Thursday, October 11, 2012

Looking Backward: Free Economic Zones in Taiwan

Anyone remember the promises? 6-6-3? The Golden Decade? All that good stuff? Yeah, they foundered somewhere off the Diaoyutai. President Ma's ROC National Day Address offered a kind of apology for ignoring the economy in the form of still more promises...
In his National Day address titled “Forging Ahead Together with Composure in the Face of Adversity,” Ma sought to tackle economic issues and said his administration would focus its efforts on boosting the development of service industries, raising salaries and eliminating investment barriers to create more job opportunities.

“To bolster of national security and Taiwan’s interests, we will relax regulations on foreign investments to create a friendlier and more convenient investment environment. In the future, liberalization will become the norm and barriers the exception,” Ma said at a National Day ceremony in front of the Presidential Office.

Ma said relaxing regulations on foreign investment would create a better investment environment and more jobs, and he promised that the government would strike a balance between labor rights and foreign investment.
Why the need to strike a balance between labor rights and foreign investment? It seems an unsubtle hint that the government is going to make another half-hearted attempt to bring in Chinese workers via some kind of increased foreign labor plan, something that keeps being proposed by KMTers (over the last two decades) and opposed by everyone else, including many in the KMT. The government has already relaxed the rules on foreign labor to allow another 80,000 workers on top of the record-high 440,000 foreign workers already present in Taiwan. The new rules say that any business that relocates from China to Taiwan will be able to recruit additional foreign labor. Moreover, overseas firms that establish an enterprise in Taiwan will be able to recruit 5-10% of their labor force from overseas. Wonder how that would work with Chinese firms? Would they be able to bring in labor from China?

In any case there already is a loophole through which Chinese labor is entering Taiwan in a trickle -- a business can open an associated school and hand out "scholarships" and "internships", then bring in Chinese "students" (read: workers) via that route. I've heard this is already happening. Would like more confirmation.....

The Ma Administration also plans to erect "Free Economic Demonstration Zones" around Taiwan. The first one is slated for K-town, already under development. WantWant ChinaTimes has some simply penetrating commentary:
Taiwan's Council for Economic Planning and Development announced recently that a draft plan for showcase free economic zones will be presented in November before its scheduled introduction next year, aimed at attracting investment to boost exports.

The free economic zones, which are part of President Ma Ying-jeou's policies formulated to achieve his Golden Decade vision, are based on the traditional model that ensures rapid economic development through free trade.
The Ma Administration's policies are the policies of the 1960s: low-cost labor and economic development zones.

The FEDZ plan, according to another WantWant piece, offers foreign investors terms more favorable than the WTO mandates, while offering China "only" what the WTO mandates.

A Taipei times commentary observed that in many cases, FTAs forbid labor payment discrimination systems. This means that the FEDZ policy may hamper Taiwan's ability to sign FTAs -- another broken Ma promise, recall -- as outgoing labor minister Jennifer Wang observed as she went out the door. Both that commentary and the WantWant commentary make exactly the same point: if low-wage labor in Taiwan grows, it will only bring in dirty, labor-intensive industries....from the TT commentary:
If a policy of decoupling the wages paid to foreign workers from those paid to native workers is to have the desired effect of increasing job opportunities for Taiwanese workers, it will have to be a nationwide policy, not one limited to certain special zones. Furthermore, if special zones were to promote differential wages for foreign migrant workers as an attraction, it is very likely that most of the investors it would attract would be labor-intensive manufacturers, and that is not in keeping with the original purpose for which special zones were set up.
The whole purpose of the original export zones was to get foreign makers to invest, bring in expertise, and upgrade the skills of Taiwan workers. The wave of science parks help foster growth in tech industries. Now it's 1960 again....

...worse, we all know what those industries will want: free land in the zone, subsidized labor (foreign workers at low cost), subsidized water, and subsidized electricity. The profits of such firms will come, essentially from the pockets of taxpayers in the form of government subsidies.
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