FTZ in Taiwan

The concept of FTZ in Taiwan is followed the policy of ′Global Logistics Development Plan (GLP)′ in 2000. The policy of GLP is to take Taiwan’s advantages on excellent location, high-quality human resources, and comparatively advantage electronic manufactures. The government authorities, Council for Economic Planning and Development Executive Yuan (CEPD), thought that logistics management or supply chain management might have become highly important for multinational enterprises to enhance Taiwan’s global competitiveness. Although GLP might eliminate problems encountered by enterprises in the process of global logistics development, the enterprises need one defined zone which offered the lowest limit in the process of global logistics management. The first concept is to sign the Free Trade Agreement with major trading countries and to capture the growing Asian market. Under the special political situation with Mainland China, it is difficult issue to make any Free Trade Agreement. The CEPD structured another special zone to attract multinational enterprises to establish their headquarters, especial value-added operation centers, within FTZs. At first its objectives are as follows: (1) to extend the existing results of the Global Logistics Plan and to continuingly promote liberalization and internationalization; (2) to face the challenges from other neighboring countries’ FTZ; (3) to enhance the operating efficiency of harbors and airports and to bolster the development of high value-added trade activities; and (4) to facilitate the movement of foreign business personnel in and out of FTZ and reshape Taiwan’s environment as the operations centers for international enterprises. It has been emphasized that one of the most important factors to promote the FTZ program is to eliminate the customs clearance barrier. Within FTZs, they offer four major functions as follows: (1) single-window operation; (2) free flow of commodities; (3) management autonomy; and (4) attracting business activities (as shown figure 2-1).

Free Trade Zone

Figure 2-2 Concept of FTZ in Taiwan

Source: CEPD

After all, ′Act for the Establishment and Management of Free Trade Zones′ was promulgated on the Taiwan government on 23 July 2003. This Act is enacted for the purpose of developing the mode of operation for a global logistic and management system, effecting aggressive promotion of trade liberalization and internationalization, facilitating the smooth flow of personnel, goods, finance, and technology, upgrading the national competitive power, and furthering the national economic development. According the act, FTZ is referred to an area which is situated within a controlled district of an international airport or an international seaport under the approval of government (the Executive Yuan), or of an adjacent area demarcated as a controlled area, and an industrial park, Export Processing Zone, Science-Based Industrial Park, and other areas approved by the Executive Yuan for the establishment of a controlled district for the purpose of conducting domestic and foreign business activities where the comprehensive goods tracking system can be connected with the controlled district of an international airport or seaport by means of technological facilities. Therefore, the ′adjacent area′ is to any of the following circumstances:

(1) A piece of land whose joining width with the land of a controlled district in an international airport or an international seaport is 30 meters or more;

(2) A piece of land being separated from a controlled district in an international airport or an international seaport by a road or a water-way in between, but still suitable for the formation of a controlled area; or

(3) A piece of land which may be connected with a controlled district in an international airport or an international seaport by a dedicated road having a length of less than one kilo-meter.

The concept of FTZ in Taiwan is that goods in these areas are approved for displaying, storing, warehousing, collecting and distributing, unpacking, assembling, labeling, packing, sorting and fabricating or processing with other material for transshipment to other countries.

And, before leaving such FTZs, these goods are free of customs duties and will not be subject to tariff rules and import restrictions, unless they leave the FTZs for use or consumption in taxation areas of the host country. Additional, the domestic tax areas can stimulate local economies through supporting the productive activities (as shown in Figure 2-3).

Figure 2-3 Interaction between Free Trade Zone and Other Areas

Within FTZ, the enterprises are classified into two kinds. One is ′Free trade zone enterprises′. The other is ′Non-free-trade-zone enterprise′. ′FTZ enterprises′ are referred to the enterprises which have been approved to engage in trading, warehousing, logistics, collecting and distributing (cargo of) containers, transiting, transshipment, forwarding,

Free Trade Zone Domestic Tax Areas Overseas

By airport

By sea

Limited area should choose the suitable industries for efficient use

customs clearance, assembling, sorting, packaging, repairing and fabricating, processing, manufacturing, displaying, or technological service within a FTZ. ′Non-FTZ enterprises′

are referred to any financial, stevedoring, catering, hotel, business conference, transshipment, and other enterprises which are not free port enterprises, but have been approved to operate within a FTZ. FTZs provide some incentives to attract enterprises (as shown in Table 2-3).

Table 2-3 Incentives of FTZ in Taiwan

Incentives Implementation Items

value-added process

z Outsourcings process in outside special area (export process zone, bonded area, etc.)

z Allow in in-depth value added processing

Duty and tax exemption z FTZ enterprises are exemption from customs duties, commodity tax, sales tax, tobacco and wine exercise tax.

Simplify visa

application for business personnel

z Visa-exemption for 21 countries.

z Landing visa for 24 countries.

z Emergency cases shall be first approved and forwarded by FTZ administration.

Ease of Financial operations

z Permitting setup of holding companies for offshore investment.

z Allowing OBUs to handle foreign-currency transactions.

Simplify customs

z Within national territory, but outside the customs territory:

the lowest customs checking, inspecting, and cargo tracking and escorting.

2.2.3 The Comparison of FTZ among Different Countries

FTZs in different countries have different content and fulfill different functions. All FTZs aim to provide a liberal logistics center facilitating convenient trade of goods. The details of FTZ in different are shown as follows:

1. Hong Kong

Hong Kong follows the economic policy of free enterprises and free trade. There are no import tariffs and excise duties are levied only on four categories, including locally manufactured or imported tobacco, alcoholic liquors, methyl alcohol and hydrocarbon oils.

A tax is also payable on first registration of motor vehicles. The Customs and Excise Department is assigned the tasks of fighting smuggling, collection of government revenues on dutiable goods, the detection and deterrence of narcotics trafficking and abuses of controlled drugs, and the protection of intellectual property rights.

For health and safety reasons, five kinds of commodities are subjected to licensing control of the Director-General of Trade and Industry according to the ′Import and Export Ordinance′, the ′Reserved Commodities Ordinance′, the ′Ozone Layer Protection Ordinance′

and their subsidiary legislation. Import license is required for radioactive substances and irradiating apparatus. Import and export licenses are required for the following commodities: (a) Pharmaceutical products and medicines (b) Reserved commodities (c) Strategic commodities (d) Ozone depleting substances.

Except for the above regulations, Hong Kong has no trade barrier. Any company, regardless its ownership, can operate in Hong Kong freely. It is very easy to set up a new company in Hong Kong in six working days. Hong Kong has a simple tax system and the profit tax is one of the lowest in the world (Shen and Yeung, 2004).

2. Singapore

FTZs in Singapore were first established in 1969 to facilitate entrepot trade in dutiable goods. Firms in FTZ benefit from various advantages provided by the ‘Free Trade Zones Act’. Singapore has seven free trade zones (FTZ), six for seaborne cargo and one for air cargo, within which a wide range of facilities and services are provided for storage and