1. Free Economic Pilot Zones ECCT Premium Event August 23, 2013 Chung-Ming Kuan Council for Economic Planning and Development

2. 2 / 20 CEPD Free Economic Pilot Zones Outline Introduction Ideas and Goals Strategies and Targeted Industries Implementation Concluding Remarks Digression: Cross-Strait Services Trade Agreement

3. 3 / 20 CEPD Free Economic Pilot Zones Introduction Taiwan’s economy in recent years  Slower economic growth  Weaker domestic demand: Consumption, investment  More export competition, worse terms of trade  Declining real wage What has gone wrong?  Investment and trade barriers  Business conditions  Government efficiency

4. 4 / 20 CEPD Free Economic Pilot Zones Introduction While there is no room for a large-scale fiscal stimulus plan, how can we restore Taiwan’s economic momentum? Free Economic Pilot Zones (FEPZs) for furthering Taiwan’s economic liberalization  Why does Taiwan still need special zones?  FEPZs are different from the conventional “Export Processing Zones” or “Science Parks”  FEPZs may be real or virtual

5. 5 / 20 CEPD Free Economic Pilot Zones Ideas and Goals

6. 6 / 20 CEPD Free Economic Pilot Zones Ideas and Goals Key ideas  Liberalization: De-regulation, Market Opening  Internationalization: International alignment  Forward looking: Industries with new business models Goals  Removing Investment and trade barriers  Refining business conditions  Improving government efficiency

7. 7 / 20 CEPD Free Economic Pilot Zones Ultimate Goal FEPZs as trial areas, before there is consensus about de-regulation and market opening  To demonstrate the usefulness of economic liberalization and internationalization  From restrictive to general  From small-scale to large-scale Ultimate goal: Toward a free economy/trade island

8. 8 / 20 CEPD Free Economic Pilot Zones Strategies and Targeted Industries

9. 9 / 20 CEPD Free Economic Pilot Zones Strategies Promoting the free movement of people, goods, and money Market opening and international alignment Tax incentives Convenient acquisition of land A supportive and friendly operating environment

10. 10 / 20 CEPD Free Economic Pilot Zones Targeted Industries (1/3) Intelligent Logistics  To promote faster and freer goods flows and increase the value-added of goods with top logistics services, enabled by innovative customs administration and information clouds International Medical Services  To provide foreign patients with health checks, cosmetic medicine and serious illness treatment, and to promote alliances with other industries, such as tourism

11. 11 / 20 CEPD Free Economic Pilot Zones Targeted Industries (2/3) Value-Added Agriculture  To develop agriculture by utilizing Taiwan’s agricultural technology to innovate for higher value, to extend the whole value chain, and to market the MIT brand Business Cooperation  Taking advantage of FEPZs to promote cross- country cooperation through acquisition of key technologies, intellectual property (IP) or funds

12. 12 / 20 CEPD Free Economic Pilot Zones Targeted Industries (3/3) Financial services: Wealth and asset management  Under a grading (grade-based approval) system, only qualified financial institutions are allowed to sell products which are not currently approved and to provide different services. This is what we mean by “virtual” zones More service industries to come

13. 13 / 20 CEPD Free Economic Pilot Zones Implementation

14. 14 / 20 CEPD Free Economic Pilot Zones A Summary 0 Restriction 1 Service window 2 Phases 3 Ideas 4 Targets (4+N) 5 Strategies 6 Benefits

15. 15 / 20 CEPD Free Economic Pilot Zones Private investment to increase by NT$20 billion in 2014 GDP to increase by NT$30 billion in 2014 Creating 13,000 new jobs in 2014 FTZs to see trade value multiplying and surpassing NT$1 trillion in 2015 New business models Preparing us for joining TPP and RCEP talks Potential Benefits

16. 16 / 20 CEPD Free Economic Pilot Zones “Real” Locations Phase I 7 FTZs & 1 agri- biotech park Extending FTZs by “on-site shop, off-site factory” (shop in front, factory behind) * Proposal for inclusion submitted to the EY for approval. Taipei Port FTZ Pingtung Agricultural Biotechnology Park Anping Harbor* Kaohsiung Port FTZ Keelung Port FTZ Taoyuan Airport FTZ Su’ao Port FTZ Taichung Port FTZ

17. 17 / 20 CEPD Free Economic Pilot Zones Concluding Remarks FEPZs to prepare us for further economic liberalization and internationalization FEPZs include but are not limited to 7 FTZs; more service industries will be included in “virtual” FEPZs in the future. We welcome new ideas and proposals that can be applied to FEPZs.

18. 18 / 20 CEPD Free Economic Pilot Zones Cross-Strait Services Trade Agreement

19. 19 / 20 CEPD Free Economic Pilot Zones Mainland China’s Opening 80 items of WTO+ commitment  Less restrictions on Taiwanese investment: Sole ownership and higher shareholding are allowed  Greater business scope for Taiwanese service providers, including increased activities and enlarged geographic coverage of services  More relaxed administration for easier business operation: Minimum stay requirement is abolished and the time for content examination is shortened

20. 20 / 20 CEPD Free Economic Pilot Zones Mainland China’s Opening Foreign businesses with a substantive presence in Taiwan, after operating and paying taxes for 3 or 5 consecutive years (the latter for the financial and construction industries), will be able to enter the mainland as Taiwanese companies Taiwan’s opening: only 64 items of commitment; more than 2/3 are greater than or equal to Taiwan’s WTO commitments. None of these surpass what foreign businesses enjoyed in Taiwan