Taiwan authorities' decision to build the island into a free trade area will virtually invalidate their ban on cross-Straits direct links, said experts.

But some other analysts doubt the feasibility of the plan because of the island's severe restrictions on mainland-bond trade and investment.

The economic development commission of Taiwan's "Executive Yuan" proposed early this year to turn Taiwan into a free trade area like Hong Kong and Singapore.

Relevant laws and rules are expected to come out next month.

"This is a really bold idea," said Lu Jinyong, a professor with the Beijing-based University of International Business and Economics.

Once put into practice, it will be both more influential and more inspiring than Hong Kong and Singapore because of Taiwan's larger geographical size, economy and population, said Lu.

Lu said he expected the laws and rules will apply to the mainland as well as to other parts of the world.

This will help promote direct trade, postal and navigation links between the island and the mainland and thereby enhance cross-Straits trade and economic cooperation, he said.

The three direct links between the mainland and the island are still forbidden by Taiwan authorities except those between Xiamen of East China's Fujian Province and Taiwan's Jinmen and Matsu.

But Taiwan leader Chen Shui-bian recently indicated that the island will take measures to relax the strict control on cross-Straits direct links.

Turning into a free trade area will also boost Taiwan's economic development by avoiding marginalization in regional economic co-operation, said the university professor.

He said the measure paves the way for Taiwan to take part in the ongoing "closer trade ties arrangement between the Chinese mainland, Hong Kong and Macao."

The arrangement, proposed by Hong Kong Chief Executive Tung Chee-hwa and supported by the central government, is actually a free trade zone and is expected to help Hong Kong and Macao gain an edge over competitors in the Chinese mainland now that China is a member of the World Trade Organization.

Taiwan is not included in the arrangement but officials with the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) told Business Weekly that Beijing will be happy to discuss 'closer trade ties' with the island if the three direct links are made possible.

The lack of direct links between the mainland and Taiwan has made closer trade ties impossible, and we are glad to discuss such arrangements with the island if Taiwan authorities agree to lift the ban on three direct links, said a MOFTEC official, who declined to be named.

But Liu Xueqin, a senior researcher with the Chinese Academy of International Trade and Economic Co-operation, a MOFTEC think tank, doubts the feasibility of the idea.

"Trade liberalization and facilitation is a major trend in the world but I don't know whether Taiwan could really build itself into a free trade area like Hong Kong and Singapore with its present severe restrictions on investment," she told Business Weekly.

She speculates that Taiwan authorities mean to set up a free trade zone with the United States, Singapore and Japan through the measure.

"Taiwan authorities might be thinking of diversifying the island's markets and reducing its present high dependence on trade with the mainland through free trade agreements and closer trade ties with the US, Singapore and Japan," she said.

The Chinese mainland is now the largest buyer of Taiwan products.

Taiwan's capital input in the mainland jumped 47 percent year-on-year to US$248.03 million in the first four months of this year, according to Taiwan statistics.

But Liu said the US, Singapore and Japan have lower tariffs than Taiwan and free trade agreements with these countries will deal a blow to the island's local industries, while the mainland has higher tariffs and large markets and is an indispensable and important market for Taiwan no matter what political considerations Taiwan authorities have in mind.

Lu said Taiwan is strong in the high-tech industry, electronics and services, but turning into a free trade area might be detrimental to its labor-intensive industries, which are less competitive than those on the Chinese mainland and in some Southeast Asian countries.

( June 18, 2002)