Around 200 firms -- or 70 percent of all enterprises in the EPZs -- were engaged in producing readymade garments in 2009. IFC

Should firms in export processing zones (EPZs) be allowed to sell their products in the domestic market on a limited basis?
In 2009, about 200 firms -- or 70 per cent of all enterprises in the EPZs -- were engaged in producing readymade garments. (This translates to 213,000 jobs.)
For Bangladesh, the continued profitability of this industry is vital from a socio-economic perspective. Currently, the 200 textile and apparel firms operating within the EPZs in Bangladesh are 100 per cent export-oriented.
Given the global recession and declining consumer appetite, isn't it time we consider diversifying our market? Are we too reliant on the export market? Should we allow our garments companies in the EPZs to sell within Bangladesh?
There are some arguments against selling EPZ-produced goods within the country alongside the export market. However, these arguments, when carefully examined, may not always lead to the right choices. Let's explore some of these arguments and unbundle them to see how the alternative might benefit our local market.
Healthy competition: One of the biggest arguments against allowing EPZ firms to sell in the local market is that they already enjoy many benefits (tax exemption, subsidies, etc.) and experience an unfair advantage over local producers.
This ignores several realities. First of all, there is no restriction whatsoever on local producers locating in the EPZs. Indeed, taken as a country group, Bangladesh currently is second only to South Korea in the number of firms it has in such zones. Second, empirical evidence in Latin American countries and elsewhere has shown that 'tax exemption' in EPZs is of little benefit to companies, whether inside or outside the zones, during their first years of production. Why? Because companies during their first years of production are often not yet making a profit to be taxed. So, whether they have the tax exemption or not is of little importance. Finally, only 18 percent of Bangladesh's exports are produced in the country's EPZs. Fully 82 percent of exports come from exporters both Bangladeshi and foreign producing outside the EPZs, who have the option either to export or sell in the local market. So, if the EPZ firms were allowed to sell into the local market their competitors would be other robust exporters.
Rule of thumb: Competition leads to better quality and lower prices for consumers, and that will ultimately benefit the most number of people.
Knowledge transfer: Companies in the EPZs often bring in foreign technology, knowledge, skills and work practices that can be transferred to the rest part of the country. As long as EPZ companies are freely allowed to buy from and sell to the local market, technology and knowledge transfer will happen over the entire value chain, and the country as a whole will benefit. The workforce will follow suit by learning new skills and technologies, and ultimately becoming more competitive in the global market.
Better quality fashion: With the high quality goods produced in Bangladesh, we Bangladeshis should be among the world's best-dressed people. However, we are not allowed to purchase the products of our own sweat and toil from the zones!
We are all well aware of the huge development benefit of EPZs. They are one of the most successful job-creating tools that the government has in hand. The jobs they create are decent jobs, as the zones provide a closed space that is easier to implement and monitor social and environmental best practices. They provide a platform to test business policies that enable growth, which can later be replicated in the rest part of the country. However, rather than treating EPZs as isolated enclaves or a substitute for the country's broader investment climate reforms, they should be treated as part of our community - a tool in a portfolio of mechanisms commonly employed for economic and social development and a source of better products and more competition for our local market.
The writer is an operations analyst at International Finance Corporation.