The Special Economic Zones in the Gulf Region and their Significance for the Global Economy
By Gianmatteo Sabatino, Zhongnan University of Economics and Law
Among the economic institutions most involved in the ongoing mutation of global supply chains and development models are the Special Economic Zones (SEZs). Among the areas most critical for the shaping of economic and political geographies in the near future is the Gulf Region. Therefore, it should not come as a surprise if the emergence of SEZs in countries such as Saudi Arabia, Oman, Qatar, Bahrein and the United Arab Emirates is perceived as critical. Special Zones have existed in the Middle East region for a long time. Countries like Iran have been setting up them, with questionable fortune, since the late 1980s. In other regions, such as Qatar or Abu Dhabi, the 2000s and early 2010s had seen the establishment of SEZs with a clear transnational outlook, like the Abu Dhabi Global Markets.
Notwithstanding the continuity in the interest towards SEZs as instruments of political economy, the most recent trends in the establishment of SEZs in the Gulf countries display a partial detachment from a Western-fashioned model of Free Trade Zone, which is specifically designed to attract Foreign Direct Investments by designing preferential treatments in terms of custom duties, taxes, etc. Indeed, a comparative outlook at the legislation of several of these countries concerning SEZs shows, on the one hand, a renewed emphasis on planning, especially through the establishment of centralized agencies in charge of overseeing the development of SEZs; and, on the other hand, a specific intention to promote the creation and growth of territories meant to function as key links of geopolitical chains connecting Eastern and Western markets. The SEZs of the Gulf Region are inevitably involved in the great game aiming at a stronger international standing of the Gulf Countries, in the framework of an increasingly fragmented and polarized world trade environment. This context favours the competition among transnational cooperation strategies such as the Belt & Road Initiative (BRI), sponsored by the People’s Republic of China, or the planned India-Middle East-Europe Economic Corridor (IMEEEC), announced at the G20 Summit in India in September 2023. Interestingly enough, two countries of the Gulf Region – namely, Saudi Arabia and the United Arab Emirates – have signed the Memorandums of Understanding pertaining to the participation in both the initiatives.
If one considers the IMEEEC as an alternative and a response to the BRI, backed by Western countries, it is easy to see how SEZs in the Gulf Region easily become poles of confrontation not only among different countries, but among different development and cooperation visions. This confrontation is already visible, albeit partially, and reflected by the different characteristics displayed by several SEZs established in the area. Special Zones such as the Abu Dhabi Global Market display a decisive preference towards the application of common law rules and standards, in the specific form of English common law. So, the Application of English Law Regulations of 2015 (Sec. 1) explicitly provides for the use of the Common Law of England in the special zone, including the principles of equity, as it changes from time to time, thus directly reflecting the ongoing evolution of what is, by all means, a foreign legal system. Of course, the Regulations provide for several limitations to such general clause, for instance requiring full compliance of the English common law with the circumstances of the special zone (Sec. 1 (a)(b)).
Beside regulatory documents, the practice of the Abu Dhabi Global Market as well as of other SEZs in the Gulf Region such as the Dubai International Financial Center extensively relies on common law rules, also due to the background of the judges often called to serve on the benches of the courts in the SEZs, as described by a recent literature (Bantekas, 2022; King and Bookman, 2022). What has been called a “commodification” of Common law (Bantekas, 2022) is indeed connected to a specific policy stance, viewing such SEZs as a driver of cosmopolitism in its neo-liberal sense, thus favouring Common law as the most business-friendly legal system, in order to attract financial investments from abroad. From this perspective, therefore, the SEZs in the Gulf Region seem to advance a development models which aims at the harmonization between local and global standards, through the filter of the Common law principles and conceptual structures. The narrative underlying such choice is similar to the one depicting the growth and diffusion of the new Lex Mercatoria at the level of transnational business relations.
However, the landscape of Gulf Region’s SEZs is much more complex and, especially in the past few years, has experienced a decisive emphasis on other models of special zones. In Saudi Arabia, for instance, the government has established, between 2022 and 2023, several new special zones, including the Special Integrated Logistics Zone, the King Abdullah Economic City, the Jazan SEZ, the Ras Al Khair SEZ and the Cloud Computing SEZ. While these SEZs are surely keen on attracting foreign investments, their objective appears to be much broader, since they are conceived as development channels to reach the objectives of the 2030 Crown Prince’s Vision Strategy. The SEZs, therefore, seek to promote a shift of the national economy at least partially away from oil revenues and towards a greater diversification.
A similar approach is pursued by the Khazaen Economic City, established in Oman by Decree no. 44/2023, whose development is entrusted to a private company, Khazaen Economic City LLC. This second group of SEZs follows a more integrated approach to development, and is, at least in the intention of the respective governments, a more comprehensive and clear manifesto of the economic ambitions of the countries. These SEZs distance themselves from the neo-liberal paradigm of the financial centre and instead embrace an idea of globalization also entrenched in the advancement of the national economy and the pursuit of diversified cooperation strategies. It is from such perspective that one can observe and evaluate the impact of Chinese investments in the Gulf Region, especially within the context of the BRI. Engagements with China and with Chinese government-backed enterprises have already produced considerable results in terms of establishment and expansion of special zones, such as with the China-Oman Industrial Park in the Special Zone of DUQM in the Oman Sultanate. Originally arisen from an agreement between the Special Economic Zone Authority at Duqm and the government of the Chinese province of Ningxia, the Industrial Park has attracted several Chinese enterprises to build up infrastructures and services (Zhou, 2023). In concrete, such enterprises act as operators and developers of the special zone, according to the model which favours contracting-out management and development duties in SEZs to private enterprises.
Incidentally, it is to be noted that the operations carried out by Chinese enterprises raise the same issues that have been observed in several countries involved in the BRI, namely the excessive debt burden of host countries, to the point of becoming almost solely reliant on Chinese investments for the development of SEZs, as well as the impact of the Chinese workforce, heavily favoured from a quantitative perspective over the local workforce, on the labour market. A partial but, at least theoretically effective response to such issues comes from the experience of Saudi Arabia, where Chinese investors have been heavily involved in the development of the Jazan City for Primary and Downstream Industries. However, in this case, the operations of Chinese partner was framed within the national 2030 Vision, to a certain extent mirroring the standard Chinese approach, which also determines SEZs reform and both inward and outward investments in the light of national development plans and strategies.
It is very likely that in the near future, also due to geopolitical upheaval in the region, the role of SEZs for the countries belonging to the Persian Gulf area will increase from the economic, the strategic but also the legal point of view. Channelling experimental visions of development through SEZs is meant to be a flexible tool to adjust oil-dependent economies and promote an increasing diversification of both commodities and services produced. The SEZs established in Oman, in Saudi Arabia and in the UAE are not mere instruments of the “opening-up” or vectors of globalization; they are, instead, often the expression of original models of development, keen on combining neo-liberal standards and state-centred administrative regimes or, alternatively, private investments (though backed by foreign partner-countries) and planning.
This constant interaction among development approaches is reflected in the legal system of the specific SEZs. Where special zones are conceived to become cosmopolitan financial centres they tend to rely on Common law, on foreign or foreign-trained judges, and lay out a defined system of legal sources applicable within the zone. Where instead the zones are conceived to pursue national development objectives and are backed by Chinese investments they mostly rely on soft law sources and provide for broad administrative schemes revolving around central authorities in charge of stipulating concession and procurement contracts with domestic and foreign partners and investors, as well as with foreign governments.
The simultaneous presence of vastly different elements in the construction of SEZs in the Gulf Region is not only an indication of the development trends which are advancing, but also a useful hint to manage the construction of future cooperation initiatives and strategies involving countries in that region. As SEZs are considered strategic hubs for the existence of the Chinese BRI, they will be considered strategic for the IMEEEC too, and the chances of success in the construction of this new economic corridor depend, among other factors, on the capability of partner countries and foreign enterprises of interpreting and even influencing the regulatory frameworks set up to manage the new SEZs, either in the neo-liberal sense or in a more state capitalist one.
Bibliography:
– I. Bantekas, Transplanting English Law in Special Economic Zones in Asia: Law As Commodity, in Asian Journal of Comparative Law, 17, 2022, 305-322
– A.S. King, P.K. Bookman, Traveling Judges, in The American Journal of International Law, 116, 2022, 477-533
– L. Zhou, Chinese Investments in the Special Economic Zones in the Gulf Region: New Structural Economics Perspective, in M. Mizanur Rahman, Amr Al-Azm (eds), Social Change in the Gulf Region, Springer, Singapore, 2023, 531-546
