20131206 Pilot zones a poison pill for Taiwan
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Pilot zones a poison pill for Taiwan

By Frida Tsai 蔡培慧

Taiwan has recently been abuzz with all sorts of activity. Association for Relations Across the Taiwan Straits (ARATS) Chairman Chen Deming (陳德銘) visited Taiwan, and representatives of Taiwan’s six major business federations paid a visit to Legislative Speaker Wang Jin-pyng (王金平). What they all want is for Taiwan’s economy to be made freer and more open. They would like everyone to think that Taiwan’s economic difficulties can all be ascribed to closed-door policies.

Half a century ago, Taiwan embarked on a course of rapid economic development that came to be known as the “Taiwan miracle,” but for nearly two decades now, it has been caught in a development bottleneck similar to that experienced by the old capitalist states of Western Europe. Business profits have been trending downward and real wages keep falling. Taiwanese see only bleak economic prospects ahead. They wish the government could come up with a formula for improving the country’s business structure in a fair way that would not just help companies grow, but also lead to a more even distribution of wealth. Then our society could escape from the dark cell in which it is presently confined.

In the absence of such a remedy, people are forced to pin their hopes on the government’s proposed “free economic pilot zones.” The government’s policy objectives for these zones are blindly fixed on opening up, deregulation and incentives, rather than on innovation and transformation. The only “freedoms” involved are those of businesses to enjoy zero tariffs and reduced labor costs in the specially designated zones.

Pilot-zone policies will involve scrapping the Profit-Seeking Enterprise Income Tax, which is one of Taiwan’s few existing tools for wealth redistribution. These proposals will not only fail to solve Taiwan’s economic development difficulties, but will make the gap between rich and poor even wider than it already is. Ordinary people’s purchasing power will continue to dwindle, which will further weaken the economy and lead to social unrest.

We at the Taiwan Rural Front are principally concerned with the agricultural sector. The policy orientation of the proposed pilot zones regarding farm product processing will send Taiwanese brands and Taiwan’s countryside straight to the gallows.

The current draft of the special regulations for free economic pilot zones (自由經濟示範區特別條例) stipulates that agricultural and industrial raw materials and products imported into the zones will be exempt from customs tariffs and from business and commodity taxes. Goods that are exported after being processed in the zones will be 100 percent free of tax, while 10 percent of the value of those sold in Taiwan will also be tax exempt.

The 830 kinds of Chinese agricultural product whose importation into Taiwan is currently restricted will be allowed to flow in freely, and this is not to mention the unrestricted products from various other countries, imports of which will increase greatly under the pilot zones’ zero-tariff policy.

Low-priced agricultural products and materials of dubious quality imported from all over the world will to a large extent take the place of those produced in Taiwan, causing the annual production value of Taiwan’s agricultural sector to fall by nearly NT$200 billion (US$6.74 billion).

Not only does this run contrary to the global trend of encouraging local marketing of local products and self-sufficiency in food, it will also cause the agricultural revival movement that has scored some successes in Taiwan in recent times to wither away completely.

Even worse, business policies that involve selling out the notion of “made in Taiwan” will badly damage people’s faith in “brands” such as “Taiwan tea” and “Taiwanese fruit.” When consumers discover that so-called “Taiwanese tea” was really grown in Vietnam or China, are they likely to go on believing in such a fraudulent “brand?”

It would be fair to say that existing agricultural policies for the pilot zones will turn the state into a leading fraud syndicate.

Honesty should be an important kind of capital for any business. The perverted kind of liberalization that the government has in mind may possibly bring about short-term economic growth and help some businesses make profits. However, effective distribution of the benefits of economic development will be prevented by tax-free conditions.

For example, Article 37 of the draft pilot zone regulations says that when an overseas profit-making enterprise appoints a pilot business to store goods or carry out simple processing in one of the zones and that firm then hands the overseas company’s goods over to a customer in Taiwan or overseas to sell, its income will not be subject to Profit-Seeking Enterprise Income Tax.

Taiwanese and overseas investors operating in the pilot zones will enjoy all the benefits of cheap rent, water, electricity and labor without repaying a penny of all the money they save to Taiwan. This tax-free arrangement will deplete Taiwan’s tax base, with an inevitable knock-on effect on the quality of public services. The outcome will be that most people in Taiwan will become poorer and their lives will get tougher.

The export processing zones of the 1960s and 1970s succeeded in driving Taiwan’s economic development forward under the special political and economic conditions that prevailed at that time. The key reason they could do so was that the share of foreign investment in the special zones was limited, and companies located there had to employ Taiwanese workers while learning overseas investors’ technology and organizational management, thus promoting economic transformation.

Taiwan today has reached the stage of a medium-developed country, yet the government is rashly and nostalgically reverting to a “special-zone economy.” It wants to employ inequitable means, such as incentives and tax and tariff exemptions, as well as sacrificing the agricultural sector, all to attract lazy businesses that compete based on cheap labor to set up shop in the pilot zones. This kind of “remedy” is tantamount to killing a chicken to get its eggs or drinking poison to quench one’s thirst.

The “free economic pilot zones” policy is a sugarcoated poison pill that could turn an already bleak economy into a dead one. In fact, Taiwan’s market is already quite open. What it really needs is businesses that focus on manufacturing technology and providing the things that people need in their daily lives, rather than blindly following a path of liberalization and laissez-faire economics.

Frida Tsai is secretary-general of the Taiwan Rural Front and an assistant professor at Shih Hsin University’s Graduate Institute for Social Transformation Studies.

Translated by Julian Clegg

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