Saturday, March 31, 2007

Heyday of the Zones

Workers at a doll factory, Shenzhen Special Economic Zone, China

The Enduring Appeal Of “Special” Zones
by Jonathan Adams
Far Eastern Economic Review, March 2007

If you had to pick a spot as the birthplace of globalization in Asia, a 72-hectare sliver of reclaimed land in Taiwan’s Kaohsiung harbor wouldn’t be a bad choice.

Here, 40 years ago, the government cracked open its protected economy to lure foreign investment with an eager pool of cheap labor and duty-free import of raw materials for export-only production. They called it an “export-processing zone”: one of Asia’s first, and a model for other such zones the world over.

For Taiwan and some of its Asian neighbors such as South Korea, the rest is history. The success of such zones helped convince these countries to embrace a strategy of export-led development—leading to decades of high growth and newfound prosperity that became known as the “East Asian miracle.”

Today, living proof of that success is on display in Kaohsiung. If you had come to this balmy port city in the late 1960s, you would have seen thousands of Taiwanese— mostly unskilled female laborers—crowding into the zone on bicycles every morning to stitch and assemble export-only clothes and cheap plastic toys for foreign firms.

Now, the zone is packed with the scooters and sedans of comfortably middle-class employees, who work primarily for Taiwanese firms specializing in the booming flat-panel sector.

In the cafeteria of one such firm last December, employees in their twenties and thirties chattered on cell- phones and played foosball during their lunch break. Outside, by the harbor’s edge, sat stacked rows of shipping containers— some arriving with materials for making liquid-crystal-display panels, others leaving with panel modules bound for mainland China or points abroad.

Some economists thought that zones like Kaohsiung’s would be obsolete by now. That was especially true after 1995, when the founding of the WTO promised to bring trade barriers crashing down and usher in a new golden age of globalization. Such “special” zones were to be expanded to entire countries, regions and ultimately, the world.

Instead, zones similar to Kaohsiung’s have had an enduring appeal—even in mostly open economies such as Taiwan’s.

In fact, their numbers are booming: In 1995, there were 500 in 73 countries; by 2002, there were 3,000 in 116 countries. India is fiercely debating a plan to create hundreds of new special zones. Scores of export zones now dot Vietnam, powering its emergence as Asia’s newest economic tiger. Cambodia is building zones on its border with Thailand, and has asked Taiwan’s advice on running them.

Says World Economic Processing Zones Association director Robert Haywood: “When the WTO was created in 1995, the World Bank and IMF argued that zones were going to disappear, because the world was moving toward free trade. In actual fact, the WTO isn’t moving toward free trade. I predicted there would be an explosion of zones, and that has taken place.”

Not everyone is happy about the zones’ tenacity. Global labor-rights activists have long seen them as the bane of exploited workers and the boon of footloose, cost- cutting capitalists—ghettos on the vanguard of a global “race to the bottom” between investment-thirsty nations.

Farmers in West Bengal are hopping mad that the government is seizing their land and lavishing incentives on multinational firms. Violent protests against the zones have raged since January, leaving at least six dead and scores injured.

And in India and elsewhere, economists still can’t agree on whether special zones are good or bad.

“I would ask whether subsidized export-led growth is either necessary for India, or likely to be viable in the long run,” said former IMF chief economist Raghuram Rajan. He says such zones deplete government coffers through overgenerous tax holidays and may create “islands of prosperity”cut off from the rest of the country.

Economists do agree on one thing: zones like Taiwan’s aren’t a magic bullet for successfully opening up an economy.

“For every zone out there that has worked, you have another one—at least—that hasn’t worked,” says Asian Development Bank economist Jesus Felipe.

In Asia, the type of zones that have worked so well in Taiwan, South Korea, China and Vietnam have been less successful in the Philippines, Thailand and Indonesia.

“Let’s face it: If you create a few square miles of infrastructure of plants and roads, you won’t reverse the overall effect of the economy,” says Peter Petri, a senior fellow at the East-West Center in Honolulu.

Experts credit the success of Taiwan’s zones to good infrastructure, political stability, the government’s commitment to broader liberalization, and strong links between foreign firms inside the zones and domestic ones outside.

Despite their decidedly mixed track record, special zones remain an attractive option—albeit one that economists insist is second-best to broader liberalization.

They’re ideal for authoritarian regimes that want a high degree of control over how their economies open (such as Taiwan in the 1960s, China in the 1970s and Vietnam in the 1980s). And they also provide a shortcut to development in a small area, when bigger reforms are too painful or slow-moving.

In Cambodia, economic planners have prioritized special zones to meet what they call an urgent need for foreign investment, as nationwide legal reforms and infrastructure building grind on.

“Governments can’t change the environment in the entire country overnight,” said economist Mr. Rajan. “It’s easier to create islands of good governance through focused intervention rather than the harder—and ultimately necessary—task of creating good governance everywhere.”

Such zones can also be a quick way to create jobs. Indian Commerce Secretary G.K. Pillai has claimed that the first 64 approved zone projects alone will generate $13.4 billion in investment and create 890,000 jobs by 2009. Vietnam’s Tan Thuan Export Processing Zone, which opened with 20,000 laborers, now employs 55,000—and that number could double by 2015 (Such is their success that Vietnam’s zones are now actually facing a labor shortage).

And through the zones, planners can get experience in navigating the maze of trade rules. As some trade barriers have come down, others have gone up— such as the EU’s strict country-of-origin requirements.

Another example: by WTO rules, special zones can’t offer all of the same perks as before, because some are now considered prohibited “export subsidies.” By 2010, only the poorest wto members—under $1,000 per capita—will be able to offer duty-free import and export rights in a specific zone, says Mr. Petri. Such privileges must either be extended to an entire country, or zones can offer different incentives such as tax breaks (some of which are still allowed) and full foreign ownership rights.

Finally, special zones allow bureaucracy-heavy countries to cut red tape by devolving power. That was one clear benefit in Vietnam, where Taiwanese money helped launch the Tan Thuan zone after the doi moi reforms in the 1980s opened the country to foreign investment. The zone’s one-stop regulatory approval cut the average waiting period for new projects from 18 months to 60 days, said Albert Ting, director of the joint-venture corporation that runs Tan Thuan.

Even in countries which have successfully opened their economies, the zones have endured, by adapting. Taiwan’s zones have morphed into industrial clusters of high-tech manufacturers: liquid-crystal display panels in Kaohsiung, semiconductors in Nantze and digital cameras in Taichung.

That reinvention has saved the zones from extinction: manufacturing flight cut their total jobs sharply (from a high of 90,000 in 1987 to just 50,000 in 1994); that figure has since climbed back steadily, to 70,000 in 2005. But such is the extent of the zones’ change that planners aren’t even sure what to call them now: “Economic value-added industrial park ( jingji jia zhi yuan qu)” is one clunky name they’re toying with.

And they’re already thinking ahead to the next incarnation—one idea is to tout the zones as logistics hubs—and dreaming up new incentives. One example: Tseng Sheng-bao, the official who oversees Taiwan’s zones, launched a campaign to make the zones more appealing to investors and their employees by adding green space— parks, walking paths, gardens.

Thanks in part to such beautification, Taiwan’s zones are far from the Dickensian dystopias described by some labor activists. But they’re still soulless places, which mostly empty out after dark when workers trickle home.

In the Nantze zone one early evening last December, a few Filipina employees bicycled outside their dorm. Asked about her life in the zone, 30year-old chip plant worker Jonah Obejero said it wasn’t ideal, but that the job was helping her save up to move to the U.S. or Canada.

“We can earn more here than in the Philippines,” said Ms. Obejero, before heading to work on the night shift. “It’s a stepping stone.”

The same could be said for the zones themselves. And until the arrival of an ideal “flat” world of free trade, economic planners are likely to continue relying on them—for better and for worse.

Saturday, March 3, 2007

Tussle over 228

In Taiwan, the anniversary of a 1947 massacre is just another opportunity for political squabbling

By Jonathan Adams
Asia Times, March 1, 2007

When former Kuomintang (KMT) chairman Ma Ying-jeou visited Taipei's 228 Memorial Museum on Tuesday to meet with relatives of victims of a 1947 massacre, not everyone gave him a warm reception. Ma met with the relatives in a bid to heal wounds left over from the tragedy, in which KMT troops brutally put down a local uprising against one and a half years of the party's bumbling rule of Taiwan. For at least one relative, Ma's visit was just another insincere stunt. "Stop making political shows, Ma Ying-jeou!" shouted an irate Hsiao Chin-wen, as Ma chatted quietly with the group over tea. "Don't politicize the event anymore!"

On the 60th anniversary of the 2/28 Incident, such criticisms were more heated than ever -- and Ma wasn't the only target. President Chen Shui-bian's lame-duck government also came under fire, for using the date to score political points and foment anti-KMT sentiment as the 2008 presidential campaign gets under way. So it goes on the bitterly divided island: each side uses the 2/28 Incident to push its own political agenda, while accusing the other of politicizing the date. The result is that for many increasingly cynical Taiwanese, the anniversary is just another battleground in a long political war -- and an excuse for politicians to try to stir up conflict where none exists. "The 2/28 Incident has nothing to do with us, it's something the older generation cares about," said Jamie Huang, a 21-year-old student at National Taiwan Normal University in Taipei. "There's no problem between waishengren [mainlanders who came to Taiwan with the KMT in the 1940s] and benshengren [local Taiwanese who predate that wave of immigration]. But politicians use 2/28 because they want there to be a problem."

The incident may be ancient history for youth like Huang, and politicians like Chen and Ma weren't even born when it occurred. But for elderly Taiwanese, including former president Lee Teng-hui, it's still very much a living memory. It began when KMT officials beat a woman selling black-market cigarettes in downtown Taipei on February 27, 1947, and then shot dead an angry onlooker. That sparked days of anti-KMT riots that spread islandwide. The KMT began negotiations with local Taiwanese to end the standoff, but between March 6 and 18, KMT forces garrisoned in the south and reinforcements from the mainland that landed in the north went on a killing spree. They slaughtered civilians at random to terrorize the Taiwanese into submission, and carried out a targeted campaign to wipe out the Taiwanese elite -- local leaders and intellectuals - who represented the biggest threat to KMT rule. To this date the numbers killed are uncertain, but historians estimate 30,000.

Those facts are not generally disputed. But given Taiwan's polarization, the raw politicking over 2/28 is perhaps inevitable. For Chen's Democratic Progressive Party (DPP), appeals to Taiwan-first patriotism and anti-KMT hatred are time-honored ways to shore up support for the party's "deep green" base. For such people, 2/28 represents the original sin of a repressive, authoritarian KMT regime, whose still-visible legacy remains to be completely dismantled. The most prominent icon of that regime: late president Chiang Kai-shek, whose portrait once hung in every classroom -- where speaking the Taiwanese dialect was long forbidden -- as part of a campaign to indoctrinate Taiwanese in the KMT's Chinese nationalism.

Since taking power in 2000, Chen's government, whose grander ambitions have been blocked by the opposition-controlled legislature, has been quietly removing Chiang's image from classrooms, museums and military bases. (At Huang's high school in Taichung, a prominent Chiang statue vanished during one winter vacation about five years ago without a word from school officials.) Now there's a bigger target: Taipei's landmark Chiang Kai-shek Memorial Hall, which the government wants to transform into a democracy memorial hall. And this year, Chen stressed that Chiang was ultimately to blame for the tragedy, and demanded that the KMT apologize for the atrocities of the entire martial-law era, which lasted until 1987.

Whether such moves represent appeals for "transitional justice" in a young democracy or mere KMT-bashing depends, of course, on your politics. Chiang Kai-shek's grandson John Chiang, now a KMT legislator, is incensed at recent moves to revise his grandfather's place in history, from the "savior of the people" to a dictator with blood on his hands. Chiang said he may sue the president and the DPP chairman for defamation. Ma, who is still the KMT's best shot at taking back the presidency next year despite being charged with corruption, has argued that the 2/28 Incident was not primarily an ethnic conflict, but rather an uprising against the government that was mishandled by local KMT officials. That's seen by some as an attempt to manipulate history to play down the KMT's guilt and shore up support from his own "deep blue" mainlander base. "For many Taiwanese, [2/28] is a deep wound, not just a political issue," said Steve Chen, director of the Conflict Study and Research Center at Chang Jung Christian University in Tainan. "But Ma is trying to twist it around to protect the old-time 'deep blue' [pro-KMT] population."

This year, even Beijing got into the 2/28 game, backing a book in which Hsieh Hsueh-hung, a prominent Taiwanese communist and anti-KMT activist during the 2/28 Incident, is described as a Chinese nationalist who would have never brooked Taiwanese independence. And on Wednesday, an official in China's Taiwan Affairs Office blasted "splittists" in Taiwan for using the 2/28 anniversary to further an independence agenda. The official said 2/28 was part of the "Chinese people's liberation drive" by "Taiwanese compatriots".

The struggle by politicians and propagandists to spin history in their favor obscures a substantive debate: What is the appropriate justice for a 60-year-old massacre, and when is it time to close a painful chapter of the past? In 1992, the KMT government publicly released a report admitting that KMT troops had killed up to 28,000 people in the incident. That marked a dramatic breakthrough: before martial law was lifted a few years earlier, public discussion of the 2/28 Incident was forbidden. The government also agreed to pay out NT$6 million (more than US$181,000) for each 2/28 victim, and subsequent KMT leaders, as well as Chen, have offered official apologies. For some relatives of 2/28 victims, that's enough - and it's time to move on. "I don't know what else we can get, because the killers are all dead," said Liao Ji-bin, whose grandfather was shot to death and dumped in the sea north of Taipei by KMT military police. "The two parties -- both green and blue -- just want to get credit from 2/28."

But others insist that justice has not yet been served. The major complaint: to date, the perpetrators have not been clearly identified and held accountable -- even if only posthumously. One group representing 2/28 victims wants the legislature to establish a special court for a trial of Chiang Kai-shek and his accomplices. Others cite South Africa, which set up an official truth and reconciliation commission in the post-apartheid era, as a model for what Taiwan still needs to go through to complete a healing process.

Wu Nai-teh, a research fellow at the Academia Sinica in Taipei, said he and other academics are organizing their own, nonpartisan truth and reconciliation committee. A priority: tallying and documenting the unknown number of victims of the White Terror, the long period of anti-communist hysteria and KMT repression -- torture, imprisonment, summary executions, assassinations of the regime's critics -- that followed the 2/28 Incident. Other goals: returning property seized by the government to victims' families, and some kind of "cultural reparations", such as setting aside one day when television and radio stations can only broadcast in the Taiwanese dialect.

Politicians' manipulation of 2/28 may only make it more difficult for Taiwan to put the tragedy behind it. "Many people in Taiwan have a feeling that they are stuck in a vicious struggle between political parties," said Wu. "People feel politicians in Taiwan should tackle real issues instead." But appeals to deal with historical justice in a non-politicized way are probably doomed. Already, some are bickering over numbers: independent legislator Li Ao claimed on Tuesday that the real number killed in the 2/28 Incident was a mere 800. Next year's anniversary will come just before the key presidential election, in which the KMT hopes to take back power after eight years of the independence-minded DPP's rule. As in most big elections in Taiwan, identity politics are bound to loom large: and that means the political wrangling over 2/28 is likely to be more fierce than ever.