Duke Law Journal

Achieving World Trade Organization Compliance for Export Processing Zones While Maintaining Economic Competitiveness for Developing Countries

Abstract

Export processing zones (EPZs) are statutorily created investment parks that developing countries establish to attract foreign investment in exchange for government-granted fiscal incentives. At their core, EPZs are a quid pro quo between host governments and investor companies: in exchange for the promise of job creation, technological transfer, economic development, and compliance with export performance requirements, investor companies receive substantial fiscal incentives, such as tax and tariff exemptions.

Most EPZ statutes are inconsistent with Article 3.1(a) of the World Trade Organization’s Agreement on Subsidies and Countervailing Measures (SCM Agreement) because EPZ incentives qualify as prohibited export subsidies. Fortunately, many developing countries have received exemptions from this prohibition to maintain their EPZ systems. The exemptions, however, are set to permanently expire for many countries on December 31, 2015, spurring the need for EPZ reform.

This Note proposes a framework for achieving WTO-compliance for EPZ statutes by conditioning EPZ incentives on an investor company’s implementation of standards of corporate social responsibility. This proposal will permit developing countries to maintain fiscal incentives—thus helping preserve their economic competitiveness as attractive destinations for foreign investment—while also offsetting potential harm that the mandatory elimination of EPZ export requirements may cause to developing-country industries.