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For an exciting analysis, see Francisco Buera and Joseph Kaboski, The Rise of the Service Economy, 102 (6) American Economic Review 2540 (2012). Even the biggest SEZ success stories like China and Malaysia started slowly and took at . Some of the more popular FIZs in Malaysia includes the Bayan Lepas Free Industrial Zone and Pasir Gudang Free Industrial Zone. 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). 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. [1] For instance, in the USA, exports of financial services through cross-border transactions have been almost three times higher in 2017 compared with that in 2005. The Northern Corridor Economic Region was established to accelerate economic growth in the northern regions of Peninsular Malaysia. Context: The government has proposed to free up unused built-up area worth about 30,000 crore and idle land inside Special Economic Zones (SEZs) for other economic activity. However, balancing stability and harnessing systemic risk with the desire to entice financial entrepreneurs keeps regulators wide-awake. Meanwhile, Article XV:2 merely requires that sympathetic consideration be given to any request for consultations by a member that considers itself affected adversely by a subsidy of another member. In the list below, our team of experts has divided the information on different Malaysia Free Trade Zones into two main categories of free zone available in the nation that is (a) Malaysia Free Industrial Zones (FIZ) and (b) Malaysia Free Commercial Zones (FCZ). businesses establish, maintain, In the aftermath of the Great Recession, trade in financial services quickly recovered and experienced rapid growth in tandem with the deepening of international financial sector activities. Malaysia Free Trade Zones, which are a class of special economic zone, can be broadly divided into two types of. Developed countries and certain developing countries undertook commitments according to the Understanding on commitments in financial services, based on which several WTO members voluntarily assumed bolder liberalization obligations as set out in the Understanding.80 Driven by the financial industry pressure and due to their more competitive financial service capacity and ability to explore new markets through further liberalization of that sector, several countries found the approach that the Understanding offered more liberal.81. 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. See Arpita Mukherjee etal., Special Economic Zones in IndiaStatus, Issues and Potential (New Delhi: Springer, 2016), 22. Malaysia's Iskandar economic zone to be three times the size of Singapore: report, All done! See document online; Conway, K. (2015). The gift link for this subscriber-only article has expired. Copyright 2023 SPH Media Limited. It is important for economic development not only directly (for instance, because it improves access to and quality of the service supplied), but also indirectly by improving the productivity of basic factors of production, capital (R&D services), and labour (health and education services). 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. In this competitive environment, for some countries that want to attract foreign investment, focusing on services will be a matter of choice to offer a broader gamut of services to potential investors that would render their establishment more attractive. such as tax exemption from custom duties and excise duties for most goods and services. The Port Klang Free Zone is considered both a FCZ and FIZ that provides state-of-the-art facilities for the distribution of goods and products. It added that Malaysia's increase in minimum wage levels would also further chill investment. Almost half of the cross-border exports of services worldwide is in business services and calls for a paradigm shift in the global regulation of such services.14 Cross-border supply of business-related services creates new opportunities for exports in an increasingly advantageous cost level and allowed for export diversification.15 These two important traits of services, that is, as enablers of digital trade and products provided by means of digital technologies will continue driving the ever-increasing servicification of the global economy. and grow their operations. It would strengthen the fortunes of both countries by giving Singapore the landmass it lacks, while allowing Malaysia to leverage on Singapore's financial expertise. The newspaper dubbed the special economic zone as "Malaysia's Shenzhen" because it is geared to become a manufacturing and technology hub like the wealthy Chinese city. 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. 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. Malaysia is home to five investment corridors (a type of special economic zone). Count on us! Get unlimited access to all stories at $0.99/month for the first 3 months. Can a company in a Free Trade Zone be wholly foreign-owned? The FT said domestic manufacturing fell by 41 per cent in 2016, although foreign manufacturing investment rose. Shanghai is also home to the first foreign-invested banking agents which were granted type-A lead underwriting licences (Deutsche Bank, China and BNB Paribas, China), thereby allowing for the first time foreign banks to carry out underwriting for all types of onshore debt in China.46, China has adopted a progressive, but steadily paced liberalization approach that culminated to the lifting of all restrictions for foreign investment in financial services in 2020 in a relatively short period of time. The plan entails the creation of a center to distribute and process African natural resource products; a public service platform for AfricaChina economic and trade cooperation; and a pilot project to offer more and better financial services to African clients.41, Since 2013, China has taken a managed liberalization stance in that foreign investment liberalization occurs through the adoption on an annual basis of national negative lists; one for the FTZs and another one for the rest of the country. As noted earlier, such declarations allow members to continue discriminating within the confines of their services SEZs. The Iskandar Edge Forest City is at the most advantageous location within the Iskandar special economic zone (SEZ). See Mukherjee etal., above n 11, at 133. United Nations, Transforming Our World: The 2030 Agenda for Sustainable Development, Technical Report (2015). 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. See also Sherzod Shadikhodjaev, SEZs under the WTOs Scrutiny: Defining the Scope of Trade Issues, in Julien Chaisse and Jiaxiang Hu (eds), International Economic Law and the Challenges of the Free Zones (Kluwer, 2019), at 225; see also James J. Nedumpara, Manya Gupta, and Lela Choukroune, WTO Adjudication and SEZ: Determining the Scope of Exceptional Trade Unilateralism, in this issue. For example, qualified investors can extend applications under the special incentive package for the Pagoh Special Economic Zone area, which offers income tax, stamp duty, and sales tax exemptions for 5 years on companies carrying out main targeted activities.. Antoine Goetz and Others v The Republic of Burundi (I), ICSID Case No. There are minimal customs control in FTZs to facilitate the export of goods by Multinational Corporations (MNCs). See UNCTAD, World Investment Report 2020 (Geneva: United Nations Publication), at 147. See Carlo Cantore, Parallel Convergences in Free Trade Agreements on Financial Services: Select Issues, European Yearbook of International Economic Law (Special Issue: Coherence and Divergence in Services Trade Law) 193 (2020). 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. Finally, the focus of the SEZ (e.g. Located near the busiest international shipping lanes and possessing natural features that allow vessels to anchor easily, the Port of Tanjung Pelepas facilitates the transportation and distribution of cargo goods with neighbouring countries and regions. As many FTZs are located near ports, airports and expressways, it is easy to transport goods and raw materials from the areas to other countries and vice versa. THEORETICAL BACKGROUND A Special Economic Zone is an . As a general rule, no SEZ could ever survive international competition for attracting manufacturing (or service-related) investment without world-class infrastructure and a business-friendly environment.7 Progressively, as part of intermediation services for the hosted manufacturing activities, human resources, catering and housing services, as well as one-stop-shop facilities for administrative processes affecting the SEZ beneficiaries started being offered. By 2030, SCORE has targeted 334 billion ringgit (US$1.6 billion) in investments for industrial projects, physical infrastructure, and human capital development. Initially, services supplied in SEZs aimed at addressing infrastructure-related weaknesses, including red tape, reliability, and continuity of certain services such as public utilities. Located in Penang, the Bayan Lepas FIZ is known as the islands main industrial hub and is the first FIZ to be created in Malaysia. 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. ARB/95/3, Decision on Liability (2 September 1998); and Antoine Goetz and Others v The Republic of Burundi (II), ICSID Case No. Finally, members were allowed to maintain MFN exemptions listed in a negative list and subject to an abstract sunset review that has not been enforced to date. A detailed study on the economic impact of the creation of PSEZ is being undertaken by the Economic Planning Unit of the Prime Ministers Department and the Johor Corporation to determine the direction of subsequent phases. The performance of the service sector is the key for improving domestic capacity, income growth, and domestic productivity . 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 https://www.thegfin.com/. The first in particular aims at tapping on the potential of digital trade and ICT. LMWs will enjoy the same benefits as factories that operate in a FIZ in Malaysia. Established in 2006, Iskandar Malaysia is the main development corridor in the state of Johor and is three times the size of Singapore. This trilemma with which financial supervisors are typically confronted is exacerbated by fintech. Based on your companys business activities, Tetra Consultants will also research and recommend you the Free Zone to set up your company in. . See Dorcas Wong, How Beijing is Driving Chinas Services Sector Expansion, China Briefing, 22 September 2020, https://www.china-briefing.com/news/chinas-services-sector-expansion-beijing-9-industry-reforms/#beijingasatrailblazerfornationalservicesectorreformsHeader. See Panel Report, ColombiaPorts of Entry, WT/DS366/R. Instead, most Free Zones are controlled at the state level instead of the federal level. 6 ADB Avenue, Mandaluyong City 1550, Metro Manila, Philippines. Ministry of International Trade and Industry. They came from all over, but made Malaysia their home. ), International Financial Markets: Harmonization versus Competition (Washington DC: American Enterprise Institute Press, 1996), at 12. Remaining errors are of the authors alone. Using Trade Policy to Discriminate across Importers, 110 (5) American Economic Review 1540 (2020). It furthers the University's objective of excellence in research, scholarship, and education by publishing worldwide, This PDF is available to Subscribers Only. Established in partnership with Jack Ma, the former Executive Chairman of the Alibaba Group, the Free Trade Zone will connect Malaysias SMEs to Alibaba-inspired e-commerce platforms with the purpose of supporting greater exchange between Malaysia and other Belt and Road Initiative (BRI) countries. Filipino pirates operate in the Sulu Sea and they can reach the South China Sea. Malaysian Exclusive Economic Zone Flanders Marine Institute (2019). [4] On 16 August 2020, a Malaysia Maritime Enforcement Agency (MMEA) vessel had reportedly shot dead a Vietnamese fisherman and also captured the fishing vessel on which the fishermen used to conduct illegal fishing within Malaysia's rightful EEZ. For instance, in India, the SEZ Act of 2005 established an Offshore Banking Unit and an IFSC in each SEZ which have been subject to approval by the Indian government. 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. The East Coast Economic Region was established in 2007 and covers half the size of Peninsular Malaysia. Similarly, members could discriminate when granting tax benefits or other trade-distorting incentives to domestic service suppliers and/or foreign suppliers which are established in their territory (including subsidies), if no commitments were undertaken under national treatment (or, alternatively, if they explicitly listed those limitations in the relevant national treatment column or even in their most-favoured-nation or MFN exemptions list). While FIZ focuses on the manufacturing of goods and other industrial activities, FCZ focuses on the trading and transportation of goods to other locations. The project aims to spur economic and industrial growth in Pagoh and develop the Northern Region of Johor economic zone by 2045. The Bayan Lepas FIZ is also the primary labour market in Penang. However, there is a global mixed reaction towards its successful. The newspaper dubbed the special economic zone as "Malaysia's Shenzhen" because it is geared to become a manufacturing and technology hub like the wealthy Chinese city.