The plan is rich in political and economic strategic implications, and its purpose is to put the nation’s economy on the same track as the rest of the world. But the proposal is considered too small in scope and has not been properly marketed. The biggest problem is that the nation lacks consensus on the importance of economic liberalization and its implementation.
The importance of economic liberalization to Taiwan can be considered from three perspectives: international, cross-strait and domestic.
From an international perspective, Taiwan is an island economy, so external trade is its lifeblood. After the 2007 financial crisis, the new direction of global economic development was for major trading nations to sign free or regional trade agreements to form alliances and expand their markets.
The agreements with the biggest impact on Taiwan included the U.S.-sponsored Trans-Pacific Partnership, the Regional Comprehensive Economic Partnership comprising all 10 Association of Southeast Asian Nations and the six other countries with which the group has FTAs—Australia, mainland China, India, Japan, New Zealand and South Korea—and the mainland China-Japan-South Korea FTA. Additionally, the FTAs South Korea signed with the EU and the U.S., the future EU-U.S. Transatlantic Trade and Investment Partnership and the EU-Japan FTA are putting considerable pressure on Taiwan.
Under the influence of such trade agreements the world will be partitioned into giant trade blocs by 2015 or 2020 at the latest, so Taiwan must liberalize its economy, not just to avoid exclusion, but also to find a new avenue for economic growth. If the nation continues along its old, closed path, the nightmare of economic marginalization cannot be far away.
From a cross-strait perspective, the two sides have already signed the Cross-Straits Economic Cooperation Framework Agreement (ECFA), with follow-up agreements on trade in goods and services still pending. One aspect of the ECFA is that it aims to formalize cooperation. Taiwan has gone from using mainland China as a substitute factory to using it as a market for its goods. Another aspect of the accord is that cross-strait liberalization can be used to help both sides to participate in Asia-Pacific regional economic cooperation, and cross-strait relations can be taken to a new level.
On another level, economic liberalization contains elements of democratization and the rule of law, so liberalization of cross-strait trade can boost mutual understanding, dissolve political differences and put relations on a more stable long-term footing.
From a domestic perspective, Taiwan has a severe political divide. But all parties share a desire for economic globalization and are largely in accord over the development of cross-strait ties on a win-win basis. If liberalization can be supported at both central and local government levels, it will promote internal unity and consensus on cross-strait politics, which will in turn improve social cohesion and lead the nation forward.
The FEZs should be used as a model for the gradual transformation of Taiwan into a free economic island. The FEZs must be looked at from a strategic standpoint as a trial for cross-strait economic liberalization, a platform for international manufacturing cooperation, and a model of central and local government cooperation to bring politics and economics into line and to put domestic politics, international relations and cross-strait ties in positive cycles. The government must outline the objectives of the FEZ plan and how it will achieve them. It must demonstrate its ambition and a will to implement the policy, and prove it is capable of leading Taiwan out of the economic doldrums.
There is clearly a wide gap between people’s expectations and the reality of the FEZ plan. The main thrust of the proposal appears to be the use of tax breaks to pull in short-term investment, which is insufficient to convince people that this is a long-term strategic plan. However, as the plan so far is in outline only, there is still much room for alteration of the specifics. Its success depends on how the plan’s architects grasp the essence of economic liberalization and on them having the determination and ability to thoroughly implement it. (SDH)
(This commentary first appeared in the United Daily News April 11, 2013.)