As the world economy struggles to get back on track in the aftermath of the global financial tsunami and the persistent European sovereign debt crisis, the government of Taiwan is betting on free trade zones as a growth engine for industrial transformation and national development.
“In the past half century, Taiwan underwent several rounds of trade liberalization that helped drive the country’s economic growth,” said Kuan Chung-ming, minister of the Council for Economic Planning and Development, the agency in charge of mapping out and implementing the FEZ initiative.
“The project will leverage Taiwan’s advantages in human resources, information and communication technologies, pivotal location in East Asia and special economic ties with mainland China to develop high value-added economic activity,” he added.
The core concepts behind the FEZs are globalization and trade liberalization, according to Kuan. “Through further regulatory easing on the flow of capital, goods, information and talent, we will create a top-notch business environment facilitating free trade in these special zones.”
The initiative will also bring Taiwan closer to global markets and help create conditions necessary for the country’s participation in regional economic integration through such alliances as the Regional Comprehensive Economic Partnership and Trans-Pacific Partnership, he added.
Initial planning by the CEPD designates Taiwan’s five free trade ports―Keelung, Kaohsiung, Su-ao, Taichung and Taipei―and Taiwan Taoyuan International Airport trial sites for the project. Other municipalities can also apply to become FEZs if they meet certain qualifications.
Four types of business activity will be strategically promoted at the facilities—high value-added agricultural processing, cross-border collaboration in strategic sectors, international medical care and smart logistics.
State support, including tax incentives and streamlined procedures for immigration and land procurement, will be offered to qualified individuals and companies operating in the zones.
The Council of Agriculture will specifically encourage businesses processing raw agricultural products from home and abroad and marketing the finished, made-in-Taiwan goods around the world.
“By leveraging local firms’ exceptional R&D capabilities and leading-edge safety procedures, this innovative business model will help establish Taiwan as a powerhouse in premium agricultural exports,” COA Minister Chen Bao-ji said.
Sectors targeted for promotion include agricultural machinery, aquarium fish, biofertilizers, livestock vaccinations and tea, according to Chen. “The COA will establish a set of strict inspection rules to ensure that goods shipped out of the FEZs live up to the high standards that the MIT brand name commands.”
The council will compile a detailed inventory of agricultural activities in which Taiwan possesses a distinct advantage, while assisting local suppliers in developing global strategies, including working with firms in the zones.
According to the Department of Health, Taiwan is well poised to become an international medical tourism center given its leading medical technology, quality service and reasonable prices.
“The DOH will focus efforts on implementing regulatory easing and other supporting measures to ratchet sector output up to NT$30 billion (US$1 billion) in five years while boosting other industries such as biomedical devices, insurance and tourism,” a DOH official said.
To attract foreign investment to the region, firms registered outside of Taiwan will be allowed to hold a maximum one-third stake in medical institutions operating in the FEZs.
The official stressed that these facilities will be staffed primarily by local health professionals. “These institutions cannot offer services under the national health insurance plan, but ROC citizens can use the services at their own expense,” the official added.
The CEPD initiative was greenlighted April 26 by the Cabinet, which is in the process of organizing a task force headed by Vice Premier Mao Chi-kuo to review implementation of the project.
All related agencies have been directed to prepare concrete action plans for developing the four designated business categories in the next two months. If everything goes as planned, the project will kick off in July.
While the CEPD sees the initiative as playing a key role in spurring Taiwan’s growth going forward, opponents have been quick to criticize it, claiming the FEZ approach is not a viable solution to Taiwan’s predicament given the country’s current state of economic development.
“Offering tax incentives and introducing more cheap foreign labor to the FEZs will not help create jobs for locals, facilitate Taiwan’s industrial transformation or increase the country’s wage levels,” said Kenneth S. Lin, professor of economics at National Taiwan University. “In five years the project will make Taiwan’s wages the lowest among major Asian economies.”
Lin said Taiwan is a middle-income country, with wage levels stagnating since 2000. “The priority should be to maintain the private sector’s technological leadership,” he said. “The ability to produce high-tech devices is no longer a competitive edge. More sustainable advantages are superior design, R&D and price-setting capabilities.
“But I see none of these being addressed by the CEPD project,” Lin said. By allowing more foreign labor in the zones, the approach will squeeze out job opportunities for Taiwan’s job seekers and encourage firms to continue relying on cost advantages. “This is worse than the country’s export processing zones.”
Kao Jen-shan, director of the Regional Development Research Center at Taiwan Institute of Economic Research, also questions the FEZ initiative’s focus on manufacturing activity. It will be futile for the government to continue pouring resources into Taiwan’s manufacturing sector, which “as we know it has come to a dead end,” he said.
A market has to possess unique advantages to attract foreign investment, but Kao said the CEPD initiative will only encourage firms in the zones to operate on a business-as-usual model.
The CEPD plans to promote “high value-added processing” in the FEZs, while the focus ought to be on other activities with added value such as design and innovation, Kao said. “If the government continues to place its policy priority on manufacturing, it will only stall Taiwan’s economic development for another 15 years.”
The CEPD minister countered that the FEZ project will not introduce more foreign blue-collar workers to Taiwan. “The program will facilitate Taiwan’s economic transformation by bringing foreign capital, intellectual properties and key technologies into the country and expanding markets for locally produced goods and services.”
The economic activity in the special zones will create a spillover effect and spur more business throughout the country, thus creating new jobs for Taiwan nationals and tax revenues for the government, he stressed. As to Lin’s prediction about Taiwan’s wages, the minister replied, “We will see in three years.” (THN)
Write to Meg Chang at sfchang@mofa.gov.tw