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Commercial zones don't suit entry by industry

After visiting Taiwanese businesspeople based in Southeast Asia during the legislative recess, Mainland Affairs Council Chairwoman Tsai Ing-wen (蔡英文) proposed turning the nation's abandoned industrial parks into "offshore special industrial zones" to differentiate them from other domestic industrial parks.

In response, Council for Economic Planning and Development Minister Ho Mei-yueh (何美玥) said it was sufficient to expand the functions of the free-trade harbor zones.

Is this true? It has been six years since the free-trade harbor zone project was initiated by the Civil Aeronautics Administration in 2002, beginning with Taiwan Taoyuan International Airport and followed by a few other ports.

The original plan was intended to create opportunities for "in-depth, value-added processing" through a cross-strait division of labor. In order to do this, the approved scope for the free-trade harbor zones was specially extended to include the "manufacturing" element.

In other words, the free-trade harbor zones also provide the same functions and characteristics as industrial development zones. This is why Ho proposed that it would be sufficient to add a few more elements to the existing free-trade harbor zones.

However, over the past six years, none of the free-trade harbor zones have brought any hopes of prosperity to the nation and some of them have even faced the embarrassing predicament of failing to attract enough investors.

What is the problem?

Although the concept of establishing free-trade harbor zones is a good one, there are two fatal problems with the idea.

First, so-called "in-depth, value-added processing" is an illusion. Taiwan is, in theory, ahead of China in certain industries and this would create a demand for such processing. However, in practice, with one-step technological solutions and entire industry chains transferring abroad, even if there were opportunities for in-depth, value-added processing here, they would be transient and could not constitute economies of scale.

Take the nation's notebook computer industry for example: Ninety-nine percent of factories are based in China. How could there be any opportunities for in-depth, value-added processing in Taiwan?

Second, and most importantly, free-trade harbor zones are suitable for commercial, not industrial, activities. It is both ridiculous and unfeasible to attempt to create industrial zones within business districts.

Yet we are trying to do this in our free-trade harbor zones. Is there a chance that they will be successful?

Every harbor zone includes air and sea transport infrastructure and the government is spending lots of money on developing this, but there is only a small hinterland supporting these zones, so rents cannot be cut.

How can industrial activities succeed in the zones, which are themselves commercial endeavors and located far away from manufacturing parks, thus making it difficult to form a supply chain and recruit capable staff?

The Council for Economic Planning and Development has always thought it possible to succeed simply by upgrading simple processing services in free-trade harbor zones. But they are on the wrong track.

Division of labor is a basic element for success in any special zone. Harbor zones are commercial districts and they shouldn't be mixed with industrial activities.

If they are mixed, the activities would be superficial and business would suffer. How, then, would it be possible for the special zones to succeed?

Mike Chang is an accountant.

Translated by Ted Yang
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