Free Trade Zones: Regional and Local
United Daily News editorial (Taipei, Taiwan, ROC)
December 24, 2012
Summary: Free Trade Zone plans will soon be finalized. The government is participating in the Pan-Pacific Partnership Agreement (TPP). This is an important step in Taiwan's transformation into a Free Trade Island. But economic liberalization is a difficult and complex task. It must proceed step by step. It must be effectively promoted and carefully planned.
Full Text below:
Free Trade Zone plans will soon be finalized. The government is participating in the Pan-Pacific Partnership Agreement (TPP). This is an important step in Taiwan's transformation into a Free Trade Island. But economic liberalization is a difficult and complex task. It must proceed step by step. It must be effectively promoted and carefully planned.
Taiwan's economic development is a tale of economic liberalization. During the 1960s, it negotiated an economic bottleneck. The economy underwent its first large-scale liberalization. Taiwan took a giant step toward a market economy. During the 1980s, a massive trade surplus built up between Taiwan and the United States. This led to economic liberalization, open markets, and a significant reduction in tariffs. During the mid-1990s, we aspired to join the World Trade Organization (WTO) and to become an Asian-Pacific Regional Operations Center. We liberalized our economy, including financial services, and adopted international standards.
Back then, we liberalized three times. Today the Ma administration confronts a grim economic future. Its plight is similar to what it was back then. In 1993 the government countered an economic slump by promoting a private sector stimulus package. The six-year National Development Plan created a serious fiscal deficit. The global economic center of gravity quickly shifted to Asia, including ASEAN and Mainland China. This liberalization gave Taiwan's economy a shot in the arm. The program loosened constraints. It prescribed an Asian-Pacific Regional Operations Center. This would serve as a pilot program for a Free Trade Zone -- one which would include the entire Taiwan region. The Ma administration is thinking along the same lines with its Free Trade Zone.
Unfortunately the program establishes a Special Administrative Region. From a planning perspective, incremental regional liberalization and limited local liberalization are very different matters. In practice, implementing tariff exemptions on imported goods within an SAR is difficult. Unless one applies Export Processing Zone bonding, it fails to provide a test case. The service sector requires market access. A market that is open only inside an SAR holds no attraction for industry. Some service industries serve global or regional markets. These include finance, shipping, and professional services. These service industries cannot be limited to any particular geographical region. Feasibility studies have been conducted. The Asian-Pacific Regional Operations Center was eventually revised in accordance with industry requirements. It was replaced by an incrementally liberalized Asia-Pacific Regional Operations Center.
The Free Trade Zone is a TPP pilot program. It faces the same problems as the Asian-Pacific Regional Operations Center. The TPP is incompatible with a geographically delimited and incrementally liberalized SAR. It is incompatible with zero tariffs in import goods or a comprehensive liberalization of the service industries. Should the Free Trade Zone be changed into a virtual SAR? Should it be changed into an incrementally liberalized Free Trade Zone? Or should it remain a geographically delimited SAR? Should the government choose another, more viable project to demonstrate incremental liberalization?
In order to join TPP as soon as possible, the government must promote the Free Trade Zone. It must adopt a two-pronged approach. It must simultaneously promote the Taiwan Regional Free Trade Zone and the Designated SAR Local Free Trade Zone. It should draw from international free trade agreements (FTAs). Some goods and services are global in nature. They cannot be confined to certain geographical regions. They must be granted incremental tariff cuts and market openings. The government should adopt a Regional Free Trade Zone approach. It should allow vulnerable industries to gradually adapt. The rules for personnel transfers, the introduction of foreign professionals, technicians, and senior managers, should must be Taiwan wide. This is essential for industrial restructuring and upgrading.
The government can establish SARs for industries with development potential. It can provide support and new administrative models. These would serve as local pilot programs to promote future comprehensive opening. . Cross-Strait relations are unique. The gap between the sizes of the two sides' economies is great. Large numbers of Mainland-funded enterprises and Mainland professionals could arrove on Taiwan. To alleviate such concerns, the government can implement cross-Strait economic cooperation in the SAR pilot program zones first. It can substantially relax restrictions on investments by inland enterprises and the entry of Mainland professionals. It can establish a favorable balance in capital and talent flows. This would benefit both sides by establishing a win-win cooperative model, one that would incrementally applied to Taiwan as a whole.
The purpose of the Free Trade Zone is to prepare ourselves for TPP membership. Therefore it must not include non-standard, non-universal, preferential treatment. It must not include tax relief, cheap land, and foreign labor employment privileges. Relying on incentives to attract corporate investment, in preparation for economic liberalization, amounts to a contradiction in terms, and has no value as a pilot program.
In sum, the Free Trade Zone must integrate past experience with future ambition. It must begin with a regional pilot program and expand outward. It must begin with a local pilot program while striving for a breakthrough. It must enable us to join the TPP and become a Free Trade Island.
2012.12.24 02:48 am