Five years after it struck, the nation is still feeling the effects of the global economic crisis. The government has come under pressure to do more, but engineering an economic recovery and overhauling industrial infrastructure is difficult.
Early this year the new Cabinet unveiled its plan to establish “free economic pilot zones,” but their impact has been disappointing, and disagreements within the government over how the plan should be implemented have not died down. This led to a rather limited relaxation of current legislation, and several opinion leaders have expressed reservations about the policy.
However, after China started promoting the China (Shanghai) Pilot Free Trade Zone, the government was forced into a bolder relaxation of these restrictions. It this month initiated amendments in seven main areas including promoting the free movement of personnel and commodities, and opening up to the global market.
The government also said that the zone scheme would be extended to extra locations. In addition to the creation of seven free trade ports, it designated an agricultural biotech park in Pingtung County and international healthcare centers within the four international airports.
Although Taiwan is not regarded as a major market by foreign investors, it has many advantages, including manufacturing resources and capabilities.
While the traditional industrial manufacturing base has moved overseas, the nation still has much to offer, including people with considerable production management experience, together with a strong IT and electronics manufacturing industry.
The country is also a good destination for foreign investors in terms of human resources. Salary stagnation means workers are underpaid for their skill level.
Another ace in the nation’s sleeve is its links with China and ASEAN. Hong Kong has its robust services industry, finance and international trade; Taiwan’s advantage resides in its manufacturing industry, along with all the associated derivative industries. Taiwan also boasts a hinterland several times the size of those in Hong Kong and Singapore, and it is much better equipped to serve as a base of innovation based on the Chinese cultural model. We must capitalize on all of these factors.
Economics and the lessons of other countries’ development tell us that small economies neighboring large markets require an environment of economic and trade deregulation to thrive. Such an environment helps their companies operate and facilitates investment activity.
This is the reason foreign investors are willing to pour resources into a country’s industrial development, and why those already there can shine.
In other words, the ease by which companies can enter and exit a market, the relative competitiveness of the tax system, and an infrastructure and regulatory environment beneficial to logistics and the flow of monetary and human resources, including speedy customs clearance, clear and transparent financial regulations and a comprehensive network of communications and air and sea transportation are all crucial factors in ensuring that foreign and local investment capital remains within a country.
If the country plans to develop into a regional processing or logistics hub, it must further relax customs regulations between the pilot zones and the outside world.
If Taiwan is to become a regional center for research and development, the process for assessing patent and intellectual property transactions must be more closely aligned with systems in other countries.
Finally, if the nation is to be the preferred choice for regional headquarters in a range of sectors, it must consider copying the system other countries use to tax inward dividend remittances for foreign investors and for expatriates’ incomes.
In addition, a consensus needs to be formed, and quickly, on what special treatment flows of resources across the Taiwan Strait receive. Any unnecessary restrictions should be relaxed, otherwise the economic zones will be less attractive to both domestic and foreign companies, and the policy will continue to fall short.
Steven Yang is director of research division VI at the Taiwan Institute of Economic Research.
Translated by Paul Cooper
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