High-tech strategy could open a new era for free trade zones
In a major shift, the Shannon Free Trade Zone, home to more than 60 American manufacturing and service companies, is moving away from the traditional concept of a free trade zone toward a strategy embracing electronics and information technology. This has implications not only for Ireland, which is becoming more export-driven, but for all free trade zones.
In a free trade zone, components of a product are imported from several foreign sources duty-free and assembled in the zone, usually a building or fenced-off area. A duty is paid only on those finished items that enter the host country. Shannon has been a model for about 80 such zones worldwide since it opened in 1959.
Instead of the traditional manufacturing and assembly satellite operations that were the hallmark of Shannon during the 1960s, the thrust today is toward development of small, capital-intensive units of perhaps 15 to 20 people.
``The future is going to be more and more away from the organized workplace of the past, and is going to give way to a smaller group of persons with individually based skills that are going to be linked through the use of electronics and information technology,'' said Thomas A. Callahan, executive director of Shannon Development Corporation, in charge of long-range strategic planning for the zone. ``We have always treated the situation facing us as an opportunity for change, rather than as a problem.''
Ireland, like other members of the European Community, hopes that plans under way to create a ``single market'' in the EC by 1992 without any trade barriers will stimulate investment from non-European countries.
If multinationals have been the success story from the 1960s onward, the development of indigenous enterprises is the new challenge facing Shannon Free Trade Zone, which covers 300 acres next to Shannon International Airport in west Ireland.
The zone has gone through several cycles since 1960. At that time, it faced collapse from the introduction of long haul jet aircraft, which meant North Atlantic flights no longer had to call here.
Until then, Shannon had been a refueling point, which in turn led to the establishment of duty-free shops, the first of their kind in the world; engineering facilities and in-flight catering; and aircraft maintenance facilities.
But with jets capable of flying nonstop between New York and London, ``all this was under certain obliteration,'' Mr. Callahan said. More than 1,500 jobs were at stake.
With the help of the Irish government, Shannon fought back. The runway was expanded; tourist features in the region were promoted; and the government returned the moribund national carrier, Aer Lingus, to the North Atlantic route.
``The strategy was to provide a payload, so that aircraft would continue to fly into Shannon for commercial reasons and not for technical reasons,'' Callahan said. ``Since we didn't have a way to establish freight, we decided on some adoption of a free port or zone.
``There were massive problems,'' Callahan continued. ``In the first instance, there was the simple problem of infrastructure. On the one hand, we had advantages created by the airport, with excellent telecommunications, available power and water supply, good transport services, and reasonable roads. We also had the fact that an airport ... tends to be at some distance from the centers of population.''
This led to creation of a new town at Shannon (pop., 10,000). Simultaneously, beginning in the mid-1970s, the zone shifted gears, away from manufacturing and more toward promoting trade and services. Now, the emphasis is on developing semi-autonomous, stand-alone indigenous operations at the zone.
Tied in with this were new financial incentives, including research-and-development grants up to 50 percent of the approved cost of a project, and a cap of 10 percent on the corporate tax rate.
To bolster this policy, Shannon Development helped establish new education centers nearby, designed to provide access to a pool of highly skilled labor.
More recently, the zone has undertaken such initiatives as developing advanced factory units, and is now actively seeking to corral fast-growing international service operations like GPA Group Ltd., the world leader in aircraft leasing, which employs 150 here.
Ireland, of course, is already providing a foothold in Europe for many American companies. About 60 out of 100 or so companies at the zone are owned by American corporations. Among these are Westinghouse Electric, General Electric, DeBeers Industrial Diamond, and SPS Technologies, one of the first to locate here.
There are other growing links between East and West. Shannon Development is advising the Soviet government in a region near Finland on the concept of industrial free zones.
Still, for all these successes, Ireland faces some large problems. It has a 19 percent unemployment rate. Emigration takes some 30,000 citizens away from the Emerald Isle each year. Moreover, the personal tax rate in Ireland is high, with a top rate of 58 percent, against 40 percent in the United Kingdom. And Ireland has yet to develop a strong entrepreneurial instinct or venture-capital markets.
In addition, half its population is under 28 years of age. ``Because of such a huge growing population, we need to create four times as many jobs per capita as any other EC country just to stand still,'' one government official pointed out.