Japan's investment in infrastructure projects such as transportation and irrigation systems makes Taiwan an economically profitable colony. Sugar and rice production increase, and the trade deficit becomes a surplus. Exports increase by 980 percent, imports by 540 percent.
The vast majority of exports -- 86 percent in 1958 -- are agricultural products, primarily rice, sugar, and tea. An import substitution strategy encourages local manufacturers to produce goods that had previously been imported.
A series of reforms geared to stimulate exports are enacted. The first one is the Statute for the Encouragement of Investment, which provides generous tax incentives to businesses in the hope of attracting foreign capital to build factories that will create export products such as textiles, clothing, shoes, and other labor-intensive goods.
Laws are set up to manage new Export Processing Zones (EPZs), offering incentives for foreign enterprises which set up factories in Taiwan. The first EPZ is built in 1966 in Kaohsiung, and within two years it generates annual exports of 7.2 million U.S. dollars. Two more EPZs are built in Taichung. Foreign investment pours in, and exports increase exponentially.
Export-oriented strategy continues with spectacular success. Emphasis on labor-intensive production shifts to capital-intensive production. The 10 National Construction Projects develop heavy industries (steel, petrochemicals) to support growing infrastructure.
The '80s is a period of accelerated liberalization and tariff reduction. Import controls and restrictions on foreign investment are relaxed. Capital- and technology-intensive industries are developed as Taiwan competes for, and wins, a huge share of the world's information and electronics market. In 1988 the exchange rate is freed from the Central Bank's control and is determined by the market.
Liberalization and deregulation continue, as does an emphasis on high-tech industries. In 1992 the GATT Council appoints a working group to consider Taiwan's application for WTO membership. Taiwan's membership is contingent on China's admission. Regular surpluses, strong medium-sized enterprises, and lack of foreign debt allow Taiwan to emerge relatively unscathed from the Asian financial crisis.
Taiwan continues to be a leading exporter of computer hardware. The United States is Taiwan's largest trading partner, followed by Japan. In 2001 Taiwan is admitted to the World Trade Organization, along with China. Taiwan and China continue to gradually expand the scope of legal trade between them, but still shy away from full-fledged trade talks.
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