The more advanced the transportation infrastructure in a country, the more the business community understands and can make effective use of ports and their facilities in order to maintain operating profits. If a country can go a step further and link up the sites touted as "free ports," then besides the expected profits there will also be much greater convenience and comparative advantage. For example, the European logistics manager for Ciba Specialty Chemicals of Switzerland, which has been in operation for more than two centuries, says of the Dutch port of Rotterdam that it offers "more advantages than I can name," including special product regulations, easy customs and tax procedures, warehousing systems, transportation services, and so on.
In the past, if a company received an international order from an unfamiliar place, such as Guyana, normally they would ignore it. However, under the impact of globalization, manufacturers these days receive orders from remote places all the time, and given the intense competition in the marketplace, they cannot afford to turn any customers away. "All you can do is to find the most appropriate international transportation channels so that, like a Buddha with 1000 arms, you can reach out anywhere across the globe." So says the civil aviation authority of Singapore in enthusiastically promoting the benefits of its "Total Logistics Hub" plan to business.
The city of Kaohsiung's goal to integrate the Port of Kaohsiung into the city's jurisdiction is as yet unrealized, but the city is already well aware of the vitality that the adjacent port brings.
Since companies are unable to keep themselves outside of globalization, the only path to success is to actively seek out a suitable international marketing and transportation center to bring into full play the model of global operations. Ho Mei-yueh, vice chairwoman of the Council for Economic Planning and Development (CEPD), states that a sound economic policy is one that makes things easy for the private sector. Now, when businesses need it most, the government is just in time with its free ports, combining logistics management, tax exemption, warehousing, shipping, and technology in one package. She believes that this policy will be very useful in raising the competitiveness of firms.
With countries like the Netherlands, US, and Singapore enthusiastically creating free ports, the free port idea has spread throughout the international community and attracted countless countries to join its ranks. But looking around the globe, if a port selected for free port status does not have the right conditions, but a free port is nonetheless rashly established, it will still not succeed in attracting international enterprises. In comparison with many places, Taiwan has excellent conditions to establish free ports. "Geographically Taiwan is a bridge between Asia and the West, and offers convenient maritime and air transshipment. Moreover it has high-tech industry and R&D capability, and its customs procedures are quite advanced." This brief paragraph from the CEPD outlining Taiwan's advantages in fact also describes the basic conditions for establishing successful free ports.
"Aside from cross-strait political factors, I cannot see why Taiwan does not establish free ports as early as possible," says Lu Bing-yan, an assistant professor at National Dong Hwa University's graduate institute of public administration. The standoff in cross-strait relations means that many Taiwan-centric international plans are delayed, meaning that Taiwan could be losing its opportunity to play a leading role in the global economy.
Fortunately, at the Economic Development Advisory Conference held in 2001, the previous policy of "no haste, be patient" with regard to cross-strait economic relations was relaxed, and a new policy of "proactive liberalization with effective management" replaced it. With this policy change, plus the entry of the two sides into the World Trade Organization and growing interdependence in the regional economy, both government and opposition have recognized that Taiwan should seize this opportunity and develop in the direction of free ports, which are already widely used and whose success is an established fact.
Chiu Tai-san, a legislator for the Democratic Progressive Party, says that once Taiwan and mainland China develop a truly complete and integrated division of labor, the marketing network on the two sides will be the largest in the world. With unlimited commercial opportunities, why do people worry that Taiwan will be marginalized? Thus, he has been working within the relevant forums and committees in the Legislative Yuan to negotiate certain aspects of the Statute Governing the Establishment and Management of Free Ports. "I hope that it will be possible for business people from mainland China to come and go without obstacles; the fewer legal barriers there are, the better."
The IC design industry is the heart and soul of Taiwan's economy today. Competing against mainland China's mass production, Taiwan should be able to stay a step ahead by relying on its human talent and integrated capabilities.
Even as the global economy remains sluggish, the Directorate-General of Budget, Accounting, and Statistics (DGBAS) of the Executive Yuan has adjusted Taiwan's quarterly growth rate upward for two quarters in succession in 2002. The main force behind this continued growth is flourishing exports. It is estimated that the trade surplus for 2002 will exceed US$16 billion, the highest figure in the last 15 years. Yu Tzong-shian, an adviser to the Chung Hua Institution for Economic Research and a member of the Academia Sinica, says that it is Taiwan's trade with mainland China, which overcomes all the obstacles put up before it, that deserves the credit for this export boom.
According to the DGBAS, in the first half of this year exports from Taiwan to mainland China rose by 31.8%. This means that mainland China and Hong Kong now take a total of 30.4% of Taiwan's exports, making the PRC Taiwan's leading trade partner, far beyond the number-two-ranked US, which takes 21%. Yu Tzong-shian says that if transportation costs between the two sides can be reduced, then the cross-strait division of labor can become even more efficient. If on top of that direct links are established, this will cause the stagnant economic waters of Taiwan to flow again. "Only flowing water can sustain fish, and only then will you have fish to catch."
Taiwan's exports, including financial products and labor, have always played a critical role in Taiwan's economic development. They result in part from industrial policy and in part from Taiwan's superior geographic position. "Taiwan has many natural advantages which make it suitable for regional operations," said Donald Lessard, a professor and deputy dean at the Sloan School of Management at the Massachusetts Institute of Technology, clearly defining Taiwan's niche. Meanwhile, the World Economic Forum has recently averred that in terms of international competitiveness, other countries would be well-advised to learn from the complete and integrated supply chain and division of labor underlying the powerful export potential of Taiwan's electronics and information industries.
The concentration of these conditions means that all Taiwan is really lacking for the establishment of free ports is the legal framework. The Executive Yuan, aiming for maximum speed, does not want to try amending existing laws. Rather, in line with foreign practice, it is asking the Legislative Yuan to produce a special law that will handle all the issues in a single package. "Only if the government maps out a set of regulatory mechanisms and ensures that free ports can operate effectively will businesses feel confident and happy about moving in," says Chiu Tai-san.
Beyond customsThe draft legislation for free ports sent by the Executive Yuan to the Legislative Yuan incorporates two major innovations. One is simplification of administrative procedures, and the second is the adoption of the "inside the country, outside of customs" concept. CEPD chairwoman Ho Mei-yueh, responsible for the draft, points out that in order to provide for future government reorganization, in the short term the main principle will be to make as few changes in the structure of government as possible while defining the operating structure of free ports. There will be a "Free Port Coordinating Committee" under the cabinet which includes relevant ministries and agencies to oversee the development of free ports and handle larger matters that the ports themselves are not capable of dealing with. The central government body with authority over a given free port will select a managing agency for the free port, and provide support to that managing agency.
The concept of "inside the country but outside of customs" is a defining feature of free ports in Taiwan. Ho says that international airports or harbors that are suited for establishing free ports can apply to have neighboring publicly or privately owned land designated as free port zones.
As Ho explains in detail: "Inside a free port, there are no customs duties or commodity or business taxes. Items that enterprises in the free ports import will in principle be free from inspection. At the same time, enterprises will be allowed to undertake limited commercial activities in the zones. Companies will be able to freely move goods around, manage their own operations, bring in commercial activities, and do some advanced processing.
Whether or not Taiwan can keep up with international trends depends a great deal on whether the Statute Governing Establishment and Management of Free Ports can be passed before the end of 2002. Today, in this era of intense global competition, Taiwan needs a comprehensive framework for growth so that each step forward can be sure and steady.
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