In the entire global economic system, the high volume of transnational transportation and circulation of products as well as production factors have reached an unprecedented scale. Various product markets have gone global. More than six hundred free trade zones across the world are becoming leading international trade circulation hubs as well as distribution and trading centers. From traditional free ports to today’s comprehensive "free trade zones" integrating commercial trade, industrial processing, and technological development, it is now the most open economic zone in the world.

"Free trade zones" hold a pivotal position in the world economy and trade, and multinational companies make extensive use of "free trade zones" to strengthen their global production network and internal trade.

To make use of the world’s resources, talent, and favorable economic environment, and promptly deliver the products to customers, thereby quickly satisfying consumers’ diversified and personalized product requirements, product suppliers adopt the global logistics management model by linking up the entire supply chain, including obtaining raw materials, production, shipment, and even marketing. “Free Trade Zone” has become a normal mode of operation for multinational companies.

To seize the opportunity brought about by such a business model, governments around the world have been vigorously promoting various types of free trade zone projects in recent years. The world already has more than six hundred free trade zones of different types, and the number has been rapidly increasing in the past two years. Take the Asian region for example; besides the rapidly expanding free trade zones of Singapore and Hong Kong which we are familiar with, Japan and South Korea have also been promoting free trade zones in recent years, and even China is also establishing free trade zones successively. Hence, if Taiwan does not promote free trade zones, it could be marginalized in the global supply system.

Another unique reason for Taiwan to promote free trade zones is that Taiwanese businessmen have been investing heavily in South East Asia, China, and even Eastern Europe in recent years. Quoting the figures mentioned by former vice minister Shih of the Ministry of Economic Affairs in “Challenge 2008－National Key Construction Project Seminar”, Taiwanese businessmen have created more than 20 million job opportunities with their investments abroad far exceeding USD100 billion. With such huge overseas investment, if the products manufactured there can use Taiwan as a gateway, with transshipment and assembly through Taiwan, or perform other value-added activities, it’s conceivable that it would drive the domestic economy. Hence, establishing free trade zones to simplify the various procedures such as transshipment and customs clearance for shipping back the goods for value-added activities, and shipment to the places around the world, so as to increase the willingness of Taiwanese businessmen and multinational companies to use Taiwan as an important base for their global logistics, will be a key factor in determining whether Taiwan’s economy will hit another peak.

In view of this opportunity, the Council for Economic Planning and Development (CEPD), based on the resolution by the National Development Council on the feasibility of establishing a free trade zone, treats the planning of a free trade zone as the main factor in driving the next phase of the global logistics project. A preliminary plan was drafted and submitted to the Executive Yuan’s Finance and Economic Committee for resolution, and the CEPD then gathered the relevant agencies for conducting detailed planning.

Free Trade Zones provide enterprises with excellent geographical location advantages and highly efficient deep processing capabilities. Taiwan can be an important link in the global supply chain for cargo owners, where they can fully utilize Taiwan’s world-class manufacturing, processing and research and development capabilities. In addition, according to the “Act for the Establishment and Management of Free Trade Zones” established by the Council for Economic Planning and Development (CEPD), a Free Trade Zone is to be equipped with the following characteristics:
1. The design concept of “Within national territory but outside customs jurisdiction”: a Free Trade Zone is designed based on the concept of “within national territory but outside customs jurisdiction”. Businesses within the zone can enjoy highly efficient logistics services, and goods within the zone can circulate freely, without restrictions by the levels of declarations for circulation between bonded warehouses.

2. Autonomous management of free-trade-zone enterprises: The management of enterprises in the free trade zone will adopt a highly autonomous management system in place of a government management system, reducing actual involvement by the government, so as to facilitate the smooth flow of goods and manpower in the free trade zone, thereby increasing the enterprises’ willingness to enter.

3. Tax exemption for goods and equipment within the zone: Overseas goods and self-use equipment transported into a free trade zone by a free-trade-zone enterprise for its operations shall be exempted from tax (exempted from customs duty, commodity tax, business tax, tobacco and wine tax, tobacco health and welfare surcharge, trade promotion service fee, and commercial port dues).

4. Free circulation of goods: Entry or storage of goods (including China products) from overseas or other domestic free trade zones, or shipping of free-trade-zone goods to overseas or other free trade zones, may be carried out upon reporting to the customs according to the standard format or in writing, and receiving an electronic reply from the customs of completion of the record.

5. In-depth value-adding of goods: Free trade zones engaging in more in-depth processing such as component assembly will give full play to the advantages of Taiwan in the manufacturing of high value-added products, thus strengthening our global logistics competitiveness.

6. Bring in business activities
　A. To facilitate foreign business personnel entering the free trade zone to conduct business activities, relevant competent authorities will be coordinated to flexibly relax the entry visa application procedures for international business personnel (including China) under the existing legal system.
　B. A Free trade zone provides exhibition and trade activities functions.

7. For work conditions, the employment ratio of foreign workers can be flexibly relaxed: The number of domestic employees employed by a free-trade-zone enterprise shall not be lower than 60% of its total employees.

8. Boost fund circulation
　A. It may engage in foreign currency exchange and remittance, and foreign currency transactions: An offshore banking unit may handle business related to the letter of credit in foreign currency, advice, negotiation, import and export collection, foreign currency exchange and remittance, and foreign currency transactions of the free-trade-zone enterprises.
　B. It may establish a holding company specializing in offshore investment: A foreigner may apply to the management authority for the establishment of a holding company specializing in offshore investment.

9. One stop administrative service: As far as possible, the free trade zone’s management authority shall be authorized to handle administrative management and supplementary administrative matters within the zone. If direct authorization is not possible due to the restrictions of other laws and regulations, the management authority of the free trade zone shall take charge after being mandated or commissioned by the competent government authority in charge of the relevant end-enterprise(s). If the matter is still not possible to be mandated or commissioned, the competent government authority in charge of the relevant end-enterprise(s) shall set up an office in the free trade zone to handle the matter so as to increase administrative efficiency, and attain the efficacy of single-stop service.

1. Background

A. Change in the overall circumstance: (a) China and Taiwan have successively joined the World Trade Organization. In the future, the new cross-strait economic and trade relationship should develop gradually and slowly under the WTO framework. (b) The business sector actively develops the “global logistics management” business model: Enterprises are establishing globally, linking every process from material preparation, production, shipment, and customs clearance, to market distribution, to fully achieve Just-In-Time management.
B. Cross-strait policy (a) Caution and self-restraint: The “caution and self-restraint” policy restricting Taiwanese businessmen from investing in China has been significantly relaxed to “proactive liberalization with effective management”. (b) The function and scope of offshore shipping centers have been gradually expanded: The function and scope of offshore shipping centers have gradually expanded, breaking the taboo of direct cross-strait shipping.
C. Free ports and free trade zones drive international trade circulation: Over 600 free trade zones in the world have become the world’s most open economic zones, hub, distribution, and trading centers that drive international trade circulation.


2. Questions and description

A. Objective (a) Extending the current results of the global logistics development project, continuing to promote liberalization and internationalization of work. (b) Embracing the challenges from neighboring Asia Pacific countries actively establishing free trade zones. (c) Breaking through the current limits of bonded warehouse and engagement in high value-added processing; promoting the trade development of re-export, as well as processing and re-export. (d) Raising operational efficiency of the relevant scope of port and airport.
B. Significance (a) By setting up a control area, complete autonomous management will be adopted if goods within the zone do not enter the local market. (b) Goods may engage in storage, transshipment, value-adding process, etc., under highly autonomous management systems.
C. Positioning as a “free trade zone” can provide comprehensive discounts and simplify custom procedures, enjoy highly efficient logistics services, and bring in international business personnel to engage in business activities. In the midst of developing a global logistics center in the country, it can be the main focus in the next phase of the global logistics development project.
D. In terms of sites selection, Taoyuan Air Cargo Park and Kaohsiung Air Cargo Park which are being actively promoted, and other airports, regions neighboring ports or other regions that may make use of technological escort and are equipped with segregation facilities, as long as its scale and system comply with the requirements, can consider adopting "Free Trade Zone" business mode to increase operational efficiency and competitiveness.

The operation of the “Free Trade Zone” is complex, involving matters such as customs, taxation, personnel movement, etc. If it is done by only amending relevant laws and regulations, it is easily subject to the restrictions of various laws, and unable to consider the needs of a “free trade zone” as a whole. By establishing special legislation, it can have the overall coordination effect. In addition, with special legislation or special laws, it can increase legislative efficiency and facilitate future amendments.

1. In terms of abstract concept, the free trade zone represents a special area of "within and outside the customs". The biggest difference between the current processing export zone and science park is that the customs clearance procedures for goods and personnel are greatly simplified.

2. However, the free trade zone is not only an abstract change, it also includes the construction of information technology, such as the cargo condition tracking system and the operation of deep processing, exhibition, foreign exchange business and other businesses in the area. Therefore, the free trade zone can be said to have both concept updating and physical construction.

3. In the future, processing export zones and science parks can apply to be set up as free trade zones in accordance with the “Regulations on the Management of Free Trade Port Zones”, and carry out deep processing, manufacturing, warehousing and logistics, trade or exhibitions and other activities in the zone.