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International Trade

Thailand Introduces Special Economic Zones

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

Background: Special Economic Zone

The Special Economic Zone (SEZ) is actually not a new concept for Asia.  In fact there were a few past attempts led by growing Asian economies a few decades ago including India (Gujarat’s Kandla SEZ in 1965)[1] and the 4 Tigers East Asian Miracles (Hong Kong, Singapore, South Korea and Taiwan)[2]  in adopting and implementing this concept as an opportunity for companies[3].

However, it seems that only China is portrayed as an able nation with the right mechanisms in place to establish and deliver this concept successfully as demonstrated by  Guangdong (Shen Zhen, Zhuhai and Shantou) and Fujian (Xiamen) Provinces, which started in the 1980’s.  As China is not the first country to implement the SEZ policy, however China seems to be successful in attracting and boosting China’s economy, which makes their SEZ policy one to emulate.  There is clear evidence from many researchers that there has been growth and an increase in exports across many cities in China in particular the SEZ areas.  China’s SEZ policy is one of the tools the country has been using to promote a market-led economy and entice foreign investment since the early days[4] of the endeavor, by offering many trade liberalization tools such as the special tax investment incentives schemes and special corporate establishment structures including Sino-foreign Joint Ventures and Partnerships (SFJVs) through the Wholly Own Foreign Enterprises (WFOEs).  These schemes help many MNCs operate in China with flexibility in deciding their investment structures.[5]  Many developing countries in the world have followed China’s SEZ liberalization policy tools such as Iran, Jordan, Poland, Kazakhstan, the Philippines, Russia, and Ukraine.

A unique feature for China SEZ is that it has many flexible and international rules and policies written specifically for the business establishment. In fact, the China SEZ allows all types of industries an opportunity to investment such as livestock, fish breeding, and poultry farming to the areas of research and manufacturing[6], thus creating a diverse cluster and breadth of supporting industries that are labor intensive to technology focused.

Therefore the Chinese SEZ model has been a success story and is regarded as a blueprint for other emerging economies to follow in particular South Korea, Taiwan, the Philippines[7] and India[8].  Thailand has recently adopted the SEZ model into its own policy system, and is going to commence a full scale linkage of its SEZ by 2016.

ASEAN Economic Community and the Mekong Sub-region (GMS)’s Economic Corridors

At the end of last year the ASEAN Economic Community (AEC)  became effective[9], with the aim at trade and customs de-regulation among its members.  There are high hopes to make the region a global single market and common production base for investors.  Because of this there has been a tremendous effort to face-lift the regions connectivity  to support its trade and investment success.  One of the example enhancements is the Logistics infrastructure that will inter-connect the Greater Mekong Sub-region (GMS)’s Economic Corridors[10] under the ASIAN Development Bank.  So far the budget for this initiative has been approved for around US $30 Billion under the five-year investment framework implementation plan (2014-2018)[11].  This budget has largely been poured into the transport sector.

Therefore, the AEC will not only provide a huge market opportunity, but also its members’ breadth and depth of products and services should prove to be more diverse and competitive–and poised to gain more distributed market share in the global market.[12] The total merchandise export volume from the emerging ASEAN continent countries alone has already exceeded US $400 Billion in 2014. From an industry standpoint, according to the survey taken by the U.S. Chamber of Commerce, most of the American firms are very optimistic about the profit outlook in ASEAN.  Around 66% of 2015 respondents cite that ASEAN markets will become more important for their worldwide revenues over the next two years[13]and 80% believe that their companies’ level of trade and investment within the region will be increased significantly by 2020.[14]

Thailand’s Special Economic Zone (SEZ)

The SEZ in Thailand was approved by the government in 2014 and is expected to be an effective tool to make the country’s economy move in a positive direction with the upcoming regional economic drivers.  There is an initial pilot of 5 SEZs, and later in 2016 for another 5.

There will be all together 10 SEZs along the borders across the country[15] with the aim to target Thailand key industries.[16]  Each zone has its target business activities which are decided and categorized by the area where the SEZ is located, for example: raw materials, and economic and business conditions.  For example, Songkhla in the South is close to the sea and has rich forest areas, and therefore its target industries are agriculture and fisheries, furniture, garments, textiles and leather products, logistics, industrial estates and tourism.[17]

The SEZs not only provide one-stop service centers with customs checkpoints, as well as enhanced services for licensing and permission applications, and issuance procedures in each zone.  The SEZs provide the maximum incentives benefits to business entities, if their investment falls under the initial 13 target business activities.  The mixed incentives from the Customs and Excise Department through the Board of Investment (BOI) are well positioned for investors because of the corporate tax reductions and exemptions with an opportunity for another additional 50% extension, free of import duty for machines and raw materials for export production, exclusive rights to use foreign labor, and other non-tax incentives benefits such as low interest rate loans, land occupation rights, double deductions from the costs of transportation, electricity and water supply for 10 years.  In particular the permission to use unskilled foreign labor[18] is a very large incentive to those MNCs.

Trade and Business Implications

Despite the fact that Thailand is a few years behind other emerging ASEAN neighbors[19] in setting up the SEZs in the country.  Meanwhile Laos PDR has already completed 8 SEZs with the total area of around 26,055 acres with the aim to add another 13 areas within 2020.  The majority of the investors are coming from China, Vietnam and Thailand to set-up operations)[20]  However the set-up plan for Thailand has been a big step and brought high hopes for the country to move forward in order to stimulate and strengthen its economy during the region’s economic integration.  The Ministry of Commerce has cited that once the SEZs are ready, the cross border trade, which accounts for around 10% of the total trade volume of the country, will be significantly increased by 50%, bringing its figure to reach THB 1.5 Trillion[21] in years to come.

With the right policy tools and supporting infrastructures in place, the SEZs could potentially not only bring significant economic benefits and strong ground for future business development but also help the community increase its common collaboration in peace, enhance border security, an improved quality of life and social welfare along the less developed areas along those borders.  An obvious advantage would be the potential in reducing illegal trade, smuggling, and human trafficking as well as facilitate cross-border trade to the region as a whole.

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[1] Kandla SEZ’s Official URL:

[2] Hong Kong, Singapore, South Korea, and Taiwan; Further Readings can be found in John Page, The East Asian Miracle: Four Lessons for Development Policy, The National Bureau of Economic Research, NBER Macroeconomics Annual 1994, Volume 9, Public URL : AND Paul Krugman, The Myth of Asia’s Miracle, Foreign Affairs, Vol. 73 (November-December, 1994), pp. 62-78.  Public URL:

[3] Chee Kian Leong, Special Economic Zones and growth in China and India: an empirical investigation, International Economics and Economic Policy, December 2013, Volume 10, Issue 4, pp 549-567, An online publication, Springer-Verlag, Public URL:  And Chee Kian Leong, SEZs, Openness and Growth in China and India, Nanyang Technological University, Public URL:

[4] Currently there are around 20 of the multilevel diversified form of SEZ areas in China including Pudong District/ Shanghai Municipality, Xiamen/ Fujian Province, Shantou, Shenzhen and Zhuhai / Guangdong Province, Kashgar/ Xinjiang Province, Hainan Province and etc.

[5] Daniel Yan and Malcolm Warner, Sino-foreign Joint Ventures versus Wholly-foreign Owned Enterprises’ in the People’s Republic of China, Research Papers in Management Studies, WP 11/2001, The Judge Institute of Management Studies, University of Cambridge, Public URL:

[6] Ann Fenwick, Evaluating China ‘s Special Economic Zones, Berkeley Journal of International Law, Vol. 2, Issue 2 Fall, Article 7, PP. 3, Public URL:

[7] Ann Fenwick, op.cit., PP. 5

[8] So far more than 430 SEZs has been approved in India in recent years with the highest in a state of Maharashtra (where Mumbai and Pune are the top major cities)

[9] Thailand as one of the founding members is going to be a part of the community




[13] ASEAN Business Outlook Survey 2016, The American Chamber of Commerce in Singapore and the U.S. Chamber of Commerce, PP. 4, Public URL:

[14] Ibid, PP. 40

[15] Ref:; The 10 SEZs are planned to be located in “Tak and Kanchanaburi” which border Myanmar, “Chiang Rai” on the Thailand-Lao-Myanmar border, “Mukdaharn, Nong Khai and Nakhon Phanom” on Thailand-Laos border, “Trat and Sa Kaew” on the Thailand-Cambodia border, and “Songkhla and Narathiwas” in the southern part of Thailand which borders Malaysia.

[16] There are 13 major industries including: Agriculture and fisheries; ceramics; garments, textiles and leather; furnishings and furniture; gems and jewelry; medical equipment, automobiles and parts; electrical appliances and electronics; plastics; pharmaceuticals; logistics; industrial estates and tourism-related.

[17] Thailand’s Special Economic Zones: New Opportunity Arises, the Board of Investment (BOI) article, URL:

[18] Thailand workforce is shrinking and the foreign labor law now is quite cumbersome thus this rule will be a promising point for the investors.

[19] Myanmar has also passed the Special Economic Zone Law in January 2014 to accommodate its 3 major SEZs; Dawei in the Southeast), Thilawa located near previous capital Yangon, and Kyaukphyu in the Northwest.

[20] Ref: Laos’s Ministry of Planning and Investment, Investment Promotion Department.  URL at:

[21] Ibid, PP. 22

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