Moving in the Right Direction: Scholarly Opinions on Free Ports

Lu Bing-yan holds a PhD in marine transport policy from the University of Wales, and has been an assistant professor in the Institute of Public Administration at National Dong Hwa University for less than a year-a typical new recruit to academia. But early in November the harbor bureau director and harbormaster from Hualien Harbor sought him out in the hope that he could provide a theoretical analysis of the draft "Statute Governing the Establishment and Management of Free Ports" that is currently before the Legislative Yuan, to assist Hualien Harbor in making preparations as early as possible.

When Lu was writing his doctoral thesis he made several visits to places such as Singapore and Hong Kong, where he surveyed modern management methods used at international ports, to give guidance for the upgrading of the Port of Kaohsiung, and also analyzed the core competitiveness factors of free ports in various countries. He says that development as a free port can indeed boost a harbor's entrepot trade and warehousing business, which earns foreign exchange and attracts foreign investment into the country, thereby creating employment.

Lu Bing-yan points out that in theoretical terms, one can divide free ports into those in the broad sense of the term, and those in the narrow sense. In the broad sense, "free port" means any part of a nation's territory that is divided off by whatever means from the rest of its territory, and exempted from customs formalities and the collection of customs duties. In the narrow sense, a free port has to be located within the area of a specific port. At present, the version of the draft statute proposed by the Executive Yuan defines a free port in the narrow sense, and imposes many special regulatory measures. But due to political wrangling the proposed regime is inevitably becoming ever more complicated, and this is the first thing that needs to be cleared up.

Professor Chen Po-chih of National Taiwan University's economics department, a former chairman of the Council for Economic Planning and Development (CEPD), supports the idea of setting up free ports because he sees it as a way to overcome some of the adverse effects of the poor state of cross-strait relations. He says that mainland China looks for every way it can to obstruct Taiwan's participation in international cooperation, and uses unfair policy means to both attract and coerce Taiwanese capital into the mainland. This increases the risk of Taiwan being marginalized and deindustrialized. Therefore, Taiwan must use means such as establishing free zones and improving its global logistics to strengthen its cooperation with other countries, and use mechanisms such as the WTO to head off whatever unfair competitive means the PRC may employ.

Professor Su Hsiung-yi of Soochow University's business administration department has long been engaged in logistics management research. In his view, the thrust of the draft statute is thoroughly appropriate, in particular in the way it offers exemption from customs formalities and many taxes and duties. This clearly removes an obstacle to investment by international businesses, and can also save time in the movement of goods. "The slower a port's throughput of goods, the more likely its business is to be taken away by other ports." He stresses that since the government is already set on the course of establishing free ports, then the quicker it acts the better. "They should get cracking, to create a global environment for Taiwan!"

To illustrate the point, Su says that while Taiwan's ruling and opposition parties were still bickering interminably over the provisions of legislation to govern offshore transshipment centers, some electronics manufacturers in mainland China were already experimenting with shipping goods by sea from Shanghai to Inchon in South Korea, from where they were flown direct to the US. This is both quick and convenient, and they can also enjoy tax concessions given by Korea. During the strike closure of American west coast ports in early October 2002, this channel also provided an important alternative route, to the advantage of both the manufacturers and the Koreans.

Many legislators of various parties who are members of the cross-party "Free Port Forum" have already reached a consensus that once the Statute Governing the Establishment and Management of Free Ports has been passed by the Legislative Yuan, they will speed up the review of the related enforcement rules to enable the statute to take full effect more quickly. However, as the time for free ports actually to be set up draws closer, other issues are coming into focus. Su Hsiung-yi and Lu Bing-yan both raise the questions: "Where should they be placed? Which locations can really achieve the policy goals?"

CEPD deputy chairperson Ho Mei-yueh revealed to legislators that in her view the best choices of location for the first round of free port zones are Hsiaokang Airport in Kaohsiung and the air cargo zone of CKS Airport in Taoyuan. Other sites should be decided after seeing the results of the initial phase of implementation.

Lu Bing-yan believes that both Kaohsiung and Hualien international harbors meet the conditions for establishing a free port zone, and other clear candidates should include the industrial ports of Mailiao in Yunlin County and Hoping in Hualien County, where in fact the local people have stated repeatedly that they will actively seek free port status. In Su Hsiung-yi's view the recently built Taipei Harbor also has "a lot of potential" as a site for a free port. But Lu cautions that if foresight is not used in planning the access roads to Taipei Harbor, it will be sure to impact traffic conditions in the Greater Taipei area.

"It looks at the moment as if the reason many people are in favor of setting up free port zones in their own localities is that they want to get their hands on central government resources," says Su Hsiung-yi frankly. If the central government is unable to stand up to this pressure, and gives the go-ahead to zones all over the place simply for fear of offending local politicians, the final outcome will fall far short of what is possible. Having visited specialist logistics zones in at least ten countries, Su believes that the precondition for establishing a successful free port zone is comprehensive existing facilities, including hardware in the form of transport links and software in the form of a regulatory system. Although Taiwan already has a proliferation of export processing zones, science based industrial parks, offshore transshipment zones, bonded zones, specialist warehousing and transshipment zones, and so on, with a bewildering variety of different names and a maze of overlapping regulations, there is barely one among them that could pass muster as a free port zone.

Su Hsiung-yi suggests that if the government is serious about finding a good recipe for attracting international companies, the best way forward is to first follow the path of setting up bonded zones. In its current form, the draft Statute Governing the Establishment and Management of Free Ports confuses the issues of personnel and logistics, and will create confusion and complications. "Just the question of allowing mainland personnel to come to Taiwan is an insoluble problem," he says. Will Taiwan's free-port project succeed or fail? What kind of example will it set for the international community? These academics, like so many others, are awaiting developments with interest.