According to the Cabinet’s draft, the FEZs are grounded on the main principles of encouraging the flow of people, goods and finance; opening markets; offering tax breaks to attract more investment; streamlining land procurement; and creating an optimal operating environment. The zones will be set up in two stages to aid timely implementation.
In the first phase, five ports—Keelung Port, Kaohsiung Port, Su-ao Port, Taipei Port, Taichung Port—and Taoyuan International Airport will form the kernel. The second stage will be pending on the passage of a special law governing the FEZs.
Each of these two stages has its virtues and difficulties. Besides taking the “shop in front, factory at the rear” approach to the division of labor to expand the economic effects outside the FEZs, the first stage’s special character is to remove restrictions on imported goods from mainland China. The second stage is where the real virtues and problems of the FEZs lie because it will require changes in the law.
Looking back at why the government originally proposed the FEZs, one reason was to use a “trial and error” method to open markets and loosen restrictions, laying the groundwork for future membership of such free trade mechanisms as the Trans-Pacific Partnership. The other was to open up trade and investment from mainland China to further normalize trade relations between the two sides.
From this perspective, the first stage, strictly speaking, is closer to a policy of attracting investment, rather than creating a free trade model. Moreover, the currently designated five ports and one airport FEZs are by nature “inside national territory but outside customs territory,” with imported materials being worked on in the zones and then exported without paying customs duty and goods, corporation and other taxes.
(CNA)Adding a “shop in front, factory at the rear” concept to expand the space for manufacturers inside the zones to commission work from those outside, combined with such measures as a loosening of restrictions on land acquisition in regions bordering the zones and investor tax breaks, will improve investment returns.
As the FEZs grow, however, the availability of land will be limited, and the “inside the zone but outside customs territory” rubric cannot be expanded to encompass the whole of Taiwan. In the short term the FEZs will lead to an increase in investment and employment, but the economic liberalization effect will be quite limited.
Thus, the liberalization that can be expected from the first stage of the FEZ plan will come from lifting restrictions on mainland Chinese industrial and farm products. Currently over 1,000 such products are restricted from entering the Taiwan market. Under the FEZ plan, restrictions would be gradually eased in line with WTO regulations.
To reduce the impact from imported Chinese products, the project seeks to work with the agricultural sector to add value, with the expectation that after the FEZs open, the combination of Taiwan’s high quality produce and the sector’s technological processing skills will create exports that win international market share and raise the competitiveness of Taiwan’s agricultural goods.
This is the right direction to move in, and successful integration of the agricultural sector’s advantages to produce a win-win situation will dispel concerns about further opening to mainland Chinese goods. But any opening will have gains and losses, and the government must think ahead how to cope with any negative consequences that should appear.
The second stage of FEZ development involves those aspects which require revisions to existing laws. The consequences of doing so will be more visible, and thus, more controversial.
For example, the liberalization of medical treatment services not only entails radical change in treatment structures, such as opening up for foreign investment and corporatization of medical services, but also in the employment of internationally qualified personnel, in insurance and law services, and will even affect immigration procedures.
Allowing foreign white-collar professionals, including those from mainland China, to work in Taiwan is another highly sensitive issue. This is just one of the many obstacles to overcome before Taiwan can join the TPP. (SDH)
(This commentary originally appeared in the Economic Daily News March 28, 2013.)