The Special Economic Zone Act of 1995: How Special Is It?

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Cabatos 1 Lawdemhar T. Cabatos Ms. Louyzza Maria Victoria H. Vasquez English 10 21 March 2013 The Special Economic Zone Act of 1995: How Special Is It? Approved on February 24, 1995, the Special Economic Zone Act of 1995, the “act providing for the legal framework and mechanisms for the creation, operation, administration, and coordination of special economic zones in the Philippines, creating for this purpose, the Philippine Economic Zone Authority (PEZA), and for other purposes,” took effect on the very day President Fidel Valdez Ramos imprinted his signature on the bill (“Republic Act No. 7916). It is the government‟s declared policy to materialize state policies and provisions of the 1987 Philippine Constitution. Section 20, Article II of the 1987 Constitution states, “The State recognizes the indispensable role of the private sector, encourages private enterprise, and provides incentives to needed investments” and Section 12 of Article XII declares that “The State shall promote the preferential use of Filipino labor, domestic materials and locally produced goods, and adopt measures that help make them competitive,” (“The 1987 Constitution of the Republic of the Philippines”). By virtue of Republic Act No. 7916, the Philippine government hopes to fulfill the mandates of its constitution. Before we deal on how special Republic Act No. 7916 really is, what are special economic zones (SEZs)? Defined in Republic Act No. 7916, Special Economic Zones (SEZs) or ECOZONES are “selected areas with highly developed or which have the potential to be

Cabatos 2 developed into agro-industrial, industrial, tourist/recreational, commercial, banking, investment and financial centers. An ECOZONE may contain any or all of the following: industrial estates (IEs), export processing zones (EPZs), free trade zones, and tourist/recreational centers.” The law defines an industrial estate (IE) as “a tract of land subdivided and developed according to a comprehensive plan under a unified continuous management and with provisions for basic infrastructure and utilities, with or without pre-built standard factory buildings and community facilities for the use of the community of industries.” An export processing zone (EPZ) is “a specialized industrial estate located physically and/or administratively outside customs territory, predominantly oriented to export production.” A free trade zone is “an isolated policed area adjacent to a port of entry (as a seaport) and/or airport where imported goods may be unloaded for immediate transshipment or stored, repacked, sorted, mixed, or otherwise manipulated without being subject to import duties” (“Republic Act No. 7916”). For years, industrialization has been centered in key cities - the National Capital Region for Luzon, Cebu for Visayas and Davao and Cagayan de Oro for Mindanao – leaving other regions trailing behind the Philippine industrialization scheme. Thus, special economic zones, as stated in the objectives of the law, are created to promote rural industrialization by transforming selected areas in the country into highly developed industrial, commercial and financial centers thereby promoting flow of both foreign and local investors and generating employment opportunities for the area‟s labor force and ultimately supporting the government‟s effort to reduce unemployment (“Republic Act No. 7916”). Economic zones are also thought to promote balanced growth by providing jobs especially to rural areas. Employment generation by special economic zones, in theory, bridges the poverty gap among social classes and balances the regional income inequality among regions (Clarete and Veron).

Cabatos 3 To promote the flow of local and foreign investors into special economic zones, the law provides special incentives to enterprises located in special economic zones, including exemptions from taxes under the National Internal Revenue Code. The law states that no taxes, local or national, shall be imposed...
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