The government has recently been pushing its proposal for free economic pilot zones, saying that it would help the economy get back on its feet. True to form, however, the government is only talking about the potential benefits of the proposal, but is keeping quiet about any possible negative impacts.
For this article, the National Taiwan University Department of Economics invited a dozen or so experts, including Koo Foundation Sun Yat-sen Cancer Center president Andrew Huang (黃達夫), to explore the potential advantages and drawbacks of the proposal, should the special regulations for free economic pilot zones (自由經濟示範區特別條例) be passed in the legislature.
According to Article 13 of the special regulations, in addition to free-trade zones, agricultural biotech parks, export processing zones and science parks, local governments could also choose to designate other areas as pilot zones.
These, together with the “shop in the front, factory in the back” model and others, mean an awful lot of pilot zones of one type or another would pop up around Taiwan. Article 18 outlines how private land for the pilot zones could be obtained through a range of methods, including agreed purchase prices, expropriation and zone expropriation. Local governments would be able to buy land from private individuals at low prices and then sell it on to developers.
The benefits for politicians and companies would be huge, but where are the safeguards for private property owners? We are still waiting for the outcome of the Taoyuan Aerotropolis project the government is pushing, an enterprise that has been engulfed in scandal, yet it still wants to set up pilot zones throughout the nation.
Article 38 would allow for the automatic exemption of import duties for commodities, so that other countries would not need to sign trade-in-goods agreements with the nation, as they would not in any way feel obliged to reduce tariffs on Taiwanese goods.
This would have a huge impact on the competitiveness of Taiwanese exports in diverse industries, such as petrochemicals, LCD screens and machine tools. In addition, this same article, together with Article 42, would further deregulate agricultural imports and exempt 830 currently restricted Chinese agricultural products from any import tariffs, something unprecedented in similar agreements around the world.
Most nations do their utmost to protect the farming sector. When the US signed a free-trade agreement with South Korea, for example, import tariffs were not exempted on US beef until 15 years later. The huge influx of agricultural products set to come from China and other countries will be extremely bad for Taiwan’s farmers, as well as negatively impacting food security and the environment.
Article 42 would also allow certain agricultural products from China to enter Taiwan to be used in food processing. With peanuts, for example, after they have been processed, any restricted goods such as peanut oil would be sold overseas, while non-restricted goods like peanut butter could be sold domestically.
If all of these cut-price Chinese goods, many of dubious quality, started to flood Taiwan they would replace our own farm produce, having a huge impact on the domestic farming sector. Processed food could then be shipped off overseas branded as made in Taiwan, without having been subjected to quality control checks.
If the quality of these goods was found wanting, this would be very damaging to “brand Taiwan.” In the long term, there is nothing to say this would benefit exports of processed Taiwanese products, and neither would it provide any assurance to our own domestic consumers that food was completely safe.
With the cross-strait service trade agreement, Taiwan’s hospitals would be able to set up 100 percent Taiwanese-owned hospitals in any of China’s province-level municipalities, and this would create a drain of the nation’s medical and nursing staff across the Strait. At the same time, the international medical treatment zones that could be set up in the free economic pilot zones would draw people needing medical treatment from overseas. The government has clearly not thought this proposal through properly.
Article 49 would allow institutions offering medical treatment within the pilot zones to set themselves up as profit-making medical associations, and excludes the stipulation, found in the Medical Care Act (醫療法), that two out of every three hospital trustees must be medical doctors or medical personnel, and would also allow non-Taiwanese to sit on the board.
If the hospitals in the proposed pilot zones turn a profit and lure prominent doctors with the promise of high salaries, only the rich would be able to afford medical services in these places, while ordinary people would have to look elsewhere. This would lead to a two-tier system for access to medical treatment. Economists have warned that this is already becoming a serious issue with the for-profit international medical treatment policies promoted by many Southeast Asian countries.
There are many important research hospitals in Taiwan, which employ some of the top medical and biotech professionals in Asia, with many success stories in the field of biotech pharmaceuticals. If prominent doctors go to the proposed free economic pilot zones and concentrate on cosmetic care and health checks for the wealthy, the development of biotech in this country would suffer.
The fact is, the Department of Health — now the Ministry of Health and Welfare — previously allowed 50 hospitals in Taiwan to give 10 percent of their beds over to the provision of international medical care, so people can come from overseas and pay for treatment in Taiwanese hospitals, and this has not impinged upon the rights of Taiwanese patients at all. Until the market under the present conditions reaches saturation point, there is no need to have special international medical treatment zones within the pilot zones.
The government has already amended the Regulations on the Permission and Administration of the Employment of Foreign Workers (雇主聘僱外國人許可及管理辦法) so that people from overseas can come to Taiwan to take up specialist or expert work in the pilot zones whether as appointees or on a contractual basis. Companies within the pilot zones would prefer to hire white-collar professionals from nations that do not come with the same labor law protections or high salary expectations that local Taiwanese professionals have.
In addition, the government has also amended the Act on Permission for Entrance of People of the Mainland Area into the Taiwan Area (大陸地區人民進入台灣地區許可辦法) so that there is no longer a cap on Chinese nationals coming to Taiwan as a result of internal transfers or the fulfillment of contracts within transnational companies, and Chinese businesspeople employed by companies operating within the pilot zones would be able to apply for a three-year multiple entry permit, while those coming here on short-term business activity of less than one month would not need to be officially vetted or subject to checks prior to their arrival.
Also, if Chinese were to come to Taiwan to work for these companies, employers would not be liable for the so-called employment stability fees or broker’s fees. Chinese that are owners or senior management of transnational corporations, as well as expert or technical service personnel who have been employed in that capacity for more than one year, would be allowed to come to Taiwan.
Clearly, checks on the qualifications and credentials of Chinese white-collar professionals wanting to come to work in Taiwan are conspicuously less stringent than those on other foreign specialists. Article 30 would also allow Chinese to apply for business-residency permits. The scene is set for Taiwanese workers having to compete with a large number of Chinese blue-collar workers seeking employment as white-collar professionals.
Article 31 would make it possible for companies and shareholders within the pilot zones to repatriate interest earned abroad within the previous three years for investment purposes, and stock dividends or profits going back five years, income-tax exempt. In Article 33, if businesses set up, or are commissioned to provide, goods storage or simple processing services, they would be exempted from paying export duties or, if selling domestically, exempted 10 percent of business income tax. Article 32 would allow foreign national and Chinese white-collar professionals, within a three-year period, to report only 50 percent of their earnings in their income tax when calculating their tax payable.
This would lead to the unfair situation in which companies and foreign — read “Chinese” — specialists within the pilot zones would be able to enjoy generous tax breaks, while companies outside, and the general public, would be saddled with high taxes.
The Ministry of Economic Affairs (MOEA) has already amended the Measures Governing Investment Permits to the People of the Mainland Area (大陸地區人民來台投資許可辦法) so that Chinese investing in businesses in the pilot zones would not be constrained by current legislation. As long as the MOEA classifies banking and telecommunications as pilot businesses, even if the government fails to pass the cross-strait service trade agreement, Chinese investors would still operate as businesses in these rather sensitive sectors within the pilot zones.
Worse still, the body responsible for running the pilot zone, such as the industrial park authority, would be invested with a considerable amount of power over the nation’s long-standing labor inspection and health and safety systems and regulations on environmental impact and construction.
The question is, do these proposals, which would benefit a small number of corporate groups but disadvantage the majority of people in this country when it comes to medical treatment, employment, farming, food safety and national security, really have more advantages than they do drawbacks, as the government maintains?
Jang Show-ling is a professor in the Department of Economics at National Taiwan University. Chen Chi-chung is a professor in the Department of applied Economics at the National Chung Hsing University.
Translated by Paul Cooper
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