Footage of New Power Party (NPP) Kaohsiung City Councilor Huang Jie (黃捷) rolling her eyes at Kaohsiung Mayor Han Kuo-yu’s (韓國瑜) response to her question about his promotion of a free economic pilot zone for the city has thrust the issue back into the limelight.
The issue separates the Chinese Nationalist Party (KMT) from other parties.
On Friday, New Taipei City Mayor Hou You-yi (侯友宜), of the KMT, said that he supported any policy that would help drive Taiwan’s economy. Former New Taipei City mayor Eric Chu (朱立倫), also of the KMT, the next day said that the pilot zones would undeniably be “a great opportunity to improve Taiwan’s economy.”
Former president Ma Ying-jeou (馬英九) attempted to introduce a similar policy in 2013, but it was rejected, as it was seen as a backdoor trade agreement.
NPP Chairman Chiu Hsien-chih (邱顯智) has criticized the idea and President Tsai Ing-wen (蔡英文) on Monday said that the government is opposed to Han’s proposal for a pilot zone in Kaohsiung, citing complications involving the US-China trade dispute.
Han has said that he made the proposal solely for economic reasons, but the economic argument is not persuasive, and there are political and strategic concerns to take into account.
Taiwan already has seven free-trade zones in the ports of Keelung, Suao, Taipei, Taichung, Anping and Kaohsiung, and at Taiwan Taoyuan International Airport. These provide exemptions on commodity, tobacco, liquor and business taxes; customs duties; and harbor service fees, and there are no corporate taxes levied on transactions between the zones.
If the KMT believes the laws are too restrictive, it should propose legislative changes. This would create a level playing field for domestic companies in the sectors Han is targeting: education, medicine, finance, international logistics and agricultural product processing. It would also address the issue of how giving preference to international companies could put domestic ones at a competitive disadvantage.
There are also questions about loosened inspections and quarantine procedures in the pilot zones, which would raise concerns about tainted products finding their way into the nation.
One area in which the economic and the political dovetail is the processing of goods by Chinese firms in the Taiwanese pilot zones using raw materials imported from China. Production costs would be significantly lower than for those produced by Taiwanese companies, given the cheaper imported materials and the benefits and exemptions, and there would be less quality assurance. It would also dilute the Made in Taiwan brand, further eroding Taiwan’s competitive advantage.
Chinese companies would be able to manufacture goods in Taiwan and export them as Made in Taiwan goods, which would also have implications for the US-China trade dispute. It would essentially link Taiwan’s market with China’s, exposing Taiwanese exports to US tariffs.
Restricting Chinese investment in Taiwan is addressed in the Act Governing Relations Between the People of the Taiwan Area and the Mainland Area (台灣地區與大陸地區人民關係條例). These zones would risk diluting those provisions. Taiwan has only recently been removed from the EU’s list of non-cooperative jurisdictions for tax purposes due to amendments to the Act for the Establishment and Management of Free Trade Zones (自由貿易港區設置管理條例). Han’s proposal would risk reversing that decision.
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