Emerging Markets / July 19, 2016

Exclusive Economic Zones in the 21st Century

The Importance of Exclusive Economic Zones

Over the last several weeks, the subject of Exclusive Economic Zones (EEZ) has been thoroughly discussed in the international arena. EEZ refers to the maritime space to which a nation is politically and economically entitled because of its coastal or insular territories. EEZ are important for two main reasons. Firstly, any natural resources within a nation’s EEZ represent an economic asset. Such is the case of fishing rights, oil or natural gas reserves, and even wave-produced energy. Secondly, given the increasing importance of maritime trade to national economies, states and governments around the world are engaged in campaigns to secure and exploit their respective EEZ as passageways for trade.

Exclusive Economic Zones in Latin America and Asia

In Latin America, there are two notable examples of the importance of EEZ. In the case of Colombia, the government seeks to ensure and secure its EEZ around the Colombian islands of San Andres & Providencia in the Caribbean. Similarly, in Bolivia, a land-locked country, the government has for decades claimed a maritime outpost through Chilean territory. Both Colombia and Bolivia are countries rich in natural resources and commodities; however, Colombia has a definitive advantage when it comes to international trade because it has an Atlantic and a Pacific coastline. These cases in Latin America highlight the importance of sea and ocean ports in the development of export and import economies. (Read more on the Commercial Opportunities Created by the Expansion of the Panama Canal)

The most important EEZ discussion going on right now is that of the South China Sea. As of 2016, the Association of Southeast Asian Nations (ASEAN) decided to constitute a common market. The ASEAN Economic Community represents a total population of over 600 million inhabitants and the world’s third largest market as well as labour force. Thus, ASEAN becomes a major economic union of the Asia Pacific region and a counterbalance to China’s leadership. Given this scenario and the economic importance of the South China Sea, Vietnam and the Philippines, ASEAN members, have legally challenged Beijing’s claim to an EEZ in the region.

The case of EEZ in Asia Pacific and the political instability in this important region could lead to higher transportation and production costs as well as slow down Asian manufacture. The South China Sea is a central trade route between Asia, Africa, and the Middle East with approximately five trillion dollars of the world’s total maritime trade navigating through it every year. Traders in commodities and consumer goods would be wise to assess their strategic plans and proposed trade routes in the region.

Exclusive Economic Zones in the Global Economy

The cases above are factual examples of how EEZ play a central role within the commodity and consumer good markets. Furthermore, they highlight the advantage that nations with sea and ocean ports have when it comes to economic development. The potential of both commerce and natural resource exploitation as part of the EEZ of each specific country is an element that should be taken into consideration by governments and investors worldwide.

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