Taiwan faces a multitude of challenges in its efforts to be involved in regional economic integration. One major challenge is that few free trade agreements have been signed with other countries. As a result, local exporters cannot enjoy tariff reductions that are granted to their trade competitors.

This leaves local exporters with two options. The first is to slash prices by cutting down on costs or squeezing profit margins. This has damaging effects on business owners as well as employees and is not a sustainable approach.

The second option requires the government to depreciate the New Taiwan dollar to make exporters’ prices more competitive. However, this will increase prices of imports and reduce the New Taiwan dollar’s purchasing power, which will work against Taiwan’s overall economic development.

In the end, local businesses may simply choose to relocate overseas. And mainland China continues to look like an attractive destination.

After seeing the Shanghai Pilot Free Trade Zone take off, Beijing announced on Dec. 12 that it would set up three additional free trade zones, in Guangdong, Tianjin and Fujian provinces.

We must pay particularly close attention to the free trade zone in Fujian province, the closest Chinese province to Taiwan, as it has greater potential to draw Taiwanese businesses.

Taiwanese businesses have shown great interest in the Shanghai Pilot Free Trade Zone since its creation. Up to 153 Taiwanese companies have been registered there.

The free trade zone in Fujian province may prove to be even more attractive, as Chinese officials indicate that the zone is designed specifically for Taiwanese merchants.

Given these developments, Taiwan’s free economic pilot zones should take center stage as they have the potential to reverse the tide.

It is always wise to learn from the successes of the past. There are precedents for establishing effective free economic zones in other countries and all have two things in common.

First, the zones must be highly liberalized to lure foreign businesses. Strong incentives are needed in order to distinguish the zones from their competitors.

Second, there should be clear-cut differences within and outside the zones with regard to the business environment.

Policymakers in Taiwan should make the best use of Taiwan’s strengths, which include good infrastructure, a robust legal system, quality human resources and, most importantly, the brand name of Taiwan. “Made in Taiwan” products are able to command a higher price than their Chinese competitors.

If all these favorable conditions can be packaged in the right way, Taiwan may serve as a great place for companies to set up their headquarters. The goal should be luring back Taiwanese businesses operating overseas.

This will help to reconnect broken supply chains in Taiwan. As a result, the local industry will be able to create more value, induce more demands, create more job opportunities and boost wage levels in Taiwan.

Positive impacts that can be brought about by the FEPZs are not universally agreed upon in the nation. However, we should take note that while Taipei and Beijing drew up the free trade zone proposals at about the same time, the idea has been implemented in mainland China for over a year now, whereas in Taiwan, legislation covering the proposal is still awaiting the legislature’s approval.

The free trade zone concept is carried out even more forcefully in South Korea, which is widely considered Taiwan’s main trade rival. Up to eight free economic zones have been established in the country, with the first one ― the Incheon Free Economic Zone ― established 10 years ago.

If not for their advantages, why are the free economic zones being so forcefully pursued by Taiwan’s neighbors? This is something that Taiwan must consider.

(Editorial, The China Post)

(Asia News Network)