Export Processing Zones or Free Zones

- the experience seen from a trade union point of view

By Jesper Nielsen, International advisor of the United Federation of Danish Workers (3F)


Free zones, or export processing zones have swelled in number over the last 30-40 years to a global total of more than 5,000 zones. Today, there are 43 million workers employed in such zones, of which the majority are in China’s Special Economic Zones. But their future is unclear. Along with growing restrictions from international trade rules, free zones face several complaints, such as:

·         The administration is legally complicated and conflictive

·         The revenue loss they entail is simply not worth it

·         They represent unfair international competition and accelerate the race to the bottom

·         The workers are denied their basic rights

·         Free zone companies don’t pay the social costs of production and may be creating a health and environment “time-bomb” in developing countries


Free zones range from simple "free ports" where goods can be unloaded and loaded without customs to Chinese-style "special economic zones". A typical pattern is the export processing zone - an enclave, often physically fenced off, frequently on the coast and close to a port. EPZs generally use tax and tariffs exemption and streamlined regulation to attract foreign direct investment and boost exports.


Ireland set up export zones around Shannon airport in 1960. It spread to Asia from where the government of Mexico got the idea and started to implement it in 1964. There was an explosion of maquiladoras on the US border making cheap clothes and toys for the American market. China's turn towards market liberalisation in 1979 coincided with the designation of Shenzhen as the first of its special economic zones. The model has been copied by countries around the world and more are on the way.


The zones are seen as an opportunity to attract foreign direct investments, eventually giving rise to lasting industrialization. Wages, working conditions, and opportunities for employment for women, are often seen to be better in EPZs than the national average.


Race to the bottom


There are growing complaints that free zones undercut wages and labour conditionsand is a method of unfair international competition. The International Trade Union Confederation states that export processing zones "spearhead the race to the bottom".


Concerns are also raised that their benefits are exaggerated and their differential treatment of exporters and domestic producers is not sustainable. One more recent challenge is that international rules have tightened. World Trade Organisation agreements prevent in principle governments from subsidizing production for export. But there are exemptions for poorer countries and for arrangements that existed before the rules were introduced, and no one has yet brought a WTO case against another nation over its export zones.


The World Bank and the Organisation for Economic Co-operation and Development are beginning to warn that by themselves such zones do not solve the problems. Sometimes they do not deliver the expected results: The Dakar economic zone of Senegal, for example has only attracted 10 companies employing 600 people after 14 years of existence. Doubts have also been raised if free zones actually do anything more than hand tax advantages to companies that would have invested in any case. If the produced goods for export use a lot of imports, the value added by the host economy can be minimal. Moreover, by separating export-oriented companies in an enclave, the potential to transfer technology and production skills to the rest of the economy is diminished.


Free trade zones and the social costs of production


When the activity of trade unions is restricted and taxes/tariffs are not paid, it is unlikely that the companies pay the full cost of production. Some of the costs not paid for will be maintenance and improvements of infrastructure and the social and reproductive costs of the labour force. The wear and tear of roads, buildings, ports must then be paid for by others, but there is also the cost of protecting the health and education of the workers, the coming generations, and the protection of the environment.


Latin American countries had some experience with foreign direct investment before the “Free Zone-age”. Multinational companies invested in agricultural production for export. The so called “banana republics” only provided land, cheap labour and infrastructure. Plantations remained enclaves of exploitation in countries of poverty. When a small export tax was introduced in some countries, the picture changed from stagnation or deterioration to social development. Also the first waves of trade union organization gave the foreign investment a human face after fierce corporate resistance. In Honduras, e.g. workers won a number of social benefits (schools, hospitals) through collective bargaining agreements: The government was incapable of providing these benefits at the time.


When the “maquila” model of Mexico spread southwards, it was with few exceptions without any significant technological spill-over. The same development occurred in some African countries often with Asian investors. There was a general tendency of transferring labour-intensive production to low-cost countries. Both Korean and Taiwanese investors took advantage of the benefits and placed their production investments strategically to cover especially the North American market.


A number of negative aspects have been observed by trade unions and NGO’s:

·         A special EPZ authority is normally set up. Although the EPZ companies are formally under the general laws of the country, in fact this system excludes or reduces the access of the normal controlling and enforcing authorities of the country


·         There is a total absence of worker’s influence because it is made extremely difficult to form trade unions inside the zones and external organisations are denied access. No tripartite system is linked to the EPZ authorities.


·         Governments depend too much on the short-term foreign investments for meeting their employment promises. Governments abstain from enforcing general legislation, the rights of workers, and the protection of the environment.


The companies use different methods to avoid that workers use their lawful rights to form trade unions by maintaining low job security and creating an environment of fear and mistrust.


One method is to deal with a private organisation mimicking trade unions (often with a lawyer at the head) and sign a pro forma collective bargaining agreement(CBA) that can be picked from the drawer if foreign human rights and “sweatshop” activists or journalists ask about the labour rights at the factory. (In Costa Rica, a movement was built promoting alternative organisations for workers, the “Solidarista” movement. Quite often, the Human Resources Manager is the president of these organisations).


Another method is to dismiss immediately workers who discuss labour rights with their collegues, especially elected worker representatives. Sometimes this is followed by a civil rights demand against the workers’ representative for “sabotaging” production.


A third method is to change the legal nature of the company or close it down and reopen it in the same or another place just to get rid of the identified “troublemakers”.


A fourth method is to formally “outsource” human resources supply to subcontractors or make only temporary contracts and then only rehire the “loyal” workers who have not complained or tried to organize.


The constant threats by investors are based on the fact that generally the investments are light and mobile. The machinery for producing clothes is cheap, some of the sewing machines are second-hand, and the light equipment is easily moved to other places and countries.

Tax exemptions are often given for 5 year periods, and the temptation to fire the workers and move the production or change the name is very high when the period expires.


Exported technology undermine workers’ health


When labour intensive production is transferred from industrialized to low-cost countries and their EPZ’s, in general, the accumulated, preventive occupational health and safety experience is not transferred with it.


In textile and garment, the development of industrialized countries moved in the direction of innovation and a changed organization of work. Several health and environment problems were detected:

·         Chemicals for bleaching, colouring, and making the clothing non-iron, waterproof, fireproof etc. 

·         Dust from cotton and other raw materials

·         Repetitive strain injuries (e.g. shoulder-neck pain nicknamed sewing machine syndrome)


When production is transferred, the social context changes and the preventive systems are often lost. Workers are not protected against dismissals because of absence, even when caused by occupational diseases and accidents. There are no social systems, such as unemployment benefits, to safeguard workers’ who put their job at risk, and the protection of the “whistle blowers” is often but an illusion.


Also, the general level of education and the capacity to diagnose occupational diseases and promote preventive efforts is low. There are few studies of the health situation of workers in the Free Trade Zones, but the first ones show exactly what was to be expected: Women and men working in the textile and garment industries are likely to develop exactly the same occupational diseases as the textile and garment workers of industrialized countries did.


An occupational health clinic for EPZ workers in Nicaragua found a higher number of serious musculoskeletal symptoms than expected in a general health examination of all workers in a limited number of factories. Many workers also had symptoms of airways problems. An unpublished study from Nicaragua found the psycosocial environment to be so humiliating, especially for the women, that they turned to repression or expressed that life as a machinist was not their “real life”.


One of the most problematic factors is the low level of regulation of the working hours and thus the high level of exploitation. This is due to lack of trade unions and labour law enforcement. It is common in Free Zones to have workers at such low wages that they ask for as much overtime as they can get.  It is not uncommon with 12-14 working hours per day, sometimes for 6 or 7 days a week. Seen from an occupational health and safety perspective, this does not only imply 4-6 extra hours of unhealthy exposure per day, it also diminishes the time for rest and regeneration as well as for the social contact that especially parents need with their children.


A recent study from Honduras (published by the Cooperative fro the Women’s rights in Honduras, CODEMUH. www.honduraslaboral.org/leer.php/638 ) reveals that women working in the Free Zones suffer from a high number of symptoms and are likely to experience a severe deterioration of their health between the age of 18 and 29. While 30% complained about symptoms of airway diseases, the rate of complaints about musculoskeletal symptoms was as high as 92 %.


90% of the female workers were found to be below 33 years of age, which may indicate that the women leave the industry early – probably because of their health problems. 76% were mothers, many of them single mothers, bread-winners with a double work-load. Even so, 58% of the women did not have any form of social security or health insurance.


These initial studies only show the tip of the iceberg. The workers of the Free Zones of the world are being worn down at a speed likely to be higher than it was in the industrialized countries. This is due to much longer working hours and a lower social, educational, health and nutritional level.


The international trade union view:


The ITGLWF is committed to:


·         continue to promote awareness of international standards concerning trade union rights among all parties involved in Free Trade Zones;

·         continue to implement a coordinated organising and global solidarity strategy involving in-depth research and based on strategic pressure on targeted Free Trade Zone companies;

·         encourage governments to integrate Free Trade Zones into their national economies, ensuring that national labour and social legislation is respected;

·         support pressure on governments to enter into detailed tripartite consultations before the establishment of any further Free Trade Zones, and to create tripartite advisory committees on industrial relations as an integral part of FTZ management structures;

·         encourage the governments of exporting countries to cooperate at regional level in establishing and adhering to international minimum standards in all parts of their countries, including Free Trade Zones.


While many countries have become major exporters, most of those employed have seen little, if any, improvement in their living standards, as discrimination and gross exploitation in violation of fundamental workers’ rights have increasingly become part of global commerce. Indeed, as competition between countries has intensified, efforts by workers to share the benefits of growing export trade are often met with resistance or repression.


As a result, sectors which were once seen as the engine of development now often mean little more than short term insecure exploitative employment which can disappear overnight leaving nothing behind, no resources, no skills and no future. Nowhere is this more obvious than in the textile and clothing sectors where trade liberalisation from the beginning of 2005 is forecasted to result in the destruction of emerging and struggling industries with the consequent loss of millions of manufacturing jobs in some of the world’s poorest countries.


Development does not just involve economic growth. Growth must be accompanied by social progress, which in turn will result in increased purchasing power and increased prosperity.




1) Presitex allowed to violate labour rights in Nicaragua


A full scale labour rights violation was accepted by the government of Nicaragua in 2003. A Taiwanese owned textile factory was granted status as a free trade zone in a rural area. The workers were denied a number of social rights. They formed a union and even got a collective bargaining agreement in spite of the company’s anti union policies.


23 January 2003, the administration informed the trade union of a new salary system to be implemented unilaterally. Requests for collective bargaining were rejected and the trade union started labour conflict procedures. 24 January, two trade union board members were fired and on the 27th all union board members were denied access to the factory. The workers paralyzed production the 29th. The following day, the company published their threats to withdraw their investments from the country. It also applied for authorization from the Ministry of Labour to dismiss all trade union board members. The Taiwanese embassy met with the government and even published threats that not only would Taiwanese investments be withdrawn, also the quite substantial development assistance to the government would be cancelled in case of denying Taiwanese companies permission to dismiss the workers’ representatives. 3 March the Ministry of Labour authorized the firings of the four trade union board members and confirmed their decision in an appeal case 14 March.


The case was brought before the ILO Committee, which concluded by asking the government to prove that it was not a case of trade union repression or to change their decision and make sure the company rehires the dismissed union leaders. (www.oit.org.pe/sindi/casos/nic/nic200401.html )


2) Reluctance to accept trade unions in Free Zones in Kenya


The Free Trade Zones in Kenya were practically trade union free until the change of government in 2003.

Legislation authorizing the creation of export processing zones(EPZ's) was passed in November 1990.  The EPZ Authority took a gradualist approach to their development and decided that local labour laws would apply generally in the zones, including the right to organize and bargain collectively. But in practice, the EPZ Authority granted many exemptions.

By January 2003, The workers had presented a list of 17 grievances to the department of labour, including underpayment (below the minimum wage), trade union repression, excessive working hours, sexual harassment, and unrealistic production targets that lead to unpaid overtime. January 16th, workers from 16 of the garment factories of Kenyan EPZs went out on a one-day strike. In the wake of the strike, a stakeholders committee of representatives of employers, employees, and the labor department is formed to discuss these grievances. It concluded two weeks of discussions January 31st. The workers that were following the progress of these talks through there representatives felt not very confident that the process would have positive results. They felt that their grievances were not taken seriously and in some factories the workers went on a “go-slow” to stress the need for a serious dialogue. None of the issues were resolved.

A press release from the assistant minister at the department of Labor, dated January 31st, reported that the employers were ready to negotiate but only through the established machinery as provided for in law. They also agreed to recognize the Tailors and Textiles Workers Union in accordance with the stipulations of the Trade Dispute Act, Cap. 234. The press release concluded that the union should have free access to recruit workers within 30 days, after which time the parties should engage in formal recognition in order to begin collective bargaining and negotiations for better terms and conditions of employment. The assistant minister further ordered the workers to refrain from industrial actions and the employers not to victimize the workers.

Immediately afterwards, the recruitment process started for workers to join the trade unions. Workers were working in the factory on this Saturday. In some of the factories the workers left work at the end of their shift, at 12 o’clock noon, refusing to work overtime, to signal to the employers again to take things seriously. The employers however met that same day to discuss their strategy. They phoned the commissioner of labor and told him the workers were not keeping to the “agreement”, said the workers were on strike, and asked the Minister to declare these “strikes” illegal. One day after the so-called agreement, as the workers were starting to register for the trade union, without checking any of the managers’ allegations, the Minster declared the non-existing strikes illegal and gave managers the right to dismiss all the workers.

The workers returned to their jobs at four of the factories located in the Ruaranka EPZ Indigo, Kentex, Sahara, and Baraka factories on February 3rd to find that they had been locked out. There was only a notice that the factory was closed and they were all dismissed.

A few days later notices were put up to tell workers to report back to collect their final compensation and that the company was hiring again, both old and new workers. When workers wanted to collect their final compensation, it became clear, however, that the company was unwilling to pay according to the law (severance pay etc.) If they would re-apply for their jobs they would not receive any compensation. Many workers refused to re-apply before this was settled. Also the known organizers were barred from re-applying for their jobs.

The companies hired new workers. The companies got rid of the trade unionists and signalled very clearly to the workers that any demand on their part would be rejected and that any protest would be dealt with effectively. Not all companies reacted accordingly. Some of the employers in the EPZ have recognized the union in their factories and are engaging in collective bargaining negotiations.

Several companies used the strategy to get rid of union organizing and complaints. They rehired a large part of the workforce, so that they didn’t lose the experienced workers, only the “trouble makers” and union organizers. The Minister of Labour and the Minister of Trade and Industry have supported the employers in declaring alleged “strikes” illegal and allowing dismissals, in order to create a favourable environment for investors. The employers claim there is a legal basis for the mass dismissals and any other arbitrary dismissals. The Export Processing Zone Authority seems to be siding with the investors. Although their role should be neutral, they have been seen as siding with the investors.

29.january 2007.