Q: Why does there have to be special legislation for free ports? Has review of the law been proceeding smoothly in the Legislative Yuan?

A: A free port is based on the concept of having an economic zone physically within the national territory yet "outside" of the country as far as customs laws and duties are concerned. Goods in a free port area are not considered to be in the country, and do not need to pass customs. But this does not mean that a free port is "beyond the law." Its operations require that the government work closely with the autonomous operators of the free port. The government must establish an appropriate legal mechanism so that the operators can enjoy the maximum possible room for maneuver within the regulations so as to run the free port according to the most efficient model for their own operations. At the same time, it is necessary to penalize illegal behavior such as smuggling.

In addition, the operations of free ports touch upon matters of customs, taxes, movement of personnel, and so on. These involve many different areas of law, and the issues are very complex. If we simply try to amend the existing laws in a patchwork fashion, inevitably there would be loopholes, and the possibility of conflicts between different laws would be high, so it would be impossible to map out the operations of a free port in an integrated and comprehensive manner. The government has decided to proceed on the basis of a "special law." A single legislative package makes it easier for government departments to coordinate with each other and raises legislative efficiency. It will also be easier to amend the law in the future if necessary. The ministries of finance and economic affairs are all grateful to the Legislative Yuan for its support and for giving the bill priority in the legislative calendar. If nothing unexpected occurs, the "Statute Governing Establishment and Management of Free Ports" should complete the legislative process by the end of 2002.

Q: There will inevitably be a number of free ports in various locations. Are city and county governments already lobbying to get free ports?

A: Under the current plan, the types of places we are considering for designation as free ports are international airports, export processing zones, science-based industrial parks, and bonded factories. Such places do not fall under the control of local governments. Therefore, although some legislators are trying to get free ports on behalf of local governments, the central government will have to persuade people at the local level to understand that if conditions in a given area are not appropriate, they are not likely to get a satisfactory result from rash efforts to get a free port.

We want to avoid a situation in which local governments make an issue out of getting a free port based on their local interests. Therefore, the draft of the Statute Governing Establishment and Management of Free Ports states concretely that a free port "indicates an area, determined by the central government, within an international airport, international harbor management zone, or a special zone in a neighboring area." However, at the moment it appears as though the definition will have to be broadened. But my personal opinion is that the possibility for success is greater for a free port set up at an international airport. The chance of success for a free port at a seaport will depend on how the managing agency and enterprises utilize it.

For example, Japan decided to create a free port based in Okinawa, with the goals of kick-starting the local economy, increasing employment opportunities, and attracting foreign investment. But results have been limited. The underlying reason is that Okinawa did not have a significant role in international trade to start with. So the approach of the Japanese government in giving Okinawa the functions of a free port was "building on air." Of course they did not achieve their policy goals.

Therefore, a well-designed policy should focus on strengthening existing functions. If you defy logic and are determined to set up in inappropriate places, inevitably the free port will not be able to fulfill its proper role, but will simply increase costs for enterprises. Once the free port statute passes, the first group of areas to be designated will be "model students" from which areas that could be designated in the future can learn.

Q: To speed up the flow of goods is one of the goals of a free port. What plans are there in this respect?

A: The establishment of a free port is of most benefit to those industries in which the time factor is particularly important, which must rapidly package and reship products. For example in the international technology industry people now look for "95/5" [that 95% of goods be in the customer's hands within five days of receiving the order] or "98/3" [98% within three days]. Such operations depend quite a lot on regional logistic centers-in other words, on the functions of a free port in accelerating the flow of goods. In addition, for high value added products, it is always hoped that these are not forced to stay in one place for very long, because that will increase the costs to enterprises and reduce the speed with which the products can be delivered. Since there is no need to pass through customs, a free port will allow businesses to realize the advantage of "time is money," which is of course what is most needed in the market.

In the past some businesses tried to use Kaohsiung's Hsiaokang airport as a shipment management area. As soon as a plane landed and could be hooked up to a staircase, the semi-finished products on board could be passed directly to an assembly line. Then, using automated shipping management, the finished products could be immediately returned to the plane and sent anywhere around the world. Only if Taiwan can coordinate the functions of free ports with processing zones nearby airports can free ports display their true value.

We not only want to provide these advantages to international corporations, we also hope that enterprises in Taiwan will extensively utilize them. Taiwanese firms can bring goods into the zones from overseas or from other free ports, tax-paying areas, or bonded zones in Taiwan, or they can ship goods out of a free port to other locations inside or outside the island, or can move goods within the free port area itself, simply by following the relevant regulations about reporting to customs or filing applications.

Q: Will the movement of businesspeople in and out of a free port be "one size fits all," and open to businesses from around the world?

A: The draft regulations aim to make it convenient for foreign businesspeople to enter the free ports to undertake business activities so that the functions of the free port will be brought fully into play. Thus, international business people coming into the free ports will not only have the options of general visas for stopovers or long stays, visa-free travel, landing visas, or applying for a travel permit, but also, in emergency situations, the free port management agency will be able to forward a visa application to the governing authority (the Ministry of Foreign Affairs) which can then, in three days, have a landing visa waiting at the airport for the traveler. Also, we have some hopes with regard to rules for mainland Chinese to come to the free ports, but because the travel of mainland people to Taiwan falls under the "Statute Governing Relations Between People in the Taiwan Area and the Mainland Area," in this matter the Mainland Affairs Council will make the final decision.

Q: The business community considers tax burden to be one of the most important considerations in investment. What special incentives will there be in this regard in the planned free ports?

A: In terms of taxes, we have to get agreement from the Ministry of Finance. Fortunately, through inter-departmental communication, the MOF has already agreed to coordinate the future tax structure to allow for certain tax-free items and areas for free ports. I use the term "tax structure" to describe the tax regulations for the free port because it involves two main areas: for use by enterprise operations within the zone and for shipping things out of the zone. This is in the nature of a free port as an area within the national territory yet outside as far as customs laws and duties are concerned. Companies in the free port can avoid the question of customs duties on goods that they ship in from outside the country-whether machinery or equipment to be used in their own operations, or semi-finished products or raw materials-since, technically speaking, these have not come into the country.

As for international companies operating in the free ports, the key point is not the direct tax revenue they might generate for the government. Rather, the focus will be on the synergies international companies can maintain, on the underlying commercial opportunities and other added value. Currently free ports are designated as tax-free areas in order to avoid having tax burden become an obstacle to competitiveness for companies. We've got to get rid of such obstacles at the outset to attract investment. Moreover, in the future, companies that set up in free ports can enjoy other incentives as well: tax deductions and exemptions on rent of state-owned land, calculation of rent as part of their investment, and priority in access to low-cost imported labor.

Q: Compared to other countries, Taiwan is by no means at the forefront in establishing free ports. What is the government planning to do in order to attract the business community to use Taiwan's free ports?

A: Although we are not the earliest to establish free ports, the business community will be willing to use ours, for many reasons. Our operating principles are transparency, reliability, and trustworthiness, and Taiwan already has an outstanding image internationally. Particularly in comparison with mainland China, Taiwan's established legal structure and performance allow the business community to feel a sense of certainty and confidence. Many Taiwanese companies have had the experience that their containers have definitely arrived in some mainland port, but they cannot find their goods. Or, that they have products they must urgently ship, but they are held up because of some inexplicable customs regulation or unforeseen circumstance. The possibility of such things happening would be minimized in the future if international or local firms choose to use our free ports. If companies can earn larger profits because their goods can be shipped easily, people will be increasingly drawn toward Taiwan, and I am not in the least worried that we will lose out to other countries.