Commercial Exclaves – Economic Seduction Zones and Surrendered Sovereignty

Colombo Port Expansion Project Model

A recent talk to RHUL’s Geopolitics and Security Program, proposed that the purchase of the majority interest in a strategic port by a foreign commercial interest is one of a triumvirate of powerful agents exerting displacement pressure on a coastally situated disadvantaged population. Relative to the menace of drug runners and climate change-induced rising seas, the impact of investing in the local shipping port may be benign, even beneficial. Or not.

Port investment was not the focus the talk, but it triggered questions about what the geo-political agency of foreign commercial interests might be and how they could be framed. How should we be thinking about this in geographical and geopolitical terms?  And is that agency important enough to explore?

The development of these commercial interests may be seen as a tangible outcome of the neo-liberal economic discourse of globalization, with implications for host state sovereignty.  Major foreign investment in strategic territory which as a result of ‘the deal,’ falls outside of the normal regulatory framework and laws of the host state could be fertile ground for activities carrying potent literal and potential geopolitical consequences for the ‘host’ state, the investing entity and for states that appear to be situated apart from the primary actors.  I propose we name these ‘Commercial Exclaves,’ and test the explanatory usefulness of the idea within Geopolitics.

Exclaves 

Robinson defines an exclave as ‘a part of the territory of one state entirely surrounded by the territory of another state’. This geographical designation is useful in constraining this discussion in scope and in focusing it on a context where commercial geopolitical agency is notable. Specifically, I will consider literal territory, such as ports and warehouse complexes, where clearly defined boundaries can be identified and characterized. In ‘Splintering Urbanism: Networked Infrastructures, Technological Mobilities and the Urban Condition’, Graham et al. refer to ‘logistics zones’ which serve as spaces of intense international articulation. From this perspective these could be considered ‘Commercial Exclaves,’ acting as specific sites which tend to support the economic urban centers of the North.

Economic Seduction Zones

Clearly, economics are the primary driver fueling these external investments. The specific type of investments that are made in foreign ports, factories and warehouses are known as Foreign Direct Investment (FDI). FDI describes investments that are made in tangibles (as opposed to financial instruments) in a foreign state such as the purchase of resources, infrastructure, or companies.  It appears that everyone wants to make them, and everyone wants to be the recipient of them – from the US, to the UK to Morocco to Chile.

FDI originates with financial investments in the early 20th century, but evolved to tangible investments in the 1960s with manufacturing in Asia, and the 1970s with natural resource extraction, such as oil from Nigeria.  In the past states have been very restrictive, putting up regulatory barriers to foreign ownership. From the 1980s forward, however, FDI has become more desirable and states have liberalised their laws and regulations to attract this kind of investment. No international legal framework exists for FDI – attempts to create an international framework in 1995 through the OECD were unsuccessful, though there are a few examples of regional frameworks. Most agreements are negotiated between a multi-national corporation and the ‘host’ country, though sometimes the ‘source’ country will take a leading role.

As an example, China first experimented with Special Economic Zones (SEZ) domestically (in the 1970s, with four ultimately successful dedicated geographic zones on the east coast of the country. In the PRC’s Eleventh Five Year Plan the government incentivized Chinese firms to go global by locating their firms in designated SEZs which were established by China and which minimized risks on their behalf by offering state protection through bi-lateral agreements. The actual terms of the agreements have not been shared, but are understood to include tax and investment incentives and customs duty exemptions.In Africa, these investments have enabled China to source raw materials directly, reducing or eliminating their dependence on international markets.

With these investments, there is real difficulty in distinguishing the commercial entity from the state that owns or backs the commercial entity. China has a deeply entwined relationship between commercial businesses and government regardless of whether the business is state-owned, state invested or fully private  and observers perceive there to be political motivations behind Chinese FDI, both entirely political or co-existent with the commercial drivers.

Economic Exclaves as Sites of Exception

To attract FDI, host countries are compelled to compete on the international stage.   This requires the creation of ‘FDI-friendly’ frameworks, which may include a combination of concessions including tax-free zones, derogation from regulations, preferential tariffs, financial subsidies, and free land. These special conditions support the notion that the sites of FDI conform to the idea of an ‘Economic Exclave’ for the investing entity.

These exclaves carry with them political and sovereignty concerns – there can be no guarantee that foreign economic exceptionalism isn’t also expressed as political power or won’t be in future.

Some ‘host’ countries perceive an increasing dependence on internationally operating enterprises as representing a loss of political sovereignty. This is why some states set limits on the type, degree and place of investments.  India, for example, prohibits foreign ownership of a range of industries, from gambling to railways, and caps ownership in a range of others.  Critical Geopolitics helpfully provides a conceptually expanded understanding of sovereignty beyond de jure territory and into de facto, socially constructed spatiality, such as the intersection between law and geography .  In this sense, within the liberalised conditions for FDI, foreign investors require host states to surrender de jure sovereignty, and they perform acts of sovereignty within the frame of granted exceptions.

Foreign policy is also influenced. For example, by ‘discouraging’ African states from recognizing Taiwan (only four African countries recognized Taiwan as of 2008), China has nearly eliminated Taiwan’s economic presence in Africa. China Harbour Engineering Company booked over 12 Billion USD worth of projects outside of China in 2013 alone. One of those is in Colombo, Sri Lanka just 200 miles from the southern tip of India.  Due to open in April 2014, at full capacity it could be one of the 20 busiest shipping ports in the world and carry 28% of all container traffic to India.  For the Chinese, it is a port that expands their commercial reach through shipping.  To some Indian ‘Hawks’ it is ‘a choke point’ which could lead to India’s dependence on a foreign run port.  It is also worth noting that Chinese Navy ships have used the port en route to Pakistan and in anti-pirate activities. .

The Chinese Navy at Colombo Port

The Case for ‘Commercial Exclaves.’

As I have demonstrated, there is a case to be made that ‘Commercial Exclaves’ do exist and should be considered in more detail.  Foreign entities that control and manage property located within a ‘host’ country’s border, but operate under exemptions from local regulations, are not only economic actors, but geopolitical ones as well.

Conversely, from the host state perspective these are ‘Commercial Enclaves’ to which they have granted exceptional status in exchange for anticipated economic benefit. The implications may be visible to influential actors within the host states, they may limit exclaves though law and regulation, but there are also other implications that may not be as visible.   They may also be viscerally visible to local population – physically and operationally segregated from the everyday life of those adjacent to it. If Armand Mattellart (as referenced by Stephen Graham), is correct in predicting that economic globalization is leading to a few economic urban centers in the north, while the rest of the world is ‘ghettoized’ with the exception of a few critical flow points in the south – could these Exclaves be those point?. Are there other events and contexts that cannot easily be anticipated for which the outcome for the host state depends to some extent on these ‘Commercial Exclaves’?

It would be difficult but interesting to inventory special conditions granted for ‘Commercial Exclaves.’ A deeper understanding of the legal framework in which the investor entities operate – limitations, regulatory gaps, etc. could also be fertile ground for inquiry. For instance, consider the multi-state playing field of tax dodging. How might ‘Commercial Exclaves’ figure in that activity? Interviewing ordinary people living on the edge of these Exclaves may help us to better understand their experiences – and identify whether there is a new kind of bordering process in play through commercial processes of exclave building. We should also try to understand how these agents operate in the light and shadow of their host state’s political arena.

Elizabeth Alexander

Elizabeth Alexander is studying Geopolitics and Security on the MSc. Program.  An experienced software professional who originally ‘hails’ from Alaska, her interests are borders and bordering, technology’s implications for political identities and the role of corporations in geopolitics. 

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