Special Economic Zones and the Exploitation

Underneath.

ABSTRACT

Rampant violation of basic legal frameworks protecting labor rights in the Special Economic
Zones (SEZ) is something not unheard of. 1 The governments however, turn a deaf ear towards
such violation and hardly use their authority to intervene, in exchange for providing the
investors a tax free and liberal environment in the host countries. Be it minimum wages, or
standard working hours, or the right to strike, or to form union, such violations within the
SEZs all over Asia are widely reported, India being no exception.

A cursory reading of the Special Economic Zone Act, 2005, does not ascertain if the labor
laws governing India are the same as those governing the laborers working in an industry
under the Special Economic Zone, until, on closer inspection it becomes evident that labor
with the SEZs is subjected to a modified regime which aims at non implementation of any
labor laws within the SEZs.2 Also, employers have come to use increasing quantities of
contract or casual laborers, in addition to evading labor laws.

The objective of the paper is to bring to the fore the underlying conflict between globalization
and human exploitation, by delving into the legal aspect regarding violation of labor rights
within the SEZs, right from restriction of Trade Union to banning of strikes, to the deprival
of minimum wages and inhuman working conditions and the exploitation of women
workforce, on the backdrop of the SEZ Act 2005.

I. INTRODUCTION

“Any attempt to dilute the constitutional imperatives in order to promote the so called
trends of Globalization may result in precarious consequences. At this critical juncture the

1 Author is SAINE PAUL, Student of School of Law, KIIT University, 5th year, 9th semester.

2, Spoorthy Mootera, Labor in Special Economic Zones, Academia.edu, pg 1.

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 Special Economic Zones and the Exploitation
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judge’s duty is to uphold the constitutional focus on social justice without being in any way
misled by the glitz and glare of globalization. ” 3

1.1 The issue of Economic development versus Social development has been at the forefront of
an ongoing debate since years. India, on one hand, represents millions chasing their dreams in
the rapidly growing economy and on the other, represents million more struggling to earn a day’s
meal, battling with poverty, illiteracy and ill health.4 In spite of the Indian Constitution
guarantying its citizen substantial rights on the protection of labor, and judicial pronouncements
expanding the Right to life to include right to livelihood and right to live life with dignity, the
reality is, as always, a different ball game altogether.

2 What are SEZs?

SEZs can be described as a geographical region that has economic laws that are more liberal
than a country’s typical economic laws.5 SEZs in India were established to instill confidence in
the investors (both foreign and domestic), to generate greater economic activity and
employment. The objectives of the SEZs also extend to promotion of export of goods and
services, development of infrastructure.6

1.3 Why SEZs?

3 Justice Ashok Kumar Ganguly, in Hajrinder Singh v. Punjab State Warehousing Corp, 2000.

4 Shivakumar Jolad, Social and economic development in India, a comparative study.

http://www.personal.psu.edu/users/s/a/saj169/MyWebpage/SocialIssues/Economics/SocEconDvpmtCompStudy.p
df`

5 SEZ- An overview, Challenges and Future, Learning to Live, 2008.

http://neerajmishra.wordpress.com/2008/07/26/sez-special-economic-zone-an-overview-challenges-and-
future/

6 Special Economic Zones in India, Ministry of Commerce and Industry, Department of Commerce.
http://www.sezindia.nic.in/index.asp

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 Special Economic Zones and the Exploitation
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SEZ’s acts as a medium by not only attracting foreign companies looking for cheaper and
efficient location to setup their offshore business, but it also allows the local industries to
improve their export through a proper channel and with the help of the new foreign partners to
the outside world at a very competitive price. 7SEZ’s offer relaxed tax and tariff policies which is
different from the other economic areas in the country. Duty free import of raw materials for
production is one example.8However the quintessential questions that loom large are: a) what
sort of employment, if any do the Zones creates? And most importantly, b) If the promise of
cheap labor and a peaceful working environment by which SEZs entice the investors a
reason strong enough to forgo the plight of the laborers?

1.4 Do SEZs create employment?

SEZs are supposed to create a lot of scope for employment .Its setting up leads to a number of
indirect employments in terms of labors required. After completion, it enables employment in the
industries set up in the SEZs. Also, there are a lot of employment opportunities when people
start investing around SEZ like for ex SEZs are townships in themselves. There are shopping
malls, amusement parks around to attract people, thus resulting in more economic development
in that area.9They are considered sources of large scale employment generation (both direct and
indirect), and contribute to economic growth and poverty alleviation 10. However it is difficult to
create an accurate picture of total employment of SEZs in Asia due to lack of regular and reliable
data. Also, unemployment still persists to massive level since the job opportunities created by

7 Supra 3.

8 Id.

9 Supra 6.

10 Ujjaini Halim, Special Economic Zones: Untold Agonies, 2008. See

http://www.panap.net/sites/default/files/attachments/SEZs_-
_Untold_Agonies__Experiences_from_Asian_Countries.pdf

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 Special Economic Zones and the Exploitation
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these zones are minimal in comparison to the annual increase in the size of the labor force in
these nations.11

1.5 What is the rationale behind escaping the application of labor law standards in SEZs?

With the SEZ’s endeavor to push for labor intensive export oriented consumer goods, the
enterprise is located at the border between the formal and the informal sector, drawing the labor
force from the agricultural sector12. At this point, the very act of employment generates a
dilemma since the moment a worker is taken from the agricultural sector and employed; he
becomes eligible for all the benefits available to formal sector workers, which in turn will raise
the labor costs thereby dampening national and international investment. 13 Given the India labor
law as well as the structure of the enabling law associated with SEZs, the available solution in
such a situation has been to overcome the practice of law in a manner minimizing the coverage
of labor law without actually challenging the law.14

The SEZ Act 2005 received the President’s assent on June 23, 2005. Though the Act is silent
about the labor laws governing labor rights with the SEZs, a reading of the document shows that
the labor regime regarding labor has not been altered.15However upon close inspection of the
administrative documents presented by individual states, announcing policies in relation to

11 Id.

12 Jaivir Singh, Labor Law and Special Economic Zones in India, working paper series, Centre for study
of law and governance, JNU Delhi, 2009, Page 9. http://www.jnu.ac.in/cslg/workingPaper/08-Labour
%20Economic(Jaivir%20Singh).pdf

13 Id.

14 Supra10.

15 Id

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 Special Economic Zones and the Exploitation
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SEZs, it is clear that the regulatory regime faced by labors in SEZs has been modified. 16
Therefore there is no mention of changes in the labor law. Rather, changes have been made in the
prevailing pattern of application of labor laws in the SEZs. How, is what we shall see next.

II. The loopholes in the SEZ Act 2005.

2.1. Shift of Power from the Labor Commissioner to the Development Commissioner.

Under the SEZs the labor commissioner has no power, authority or jurisdiction. The
administrative control and power is vested with the Development commissioner, under
subsection 3 of sec 12 of the SEZ act 2005, who is also the head of the Unit Approval committee
that looks into the registration of the unit, grant of licenses, resolution of commercial disputes,
and dispute between unit and developer.

The Government in an attempt to ensure smooth and uninterrupted functioning of the SEZs
without any hindrances as regard labor issues has transferred the administrative powers of the
Labor Commissioners to the Development Commissioner.17 This is done to encourage Foreign
Direct Investment18 because unlike the labor commissioner whose responsibility is to determine
labor market outcomes, both with regard to working conditions or firing decisions, the DC’s
responsibility is to see that the units function without any interruptions and ensure that SEZ
produce sufficient earnings19. Therefore there is a clear conflict of interests in the office and any
form of labor rights related Redressal mechanism for worker is on theory rather than practice.

16 Supra 13.

17 Analysis of the structure and practice of the Legal machinery (with reference to labor) of SEZs, Labor
File.

18 Id.

19

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 Special Economic Zones and the Exploitation
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2.2 Jurisdiction of courts curtailed.

Similarly, the jurisdiction of the existing labor courts and criminal courts has been curtailed.
Instead, a Special Court, created under the SEZ Act, shall exercise powers under the labor laws
as well. Under Section 23 of the SEZ Act, the state government is empowered to designate one
or more courts to try all suits of civil nature arising in the SEZ and to notify the evidence
committed in the SEZ. No court other then the designated court is empowered to try any suit or
conduct the trial of any evidence.

2.3 Restricting Trade Union and Banning strikes:

Our Constitution under Article 19 (1) (c) guarantees fundamental right to its citizen to form
association and unions. The right of association presupposes organization, and therefore includes
right to form trade union. However, the right to association encoded in the trade union law of
India provides only a limited scope and framework. And after the amendment of the act in 2001,
it has become more difficult to form trade unions. On top of it, the state governments are
making major amendments to the labor laws for the SEZs, where it is proposed that outsiders
will not be allowed in trade unions in SEZs with the consequence that employer sponsored trade
unions shall have the monopoly and will act as the agents of the employers to suppress any
genuine labor struggle.20

The SEZ rules 2006 direct state governments to declare all activities in the SEZs as “public
utility services.”21 Since labor is under the Concurrent list and both the Union and the States have
the power and authority to make laws with regard to it, most of the states have, through
amendment notified and put industries under the First Schedule of the ID act, that under sec 2(n)
(vi) gives the government to declare in public interest, an industry as a “Public Utility service”

20 Supra 15.

21 Sec 5 g.

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 Special Economic Zones and the Exploitation
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22
connoting the fact that the workers cannot go on strike in the ordinary course. 23. This is one of
the key mechanism to circumscribe labor rights since under the ID acts, workers are have
restricted right to strike. 24They are not allowed to go to strike during conciliation proceedings
and without a notice of 6 weeks in advance. 25 A strike by public utility workers shall be illegal if
it is called in contravention to sec 22 of the ID act.

2.4 Minimum wages and working conditions:

The main reason behind setting up a SEZ is undoubtedly profit; therefore the general perception
is that wages are comparatively lower than the wages outside the zones. Since the SEZ act is
silent as regard applicability of minimum wages act within the SEZ, it gives the employers free
hand to exploit and give wages that are less than the wages prescribed under the Minimum
Wages Act. From the experiences gathered from different countries, it is revealed that minimum
wages are generally not fully enforced in SEZ, and the working conditions are unsatisfactory. In
India, the situation is no exception. Often the workers do extra shifts without being paid for
them. In few cases, the workers are classed as apprentices for longer period than required in
order to avoid them payment and absorbing them as regular workers entitled to minimum

22 Service that provide the public with necessities such as water, electricity, natural gas, and telephone
and telegraph communication.

23 Industrial Disputes Act, 1947.

24 Supra 10.

25 Id.

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 Special Economic Zones and the Exploitation
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wages.26 Occupational hazards, stiff targets, overwork and unhealthy working environment take a
toll on the health of workers.27

The most serious lacuna is the self certification of compliance with the Minimum Wages Act by
the SEZ.28SEZ units are required to furnish consolidated annual reports in the prescribed form to
the DC In respect of periodical returns under Acts like the Workman’s Compensation Act,
Payment of Wages Act, Minimum wages act et al. This self certification provided under SEZ
rules and by orders of different state governments29 operates as a conclusive proof of compliance
with the Minimum wages act. It grants blanket immunity to the employer against violation of the
minimum wages act.

2.5 Hire and fire:

Since in most of the cases, there are no trade unions within the SEZ, the companies in the SEZ
Hire and Fire workers as they like. Fact finding reports have exposed that even if there are any
unions, the leaders are hands in gloves with the companies. 30 There have been instances where a
permanent employee was fired on his demand for his due wage. The conditions that had to be
met under section 25 F of the ID were not met since the ID act in practice has no applicability
26 Ujjaini Halim, Special Economic Zones: Untold Agonies, See
http://www.panap.net/sites/default/files/attachments/SEZs_-
_Untold_Agonies__Experiences_from_Asian_Countries.pdf

27 Suganda Ramamoorthi, Gender Implications for Women in SEZ projects, Development of Special
Economic Zones in India, impact and implications, Development of Special Economic Zones in India,
Impact and its implications, Volume 2, pg 32.

28 Supra15.

29 Cochin, Special Economic Zone Authority. http://www.csezauthority.in/php/about.php

30 Sarathy Ray,Falta SEZ in West Bengal- A fact Finding report on workers and environmental Impact,
Sanhati, 2009.

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 Special Economic Zones and the Exploitation
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within the SEZs .The workmen in reality are not given reinstatement and back wages and are not
allowed to approach the Labor court on any of these issues.

2.6 Exploitation of women employees:

Almost all women are employed as contractual labors. They have poor bargaining power and
hence are subject to exploitation. The concept of empowerment of women through employment
in the SEZs is therefore a misnomer. Though it is believed that there is no discrimination in
wages among men and women, in practice though wage differentials do exist. 31However there is
no official information regarding it, and if differs from industries to industries and from zones to
zones.32 As the SEZs are protective zones, the labor departments do not have much control over
them. Women are generally concentrated in low paid sections, and studies and reports 33have
revealed them suffering from headaches due to acute tensed environment, joint aches, swelling
in the legs due to sitting in the same position over a long stretch of time. 34
The companies prefer
to employ young women who are unmarried as they will be immune from family responsibilities
which mean long working shifts, no maternity benefits etc. 35 Also, women are forced to work at
night shifts where sexual harassment of women by their supervisors is widespread. They have to
often keep shut and tolerate sexual harassment in order to retain their jobs. A fact finding report
on the workers and environment impact of Falta SEZ in West Bengal, located at around 55

31 Supra 17

32 Id.

33 M.Suchitra, SEZs: Economic or Exploitation Zone, 2007. http://infochangeindia.org/agenda/cost-of-

liberalisation/sezs-economic-or-exploitation-zones.html

34 Supra 24.

35 Suganda Ramamoorthi, Gender Implications for Women in SEZ projects,D evelopment of Special Economic
Zones in India, impact and implications, Volume 2, 2012.

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 Special Economic Zones and the Exploitation
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kilometers from the heart of Calcutta city stated that there are no mechanisms for addressing
these women workers grievances, and a life of low wages, permanent job insecurity and
hazardous working conditions is what these workers face.

III. Conclusion:

“Had I had a choice to make, I would have chosen to escape from his place. But quitting is not
an option since my family back in the village depends on me”- is what one of the women
workers working under Falta SEZ in West Bengal had to say when she was asked why is she still
working there in spite of the worsening conditions. The above statement is nothing but a
crude manifestation of forced labor caused by economic restraint.

To compete in the international arena, and in the name of creating an investor friendly
environment, industrial lobbies are demanding more liberalized labor laws, the mantra being
“Like those in China”. Neo liberal trade and economic policies provide scope for the spread of
exploitative work conditions in the developing countries, especially with regard to unorganized
labor.36

Therefore the question that needs to be addressed is whether trade liberalization and the
proliferation of the Special Economic Zones that seeks to generate greater economic activity and
employment et al, is worth the plight of the laborers? Or whether, the large scale development of
the farmers and the regional development disparities of the SEZs, within its four walls, immune
from labor and tariff law, will negatively impact the real development that India truly needs? 37

The question is of course rhetoric. The islands of no labor implementation in the country, created
by the SEZs needs to be stopped. Globalization is a boon, and could be an engine for growth and
benefit to all groups of people provided it is guided with some attempt at fairness. It is not

36 Supra 32.

37 Id.

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 Special Economic Zones and the Exploitation
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globalization per se but the unfair and damaging effect from the way it is developing that is the
humanitarian problem.38

38 Ethical Dimensions of Globalization, by the Ethical Cultural Society of Bergen Society, 2012.
http://ethicalfocus.org/ethical-dilemmas-of-globalization/

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