The first of these, the Kaohsiung Export Processing Zone (KEPZ), was established in December 1966. Because the original 68-hectare harbor-side enclave – the very first EPZ in the Asia-Pacific region – was quickly filled with factories churning out radios, garments, and other items, additional zones were established in Taichung in 1969 and in the Kaohsiung suburb of Nanzte (now often spelled Nanzi) in 1971.
The Export Processing Zone Administration (EPZA), a unit of the Ministry of Economic Affairs, now supervises seven EPZs and two other special economic development areas with a total land area of 586 hectares.
As of late 1967, EPZ tenant companies were employing 5,625 people. By 1976, the total workforce had swelled to just under 75,000, four-fifths of whom were female. The image of thousands of young women on bicycles leaving the zones at the end of each shift is part of the collective memory of Taiwanese who lived through the 1970s.
According to the EPZA, the zones' contribution to Taiwan's exports peaked in 1974. In that year, goods produced by tenant enterprises accounted for just over 9% of Taiwan's total exports of US$5.64 billion. By 2000, exports from the zones amounted to US$8.7 billion, 5.86% of Taiwan's total exports. The zones' share of exports has continued to decline, and currently stands at around 3.5%.
Until 1986, EPZ tenant enterprises were required to export all of their output. This rule was later relaxed and finally dropped altogether in 1997. The proportion of EPZ-made goods entering the domestic market has since been growing gradually, yet the zones still live up to their name. In 2006, 66.2% of EPZ output was exported.
In their first 35 years, Taiwan's EPZs brought the country something like US$50 billion in foreign currency. “TVs and textiles really helped Taiwan earn a lot of foreign exchange in the 1970s,” says Shen Jong-chin, the director-general of the EPZA since May 2010.
Since Taiwan’s introduction of the concept, dozens of countries around the world have established EPZs. Few, with the exception of China, have been nearly as successful as Taiwan was at providing the predictable, productive, and low-cost environments that investors seek.
Nowadays, when so much of the talk is about such sectors as biotechnology and cultural-creative industries, Taiwan's EPZs seldom make business headlines. Yet it would be very wrong to speak of them in the past tense. According to EPZA statistics, the zones currently host 449 companies. Output in the first 10 months of 2010 was NT$313.1 billion (US$10.4 billion), and for the whole year the figure is likely to exceed NT$370 billion (US$12.3 billion).
In the 1970s, typical EPZ products were hair dryers, fishing poles, and sewing machines. By the 1980s, factories in the zones were making cameras, microscopes, and golf clubs. Nowadays, semiconductor testing-and-packaging operations and LCD companies are mainstays. This progression is outlined in a small museum inside the EPZA's headquarters.
Advanced Semiconductor Engineering Inc. (ASE), part of the ASE Group and the largest IC tester and packager in the world, has 12 factories in the Nanzte EPZ. “The science parks focus on industries that are capital- and technology-intensive, which is why wafer foundries and designers can be found in Hsinchu, Taichung, and Tainan,” says Shen. “For semiconductor testing and packaging, the technical requirements are not so high – it's lower-end but still high-tech – but the EPZ can provide very good tax incentives for packager-testers to locate here.”
“Clearly, for the semiconductor industry, the EPZs do have an important role to play,” he adds...
To read this article, which appeared in the December 2010 issue of Taiwan Business Topics, go here.