Article from: TDM 5 (2020), in Editorial
Special Economic Zones (SEZs) are important vehicles of a state's economic policy to attract foreign investments. SEZs are designated areas created or supported by states to enhance economic development and to attract capital, technology, and innovation by offering economic, administrative, and fiscal benefits to companies. The 2019 World Investment Report prepared by UNCTAD estimates that there are 'nearly 5,400 zones across 147 economies today, up from about 4,000 five years ago, and more than 500 new SEZs are in the pipeline.' The proliferation of SEZs worldwide raises complex legal issues regarding interaction between SEZs and international and international law and policy. SEZ's may open up a pandora's box under the international economic law (IEL) as there are several complexities to be addressed herein, like, the interaction between SEZs and international tax law, especially the base erosion and profit shifting (BEPS) Action 5, the relationship between SEZs and investment agreements and the disputes raised as a consequence, incompatibility with WTO regulations while using incentives. This Special Issue focuses on the SEZs' key interaction with international law and arbitration.
With the aim to provide a more hospitable environment to the investors, the IIAs have witnessed a rapid pace of development. The key treaty concepts here serve the main purpose of protection of assets of investors abroad and facilitation of the operations of these investors in host countries, seeking to induce additional investment flows. With investor protection, another crucial characteristic of the investment regime is that of a private right to action while seeking redressal under the ISDS mechanism. Under this mechanism, investors can initiate arbitration proceedings against the authorities of a host country without having to go through any government as at times, they may infringe upon treaty obligations. This furthers the investor's independency from the judicial systems of host countries as well, since these systems may not be completely trustworthy or may not be preferred owing to various reasons.
The articles presented in this Special Issue tackle a variety of important and country-specific topics arising out of an interaction between SEZs and economic law. These topics are divided into the following sections: (2) a general regulatory framework of SEZs and its relationship with investment law, (3) China's SEZs and the dispute settlement mechanisms, (4) India's SEZs and its interaction with trade and labour policies, (5) Russia's SEZs and their evolution and (6) Jamaica's SEZs: the journey from Free Zones to modern SEZs
2. General Regulatory Framework of SEZs and its Relationship with Investment Law
The first part of the Special Issue sets the scene by analysing a regulatory framework applicable to SEZs and its interaction with the regime of international investment law. Amidst the many variations of SEZs, some are organised as free trade areas that focus on integrated development of large areas in a variety of industries while others function as export processing zones that are designed to simplify administrative procedures outside the country's customs territory. Depending on the specific circumstances of the case, international law, foreign law, domestic law or a set of rules created by the host state on purpose to govern the SEZ or their various combinations may apply.
SEZs and international investment law interact in several different ways. International investment agreements (IIA) similarly to SEZs, are concluded by states with the goal of attracting foreign investors. IIAs make no distinction between foreign investments and investments made in SEZs. Consequently, foreign investors may initiate investment claims against a host state for mistreatment in an applicable SEZ. In the past, foreign investors have challenged the revocation of fiscal and tax benefits that were provided by a state's authorities under the SEZ's regime. Such revocation may be qualified as an expropriation, as a violation of the fair and equitable treatment, as a violation of the national treatment or MFN treatment obligation etc., depending on the circumstances of the case. The relationship between international investment law and SEZs raises a number of legal and policy issues in relation to their compatibility and consistency. Some of these issues, e.g. the protection of the legitimate expectations of an investor resulting from the benefits applicable to SEZ investments, the notion of attribution in relation to SEZ authorities raise challenges concerning the coherence of SEZ legal framework and IIAs.
The aforementioned issues are addressed in the first article of the Special Issue 'Protection of Investment and Violations of Investor's Rights in Special Economic Zones' by Anton Tugushev. In this contribution, the author identifies the main characteristics of SEZs and elaborates on their legal architecture. Building upon these findings, Tugushev analyses the interaction of SEZs with a legal regime of investment law by reviewing fourteen investor-state arbitration disputes (ISDS), in which investors challenged the SEZ related measures. The author observes that the violation of investment protection standards in cases involving SEZs may serve as a subsidiary argument proving unfairness of host state's conduct, putting an additional burden on the state to defend itself in ISDS disputes. In his article 'Special Economic Zones and Regulatory Advantages: Can Investors Legitimately Expect the Freezing of Such Incentives?', Alexandros Bakos continues the theme of interaction between SEZs and investment protection under IIAs by exploring the role of the legitimate expectations in the context of SEZs related disputes. The author also analyses the innovative provisions in a new generation of IIAs that may offer possibilities for positive and harmonious interaction between SEZs and investment law.
3. China's SEZs and Dispute Settlement Mechanisms
The geographical spectrum of SEZs is incredibly vast and can be found almost everywhere in the world. China has been leading in number and diversity of SEZs. Pioneering SEZs such as Shenzhen enhanced the liberalisation of the Chinese economy and helped attract foreign capital and technological know-how. Even though, the number of SEZs in China continues to grow, there has been a transition from selected tax incentives and preferential rules offered in numerous SEZs to uniform policies on market access facilitated by WTO rules. These recent developments gave rise to various legal and policy issues that have been addressed in five contributions.
The first article in this section - 'Transformative SEZ: China's Changing the Paradigm Along the "Belt and Road" in the "Greater Bay Area"' by Francisco Jos¨¦ Leandro and Yichao Li - introduces the history of Chinese SEZs and analyses the impact of SEZs in the construction of the Belt and Road Initiative. The authors provide substantive arguments indicating that SEZs have positively contributed to economic and social development 'as instruments for policy innovation, as apparatuses to deliver structural trade and economic change, and as tools for social and environmental sustainability.' Further, Gianmatteo Sabatino in 'Chinese Special Economic Zones and International Economic Law: Diversification, Expansion, Containment and Circulation of a Cryptic Legal Model' examines the challenges for Chinese SEZs, such as the Hainan Pilot Free Trade Zone concerning harmonization and compliance with the WTO rules. Dan Xie and Chengjie Wang continue the discussion on Chinese SEZs in their article, 'A Hybrid Commercial Dispute Resolution Mechanism: New Developments and Approaches in Shanghai Pilot Free Trade Zone.' Taking the Shanghai Pilot Free Trade Zone (SHFTZ) as a case study, the authors examine efficiency of a hybrid dispute resolution mechanism within SHFTZ as a mean of adjudication of cases by foreign investors. The role of technology in SEZs is discussed in the article 'Special Economic Zones, Legal Innovation, Technology, and IP Disputes Quo Vadis China?'' by Piergiuseppe Pusceddu. The author explores the Chinese approach to arbitration of technology-related disputes at the background of the legislative developments in the Shanghai Pilot Free Trade Zone. The final contribution of this section investigates the interplay between the EU norms and Chinese investments in EU SEZs. Sara Pugliese in her article, 'Special Economic Zones (SEZs) in EU Port Infrastructures as a Means of Attracting Foreign Investment: How to Manage Risks to EU Strategic Interests?' examines the EU legal framework at the backdrop of Chinese investments in the European SEZs, particularly in port areas. Pugliese advocates for the inclusion of decent labour conditions, health and the environment protection in the EU-China Agreement on Investments in order to prevent a 'race to the bottom' of EU health, environmental, and social standards.
4. India's SEZs and its Interaction with Trade and Labour Policies
In the past 20 years, there has been a significant proliferation of Indian SEZs. Following the Chinese model, the Indian SEZs were created to overcome the bureaucratic challenges that were associated with the export processing zones set up in the early 1960s. Since the enactment of 2005 SEZ Act, India was able to attract investments into the newly created SEZs, by providing fiscal and tax benefits to investors. However, a rise of SEZs has also brought new challenges, such as its coherency with the WTO rules and the weak labour protection in Indian SEZs. Two articles in this Special Issue thoroughly discuss these topics. Arpita Mukherjee and Angana Parashar Sarma examine India's SEZ policy with respect to the WTO requirements in their article 'Special Economic Zones (SEZs) and the WTO: The Case of India'. By drawing on extensive empirical data, the authors conclude that Indian SEZs were not able to scale-up manufacturing into high-technology industries so far, primarily due to the WTO restrictions, such as the prohibition of incentive package. Mukherjee and Sarma offer sector-specific recommendations, applicable for the manufacturing and services units located in SEZs. The second article of this section addresses the relationship between the investment protection and the labor rights in SEZs. Ferdous Rahman in her article 'Harmonization of Workers' Welfare and Investors' Protection in Special Economic Zones of India: Regulatory Freedom and Challenges' discusses the imbalance between on the one hand, a lack of labour protection in SEZs, where the state governments can exempt the SEZs from application of the national labor laws and on the other hand, an improved model Indian BIT that still provides an opportunity for investors to challenge the state's measures in ISDS proceedings.
5. Russia's SEZs and Their Evolution
The first attempts to set up SEZs in Russia were undertaken in early 1990s. They were not very successful because of economic crisis and instability at that time however, the situation has improved, particularly, after the adoption of the Federal Law "On Special Economic Zones in the Russian Federation" in 2005 that offered preferential regime in Russian SEZs to investors.  Since then, eleven types of SEZs and various other areas with special beneficial treatment for investors have been set up in Russia. Andrey Petrakov in his article, 'SEZs in Russia: Technology, Innovation and Investment' provides an overview of a legal framework for Russian SEZs. The author also analyses the interplay of SEZs' legal regime with the protection of foreign investments. In the other article that deals with Russian SEZs - 'Russian SEZs at the crossroads of international, integrational and domestic law: how to attract investments without attracting investment claims?' - the authors (Ilia Rachkov and Sergey Bakhmisov) stress the particularities of SEZ regulation in Russia from the point of view of public international law (including WTO law), law of the Eurasian Economic Union, and Russian domestic law. An important tool of regulation of SEZs are agreements with SEZ residents. They contain specific commitments of the Russian state (acting through its Ministry of Economic Development) and create for foreign investors legitimate expectations to the effect that the host State will maintain certain standard of treatment during certain period of time. Surprisingly, foreign investors who launched operation in Russian SEZs did not bring any claims before international investment tribunals against Russia so far. The authors noted that Russian BITs are not invoked by SEZ residents when it comes to disputes between them and the State before Russian domestic courts.
6. Jamaica's SEZs: The Journey from Free Zones to Modern SEZs
Jamaica has been undergoing a series of reforms with the objective to promote the economic development and to attract FDI. The modernization of the SEZ regime has been a part of state's reforms. In 2016, Jamaica has adopted the SEZ Act replacing the Jamaica Export Free Zones (JEFZ) Act that regulated the older model of free zones. Jamaica's transition to a modern SEZ regime has been motivated by the objectives to ensure cost effective facilitation services and trade, competitive incentive system, to ensure compliance with WTO system as well as contribution to sustainable development. Ren¨¦ Gayle and Chantal Bennett in their article, 'Jamaica's Modern Special Economic Zones: An Opportunity for Growth and Lessons for Emerging SEZ Regimes' analyze Jamaica's modern SEZ regime and offer key lessons for the policy development of SEZs, specifically applicable to developing states.
Comparing the Jamaican SEZ regime with other countries, such as China, Peru and Dominican Republic, the authors note that there is no one recipe for a successful SEZ policy. Nevertheless, Gayle and Bennet recommend taking into considerations: the SDGs, workforce development, infrastructure development, plans for market access and compliance with trade agreements in the process of setting up or modernising a SEZ's legal and policy infrastructure.
The editors are grateful to the contributors of the Special Issue, for their expertise and their kind cooperation in the editing process. We would like to thank the editorial and publishing team of Transnational Dispute Management, for their help and great support during the preparation of this Special Issue.
 World Bank, Special Economic Zones, An Operational Review of their Impacts, CIIP (2017), p.11.
 UNCTAD, World Investment Report 2019: Special Economic Zones, 12 June 2019, p. xii
 See Julien Chaisse 'The Pervasive Problem of SEZs for International Economic Law: Tax, Investment, and Trade Issues (2020) 23(1) World Trade Review 79-115.
 See Julien Chaisse and Keith Ji 'China, Special Economic Zones, and Tax Dispute Resolution' (2018) GlobTaxGov
 J. Chaisse and J. Hu, International Economic Law and the Challenges of Economic Zones: An Introduction in J. Chaisse and J. Hu (eds), International Economic Law and the Challenges of the Free Zones, Alphen aan den Rijn (The Netherlands): Kluwer Law International, 2019, p. 4
 J. Hu, From SEZ to FTZ: An Evolutionary Change Toward FDI in China i n: Chaisse J., Choukroune L., Jusoh S. (eds) Handbook of International Investment Law and Policy. Springer, Singapore (2020), p. 1.
 F.J. Leandro and Y. Li, Transformative SEZ: China's Changing the Paradigm Along the "Belt and Road" and in the "Greater Bay Area, (2020), Transnational Dispute Management, p. 1.
 A. Palit, Growth of Special Economic Zones (SEZs) in India: Issues and Perspectives, Journal of Infrastructure Development (2010), Volume: 1 issue: 2, page(s): 133-152.
 A. Kuznetsov, O. Kuznetsova, The success and failure of Russian SEZs: some policy lessons, (2019). Transnational Corporations, Volume 26, Number 2, p. 121.
 Ibid, p. 122.
 Federal Law, On Special Economic Zones in the Russian Federation (2005), July 22, 2005 N 116-§¶§© (English translation)
 Special Economic Zones Act (Act No 7, 2016), adopted 15 February 2016