WTO Integration: IZs, EPZs Facing Challenges

Enlarging industrial zone notions
Under the ordinary concept, an industrial zone is an independent unit where enterprises specialise in manufacturing commodities and providing services under a different management mechanism. An export processing zone is a zone specialising in commodities for export, offering a lot of tax preferences like tax exemption (import, export, assets) and free trade.

However, in the context of globalisation, international economic integration and the transformation from an agricultural economy to an industrial and knowledge-based economy, the IP concept is enlarged. Economic transactions are not only adjusted by national regulations, but also international rules, especially WTO principles. WTO allows the establishment of IPs and EPZs with preferential treatments as long as they do not conflict with WTO adjustment principles. These special treatments are usually attached to negotiations between joining countries and full members. After becoming a full member, the country must adjust their special treatments in accordance with the principles of freedom, transparency and equality, as well as WTO practices.

 

Restricting industrial zone privileges
As of late April 2006, Vietnam had 135 industrial zones in total covering 27,748 ha. Of the sum, 81 had been put into operation with a natural area of 17,705 ha.

 

In IPs and EPZs, most privileges given to enterprises are in the forms of tax exemption and corporate income tax reduction. Besides, IP-located enterprises could be exempted from import duties on their equipment, machinery and special transport means (including both accessories and parts) for building, expanding or transforming their projects. Materials and components for the production of export goods incurred import tariffs but the tax sums were reimbursed, according to the proportion of their imported materials and components.

 

In WTO negotiation rounds, several member countries said Vietnam was using prohibited subsidies to encourage enterprises to invest in EPZs. Member countries required Vietnam to eliminate all prohibited subsidies immediately after joining the WTO. Vietnam was also recommended to collect taxes on products sold in the country.

 

Vietnamese negotiators confirmed that from the official admission to the WTO, the Vietnamese Government would carry out its WTO duties in hi-tech parks, IPs, EPZs and any other zones with similar treatment. All subsidies for hi-tech parks, IPs and EPZs under Clause 3 of the Subsidy Agreement and WTO anti-subsidy measures would be eradicated before or at the point when Vietnam joined the WTO. These subsidies would not be reapplied.

 

After admission, all commodities produced in IPs, EPZs, and any localities given preferential treatment, would face customs procedures if they were consumed in Vietnam, including tariffs as stipulated by the WTO.

 

In other words, when the most favoured nation (MFN) principles and national treatment (NT) principles of the WTO take effect, all preferential treatment for IPs will be removed. Operations of companies in EPZs can be abruptly upset and they will lose privileges. IPs will be less attractive due to WTO principle adjustments. However, in the transitional period, these preferential treatments will be maintained and the attractiveness of IPs will continue to a certain extent.