EPZs are industrial zones with special incentives set up to attract foreign investors, in which imported materials undergo some degree of processing before being exported again. EPZs have been around for a long time. The earliest references are Spanish and date from the thirteenth century when King Alfonso X granted certain commercial privileges to the city of Cadiz. The Free Zone Consortium of Cadiz was founded in 1929. Elsewhere in Spain, a free zone was set up in Barcelona before the First World War, but due to the civil war it did not really take off until after the Second World War when a number of automobile plants were established there. Shannon, in Ireland, set up a zone in 1959. The big boom in zone formation came in the 1970s, however, and has continued to the present. Table 1.1, based on figures provided by the World Export Processing Zones Association (WEPZA), shows the global distribution of zones by region in 1997, along with the main zone-operating countries. These figures are rising all the time, particularly as more countries authorize the development of private zones. The Philippines, for example, is well known for its four government-owned EPZs, but it has in fact approved 83 zones, 35 of which are already active and most of which are private.
Table 1.1. Distribution of EPZs by region, 1997
| Region | No. of zones | Key countries |
| North America | 320 | United States - 213, Mexico - 107 |
| Central America | 41 | Honduras - 15, Costa Rica - 9 |
| Caribbean | 51 | Dominican Republic - 35 |
| South America | 41 | Colombia - 11, Brazil - 8 |
| Europe | 81 | Bulgaria - 8, Slovenia - 8 |
| Middle East | 39 | Turkey - 11, Jordan - 7 |
| Asia | 225 | China - 124, Philippines - 35, Indonesia - 26 |
| Africa | 47 | Kenya - 14, Egypt - 6 |
| Pacific | 2 | Australia - 1, Fiji - 1 |
| Total | 845 | |
| Source: WEPZA and ILO. | ||
Export processing zones are one of the main components of the foreign investment-led, export-oriented industrialization strategy. They can be thought of as the vehicle of globalization. When global production networks or chains are constructed, EPZs provide the links. With the trend towards decentralized production, the scope for zone development is increasing. The liberalization of capital and product markets serve to reinforce this trend, as does the increased need for flexibility in production. More and more countries are trying to move beyond enclave-type zones with industrial monocultures engaged in simple processing activities. By targeting incentives at specific categories of investment, countries are encouraging integrated manufacturing using domestic as well as foreign investment in a wide variety of zone formats, including free trade zones, industrial free zones, maquiladoras, special economic zones, bonded warehouses, technology and science parks, financial services zones and free ports. The common element remains, however, the provision of incentives to attract foreign direct investment for export production.