Impact of Export Processing Zones on Developing Countries - Essay Example

Impact of Export Processing Zones on Developing Countries Export processing zone (EPZ) can be defined as "type of free trade zone (FTZ), generally in developing countries by their governments to promote industrial and commercial exports" (BusinessDictionary.com, 2009). In order to support its growth, EPZ's enjoy privilege benefits from the government with regard to fiscal incentives, tax rebates, and other exclusive benefits (mapsofindia.com). Some of the goals of establishment of EPZs are: to encourage foreign direct investments, foster the development and establishment of industrial enterprise within the said zone, upgrade labor and management skills and ensure world class quality of products (mapsofindia.com). Export Processing Zones holds pregnant promises to developing countries, with the hope of enlivened economy through foreign direct investors. It is just fitting therefore to study how they have affected developing societies through the eyes of the consumers and the laborers. EPZs are also designed to generate jobs for locals. With the presence of foreign investors and with the usually cheap labor in developing countries, Export Processing Zones promise job opportunities and improvement. A study of Mohammed Amadu gave some figures on the increase in employment on some Asian countries, ranging from 10% to 60%. The Philippines holds one of those discouraging figures (Ahmadu). Aside from the locals directly employed in the EPZs, it also adds to employment through backward and forward linkages. Backward linkage is formed through raw materials and financing suppliers which are mainly locals while forward linkage is observed through the spending of employees of EPZs (Ahmadu). The ability to export products even by developing countries, and benefit that they gets from the trade is clearly described by David Ricardo in his theory of comparative advantage. According to Ricardo, even if a country has the absolute advantage in all products, meaning he is the most efficient among all countries in production, it will still be worthwhile to trade with another country, so that both would be benefitted (Mankiw, 1998). David Ricardo constructed a two-country, two-good example with one country having the absolute advantage in the production of both and using the concept of opportunity cost, he was able to conclude that even in this situation trade would make both better off as this allows each country to specialize in the product that he does best. The Labor condition, however, is also a question. EPZ workers are observed to receive lower wages than their non-EPZ workers counterparts. In Sri Lanka, for example, earnings of workers in the electronics sector are slightly lower than the national wages in the same jobs while in South Korea and the Philippines, payment for overtime works are tied to normal working hours (Ahmadu). Payment incentive schemes that include "demerit points" that affect wages and job security increased work hours and inensity (Ahmadu). This disadvatanges happens due to the absence of regulatory authorities in Export Processing Zones. Due to this adverse work condition, unionisation is prevalent among EPZs, although union activities are limited in some countries. In the Philippines, for example, strike are unathorized, based on the recognition that EPZs are very crucial to the country's economic success. On Employment: The Philippine Case The Philippines has four Export Processing Zones, found in the provinces of Bataan, Cebu, Benguet and Cavite. Among these are 16 government-administered regional industrial centres and 36 private-owned businesses. The EPZs has been strongly supported by the past administrations beginning from President Marcos up to the Arroyo Administration. A study of the Center for Applied Research and Library Services in the country, however, has revealed that EPZ has been discriminatory against women in terms of employment with women required to be single and college educated while men are not and that jobs that require higher skills are usually given to men without regard to educational attainment (Culili). The revolving door tactic also became prevalent such as laying-off of workers before the sixth month, so that companies will not be obliged by the law to regularize employees, evading from necessary fixed cost of hiring them permanent (Culili). The most controversial however, was the violence in the Cavite Export Processing Zone as the union members of The Independent or United Workers at Chong Won and "Kaisahan ng mga Manggagawa sa Phils. Jeon" rallied against the two Korean-owned garment factories, Chong Won Fashion Inc and Phils Jeon Garments. Chong Won Fashion Inc produces for US companies Wal Mart, target and Wise Tag, while Phils. Jeon garment produces for brands such as DKNY, Hanes and Bobson. Union complaints include refusal of the management to recognize the bargaining rights of the union (The Independent or United Workers at Chong Won), verbal abuse to union members, suspension from work of union officers for negligible violations and pressure to resign for union officers (Clean Clothes Foundation, 2006). Violence has resulted after union members mounted a strike, which includes hitting the strikers with clubs on the head, gun shooting of the labor leader and even killing of a bishop who's known to be a defender of the workers' rights and chairman of the board of the Workers Assistance Center (WAC). Worst, it is the men from Philippine Economic Zone Authority and goons of the provincial governor who are alleged to throw violence against the workers. The exploitation among workers is not new as was written in many of Karl Marx's books. The case of factory workers being rejected in their appeal for a bargaining agreement, which automatically deprives them of the right to solicit just compensation, is an evidence of Karl Marx's Labor Theory of Labor. Particularly, Marx stated that "surplus created by labor was taken from it because of its lack of ownership of the means of production" (www.economictheories.org, 2008). He argued that the capitalists, being the owner of the means of production enjoys profit even beyond the real contribution of its owned capitals, while the laborers, whose labor-power is an essential input to production, are clearly disadvantaged. In a classical example of factory situation, labor comprises the bulk of the inputs to production, but they are seemingly separated from their own produce, as most of these are sold even beyond their means, while they receive meager remuneration. According to Marx, the distribution of profit is simply unfair and does not compensate for the true value of labor. A small, rich and state-supported capitalist minority monopolizes the means of production so even when workers know that their "labor-power" deserves a higher pay, they subject themselves to the unfair practice for the fear that they cannot survive except by working for the capitalists (Wikimedia Foundation Inc, 2009). On The Society and the Consumers The presence of export processing zones allows manufacturers to enjoy the least cost in every stage of production. Without tariff for imported raw materials, foreign manufacturers can ship capital inputs from abroad which are deemed to be of lower cost than the local capitals, such as machines, equipments and raw materials. Studies reveal that the backward linkage of Export Processing Zones, which include sourcing supply from local manufacturers, is actually weak as EPZ manufacturers are free to import from abroad. They are also able to benefit from the low labor cost found in developing countries such that they benefit both from low capital and low labor cost. This allows manufacturers to have an efficient management of inputs to production which results to competitive prices of their products. In this case, consumers benefit from lower prices. The ability of the manufacturers to economize on the factors of production and the savings due to this overflow to the consumers in terms of competitive prices. Thus, consumers are better off with Export Processing Zones. The economic question for the governments is to assess the magnitude of the positive effects on consumers with the alleged injustice done to many of its laborers. However, since most of the products done in EPZs are of imported quality, and only a small fraction of the population in the developing economy subscribes to this, countries might want to look at the labor and side rather than the consumer side. Works Cited July 2008. www.economictheories.org. 11 February 2009 . Ahmadu, Mohammed. "Journal or South Pacific Law." www.paclii.org. 11 February 2009 . BusinessDictionary.com. 2009. 11 February 2009 . Clean Clothes Campaign. November 2006. www.cleanclothes.org. 11 February 2009 . Culili, Ms.Venus. http://actrav.itcilo.org. 11 February 2009 . Mankiw, Gregory N. Principles of Macroeconomics. Florida: Harcourt Brace College Publishers, 1998. mapsofindia.com. www.mapsofindia.com. 11 February 2009 . Wikimedia Foundation Inc. 10 February 2009. www.wikipedia.org. 11 February 2009 . Read More