GLOBAL SELLING BLOG

What are export processing zones? Know its types and benefits

Export processing zones attract foreign and local companies to conduct operations in an area through revamps in trade and investment policies. Learn more about them in this blog.

The legal and financial complexities of global trade can often deter businesses from entering certain international markets. To promote and facilitate international trade and manufacturing, countries set up export processing zones (EPZ). These zones attract foreign and local companies to produce, process, and export their products in this area. This blog post discusses what export processing zones are, what advantages they have, common pitfalls, and what they mean for exporters.

What is an export processing zone?

An export processing zone (EPZ) is a dedicated area within a country where goods are processed under special customs control. These zones are set up to streamline the production, processing, storage, and repackaging of goods in a competitive environment with fewer bureaucratic hurdles. EPZs focus solely on export-oriented industrial activity, meaning goods produced here are meant for export and not for the domestic market.¹EPZs attract both foreign and local companies by offering simplified regulations and investment-friendly policies. They provide incentives to boost foreign investment, encouraging production and global trade.

Role of export processing zones

EPZs play a pivotal role in modern trade ecosystems. This includes:

Encouraging exports
These zones have simplified exports processes and exemption from certain taxes. This leads to greater production and exports.

Attracting investment
With special trade incentives, EPZs attract foreign direct investment.

Creating employment
EPZs create jobs by providing support services in manufacturing, logistics, and service functions.

Upgrading infrastructure
Export processing zones offer state-of-the-art infrastructure tailored to meet the unique requirements of global trade. This includes reliable power supply, modern warehousing facilities, advanced logistics systems, and seamless connectivity to ports, airports, and railways.²

Types of export processing zones in India

India has developed a broad array of Special Economic Zones (SEZs), which originally started as EPZs. While SEZs share similarities with EPZs, they represent a more advanced model designed to meet the evolving needs of industries and trade. SEZs offer improved facilities, policies, and a broader range of incentives and support for exporters. They operate under a distinct legal framework tailored to promote export-driven economic growth.³The following are some key types of EPZs in India:

Sector-specific EPZs

These focus on industries such as textiles, electronics, or IT services. An example is the Madras Export Processing Zone (MEPZ), which was originally set up to support different divisions of electronic hardware manufacturing.

Multi-product EPZs

These zones are made to host multiple varieties of industries, thereby pushing them towards a greater economic growth vision. For example, Santacruz Electronics Export Processing Zone (SEEPZ) in Mumbai supports both jewelry and IT services.⁴

Did you know?

India established Asia’s first EPZ in Kandla, Gujarat, in 1965. This pioneering initiative eventually evolved into the Special Economic Zone (SEZ) framework, which caters to both domestic and international markets.

Advantages of export processing zones

The following are some key advantages of EPZs for businesses and the economy:

Tax relief and duty exemptions

Export processing zones provide tax holidays, waived import/export duties, and exemption for certain raw materials/machinery.

Streamlined regulatory processes

EPZs provide simplified customs clearance and enhanced operational efficiency due to reduced paperwork and one-window administrative support.

Improvement in foreign investment

EPZs offer liberal policies to attract foreign companies. This develops technology transfer and collaboration.

Increased competitiveness in exports

Cost advantages and better infrastructure in EPZs supply industries with goods at competitive prices globally.

Skill development and employment

EPZs provide job opportunities and skill enhancement programs to build up the local workforce.⁵

Disadvantages of export processing zones (EPZ)

Some drawbacks of EPZs are as follows:

High setup costs

The development and support of operations in an EPZ may not be cost-effective for small enterprises.

External dominant demand

As EPZs are oriented towards exports, any drop in international demand can lead to sustainability concerns.

Environmental issues

Industrialization in the EPZ can lead to environmental degradation if proper regulations are not enforced.⁶

Major export processing zones in India

There are many export zones in India that started as EPZs and are vital to trade in India. All of these have now been converted into SEZs. Some prominent ones include:

Santacruz Electronics Export Processing Zone

Popularly known by its acronym SEEPZ, this zone is located in Mumbai. It is well-known for exporting IT services and jewelry.

Madras Export Processing Zone

Located near Chennai, MEPZ caters to various sectors, including textiles and electronic hardware.

Noida Export Processing Zone

The Noida EPZ focuses on software development and manufacturing sectors.⁷

Did you know?

Export processing zones worldwide account for nearly 20% of global trade in manufactured goods. They host over 100 million workers, with significant contributions from countries like India and China.

Challenges faced by export processing zones

EPZs face various challenges that limit their growth. Some of these are as follows:

Some EPZs may have inefficiencies in bureaucracy, leading to delays despite simplified trade procedures.

There may be insufficient connectivity to EPZs, and utility services may have limited infrastructure.

EPZs in India face fierce global competition from more developed zones in China and Vietnam.⁸

Differences between shipping companies and logistics aggregators

While EPZs and SEZs share similarities in promoting trade and investment, they differ in scope, benefits, and policy frameworks.

Feature

Export processing zone (EPZ)

Special economic zone (SEZ)

Scope

Focused solely on exports

Supports both domestic and export markets

Tax benefits

Limited to exports

Broader incentives, including domestic sales

Size

Generally smaller in area

Covers larger, more diverse areas

Policy framework

Based on older trade policies

Aligns with modern trade and investment laws⁹

Conclusion

Export processing zones are crucial for optimizing trade processes and fostering economic growth. They provide attractive tax incentives, efficient regulations, and high-quality infrastructure, which attracts foreign investments and enables businesses to flourish in global markets. While there are challenges to address, EPZs remain critical for exports, particularly in developing countries. Businesses looking to start exporting from India can also leverage the tools and services offered by Amazon Global Selling, an e-commerce exports program helps Indian exporters reach international marketplaces through e-commerce.

Amazon Global Selling: Easy e-commerce exports and hassle-free shipping

If you are a business owner and you want to sell your products to the world, Amazon Global Selling enables you to list and sell ‘Made in India’ products on 18 Amazon global marketplaces. As an e-commerce export program, Amazon Global Selling provides support and guidance at every step of your export journey, connecting you to Amazon’s Service Provider Network for tailored compliance, payments, and logistics support.

Registered sellers can choose to ship their products by themselves through Merchant Fulfilled Network (MFN) or they can opt for fulfilment by Amazon (FBA) and outsource order fulfilment to Amazon including packing, storage, delivery, and returns. Amazon Global Selling simplifies the process of international shipping to the world, helping businesses navigate customs and reach a vast audience.

Frequently Asked Questions

1. What are the objectives of export processing zones?

EPZs are designed to promote exports, attract foreign investments, create employment opportunities, and improve trade infrastructure.

2. How many export processing zones are there in India?

India initially set up eight EPZs, focusing on specific sectors. All of these have now been converted to SEZs.¹⁰

Published on January 17, 2024.

Sources:

1. https://unacademy.com/content/full-forms/full-form-of-epz/
2. https://testbook.com/ias-preparation/export-processing-zones-in-india
3. https://sezindia.gov.in/
4. https://testbook.com/ias-preparation/export-processing-zones-in-india
5. https://unacademy.com/content/full-forms/full-form-of-epz/
6. https://www.liveabout.com/export-processing-zones-epz-2221273
7. https://www.pria.org/knowledge_resource/Export_Pocessing_Zones_in_India__Status_of_Labour.pdf
8. https://testbook.com/ias-preparation/export-processing-zones-in-india
9. https://www.differencebetween.com/difference-between-sez-and-vs-epz/
10. https://pib.gov.in/newsite/erelcontent.aspx?relid=51797#:~:text=All%20the%20eight%20Export%20Processing,converted%20into%20Special%20Economic%20Zones.

Related blogs