Export boom for TaiwanEven 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.