Distinguish between SEZs, FTZs, and EPZs with one example each.

• A. SEZs offer broad incentives to attract investment; FTZs are duty-free zones for trading and manufacturing; EPZs focus on export processing; examples: Shenzhen SEZ, Colombo FTZ, Costa Rica EPZs.
• B. All three are identical in function and incentives.
• C. EPZs are solely for domestic consumption.
• D. FTZs require tariffs.

Answer: (A)

The idea being tested is how different types of economic zones target investment, trade, and exports, and what each type emphasizes in policy and practice. SEZs are designed to attract investment broadly by offering a package of incentives—such as tax breaks, streamlined approvals, and infrastructure support—across a designated area to spur growth and modernization. Free Trade Zones focus on trade and manufacturing activity within a duty- and tariff-advantaged space, with simplified customs procedures to ease movement of goods, often emphasizing logistics and distribution as well. Export Processing Zones concentrate on producing goods for export, with policies that lower the costs and barriers specifically tied to exporting activities.

Using real-world examples helps ground these ideas: Shenzhen in China is the classic SEZ that began the country’s reform-and-opening-up strategy by providing broad incentives to draw in foreign and domestic investment and to upgrade industry. Colombo’s Free Trade Zone in Sri Lanka illustrates the FTZ model, prioritizing trade and manufacturing with favorable customs treatment within a defined zone. Costa Rica’s EPZs exemplify the export-oriented approach, offering incentives to exporters to assemble and ship goods abroad from within the zone.

This framing is the best fit because it aligns each zone with its typical aim and tools, and the examples show how those aims play out in practice. The other statements conflict with how these zones operate: they’re not identical in function, EPZs aren’t for domestic consumption, and FTZs aren’t inherently tarifficed—many are designed to minimize tariffs within the zone to boost trade and export activity.