Free Trade Zones: Who wins?

By jb94|March 10, 2016|East Asia, Global, Latin America|0 comments

By Rosie Rawle. Rosie is currently studying the MSc Labour, Social Movements and Development part-time. The views expressed in this article are Rosie’s own, and don’t necessarily reflect the views of the SOAS Department of Development Studies.

In the tug of war over profits and terms of a new Free Trade Zone (FTZ), who wins? A flick through international relations theory would reveal two seemingly opposing sides – transnational companies (TNCs) at one end of the rope and states in the global south at the other. But are these the only players and can only one team win?

Against a backdrop of neoliberal deregulation and privatisation, it is often quoted that today’s engine of globalisation is the ‘new international division of labour’ (Frobel et al, 1981), a process wherein the reorganisation and relocation of production is bringing new industrial countries into the ‘global factory’ (Chang, 2005). FTZs epitomize such changes, each providing a ‘regulatory space in a country that is aimed at attracting export-oriented companies by offering these companies special concessions on taxes, tariffs and regulations’ (ILO, 2008). Indeed, their recent global proliferation has invited strong attention from a range of literature (FTZs totalled 79 in 1975, more than 3500 were recorded just over 30 years later).

Introducing Neoclassical Economic Geographers: “It’s all about business…”

It can appear that with 3500 zones to choose from and rocketing profit margins, some TNCs have more than the upper hand. Indeed for Neoclassical Economic Geographers, international business is equipped with the resources and technical division of labour to go ‘place shopping’, searching for countries that offer the most attractive combination of production and market conditions (Castree et al, 2004:75). They are able to move regardless of barriers of sovereignty and the will of southern governments (Dicken, 1998). In fact, for some, FTZ agreements firmly reflect the market’s grasp over the state (Cling, 2001; Khatik and Saxena, 2010). ‘Weak states’ in need of foreign investment and exchange will bend over backwards to create FTZs and lure in TNCs. Committing themselves to high set-up costs, expensive infrastructure, lost opportunities in tax revenues and creating displaced populations, states take high and costly risks to secure interest from international investors (Cling, 2001).

Furthermore, it is claimed that FTZs fail to significantly boost domestic economies and developmental goals. ‘Spill-overs’ occurring in the form of skills and technology can often remain strictly within the enclave, whilst investment in domestic inputs and wages remains relatively low (Warr, 1989). From this angle, FTZs are directed by international business, and act as a tool for the laissez-faire market to penetrate closed economies and freely manipulate state policy. Nevertheless, such claims are not free from criticism.

Introducing Developmental State Theory: “…the business of the state.”

In contrast, statist attitudes portray FTZs as the consequence of intervention in international market freedoms. Such views have recently been propelled by the rise of developmental state theory, emerging in response to East Asia’s miraculous growth period in the 1960s. Here it is recognised that owing to priorities, organisational arrangements and institutional links (Weiss, 2000), developmental states are able to control elements of business and avoid its capture, operating with ‘embedded autonomy’ (Evans, 1995).

For a range of Keynesians who turned to this model in the 1980s, FTZs have arisen through strategic design of the state. China’s government in particular has accordingly been able to utilise cheap labour as a comparative advantage over other East Asian states, attracting foreign investment and technology into specific zones, whilst maintaining control over the direction and type of development taking place (Bolesta, 2007; Wang and Bradbury, 1986; Ge, 1999). In turn, this has allowed the state to experiment with urban centres of liberal reform in a far more measured manner than those exposed to large-scale structural adjustment programmes in the 1970s (Bolesta, 2007). Dodging the vulnerability of reliance on international markets, scholars stress that states are able to reap much of the benefits, generating returns through employment and promotion of nearby local enterprises (Jayanthakumaran, 2003). In sum, for these writers, FTZs are the successful product, and deliberate intention, of developmental states.

Capital vs Labour

The above authors emphasis that TNCs, southern governments, and society are not necessarily on opposing teams. Preoccupied with these relations, however, the researchers neglect the issue of class. From a Marxist perspective, it can better be seen that ‘the distinction between society and the state conceals how bourgeois relations are present in both spheres’ (Cranston, 1969:74). The state is not a neutral, pluralist arbiter, but – with its capacity to set laws, alter the market, coerce and repress – is a tool for capitalist domination (Cranston, 1969). The goal of capital is to accumulate, using ‘spatial fixes’ to avoid contradictions of overaccumulation and rising costs of labour (Harvey, 1982). By its very nature, capital is destined to move, be that in the form of TNCs or otherwise.

Through collusion and competition, state and market capitalists often work with, rather than against, each other in an effort to secure the long-term reign of capital accumulation (Chang, 2013; Harvey, 1982; Massey, 1995). In constructing FTZs, this process occurs on all scales. For example, whilst regional state officials compete for the interest of TNCs (Wang and Bradbury, 1986), some will help elevate medium to large-scale domestic enterprises as key providers of inputs to the zones (Chan and Pun, 2010). Equally, international business owners will hire middle managers from domestic countries, but mainly from the middle to upper classes (Chan and Pun, 2010).

As authors suggest, the practice maintains a constant system of unchanging winners (capital) and losers (labour). For labour, this entails deepening sequences of exploitation, directed by policy and market pressures. Whilst regional governments uproot collective livelihoods, (Banerjee-Guha, 2008), national development programmes encourage rural-urban migration, each producing large pools of surplus labour that keeps employee turnover high and urban wages low. Meanwhile, TNCs control labour-related expenses and pressure suppliers in the zones to reduce production time, thus perpetuating strict managerial systems of discipline over the daily lives of workers (Chan and Pun, 2010). Furthermore, it is the most vulnerable in society that are preyed upon by capital. As seen in the mainstream media, FTZs are commonly populated by young, female workers, organised along lines of ethnicity, caste, and class. From this, it would appear that capital wins.

Nevertheless, I have a pressing message: labour should not be assumed a subordinate fate. Crystalised in the writings of Herod (1997a, 1997b, and 2001), labour is an actor with potential, an ability to resist, and, furthermore, an ability to rework the dynamics of capital and restructure its spatial configurations. For just one example, look to the recent success made in Honduras, as workers in FTZs galvanised to force Fruit of the Loom factories not to move, but reopen, and negotiate a cross-company policy for union recognition as a means to equalise conditions across space (Anner and Hossain, 2014). Such a case demonstrates that whilst capital is pulling hard on one end of the rope, labour at the other can from time-to-time gain the upper hand.


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