads to deregulations, while the standards are reduced or removed. The impact of such conditions on the poor countries could keep them in debt forever, leaving them dependent on the developed countries. Such behaviour towards the poor nations leaves them with no options except for raising more money through more exports, even though they may not be ready to enter the global market yet. In this situation, when a country’s insecurity is high, they may apply for another loan after another. This leads us to observe price wars on a large-scale. The insecurity also leads the poor regions to sell off their resources for cheaper. In such a stage, inspection of the situation reveals that high numbers of exports are also done in order to keep the currencies stable and earn foreign exchange which would help to pay off the debts. The results of such actions leave the government facing such disasters such as social unrest, decrease in the labour value and even depreciation of capital flow. In the worst case, such nations’ economies collapse and the poor country remains poor, or even becomes poorer.

One of the effects of structural adjustment programs on the developing countries is the increase of their exports. Usually commodities and raw materials are exported by the poor nations in such situations. This would lead them to lose out in the global business market when they export such commodities (that are cheaper in comparison to finished goods which they’ll end up importing). Also these nations are effectively blocked or denied from industrial capital and real technology transfer; therefore, not only they lose their raw materials, they do not have the technology to make domestic products neither so they’ll end up importing rather expensive finished products from other nations (due to the added labour costs to make the product from those commodities that they, themselves have sold for cheap). In general, this leads in a low turnover of money for the nation and the country loses cash. The factors mentioned are some of the main reasons that differentiate between developed independent economies and poor dependent regions. The former winner of the Nobel prize for economics and a well-known professor at the Columbia University – USA, Joseph Stiglitz talks about the structural adjustment programs as the following: “the World Bank, at the time of frustration, hands every minister of any poor country the same four-step program described as the following:

1. Privatization. Some politicians are corrupted; therefore, they go ahead with some state sell-offs: “Rather than object to the sell-offs of state industries, they use the World Bank’s demands to silence local critics-happily flogged their electricity and water companies. ‘You could see their eyes widen’ at the prospect of 10% commissions paid to Swiss bank accounts for simply shaving a few billion off the sale price of national assets.”

2. Capital market liberalization. Stiglitz talks about the capital flows which may ruin economies as being “predictable,” and says that “when [the outflow of capital] happens, to seduce speculators into returning a nation’s own capital funds, the IMF demands these nations raise interest rates to 30%, 50% and 80%.”

3. Market-based pricing. “A fancy term for rising prices on food, water and cooking gas which leads, predictably, to Step-Three-and-a-Half: what Stiglitz calls, ‘The IMF riot.’ After such bloody riots, foreign corporations… can then pick off remaining assets, such as the odd mining concession or port, at fire sale prices.”

4. Free trade. “As in the nineteenth century, Europeans and Americans today are kicking down barriers to sales in Asia, Latin American and Africa while barricading our own markets against the Third World’s agriculture, under the guiding hands of IMF structural ‘assistance’. These adjustments have made Africa’s income drop by 23%.”

Seems like the well industrialized countries are forcing open markets on the poor nations, and these attempts are not helping the global market to develop much; instead the rich countries are gaining access to gather cheap raw materials while they are selling off cheap products for higher prices in the poorer regions, making up false promises of their aid and assistance in economic development for such areas instead.

This report indicates that some global institutions such as the World Bank encourage the growth of EPZs since it helps them dominate the countries that are in debt. Although EPZs eliminate the trade barriers and allow countries to exchange goods and money more freely in the global market, they also allow IMF, World Bank and such institutions to gain power on a larger scale. Such actions appear to be problematic. Especially since exports of the poor nations are increased in huge amounts while they do not tend to benefit the nations as they are intended to. These exportations must become cheaper because of all the loans and debts that the poor have gathered over time, to assist the nations to pay off their debts. As a part of structural adjustment programs, the poor regions are globalized against their will and are being used by the advanced nations for their needs. In the conclusion, this kind of scenario benefits the western world and that is why the governing institutions in the globalization project encourage the growth of such acts. They also tend to show their support for the expansion of globalization ideas such as creation of export zones.

Source by Soroush Nazari

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