Asia Times: Taiwan takes stock of new order


	November 13, 2001	atimes.com

China

Taiwan takes stock of new order
By Laurence Eyton

TAIPEI - Taiwan was in jubilant mood on Monday following its acceptance into the World Trade Organization at the WTO's ministers' meeting in Qatar on Sunday.

Taiwan had been worried that China, whose own bid to join the trade body was accepted on Saturday and which signed its protocols of accession only one hour after the acceptance of Taiwan's bid, would conspire with its allies in the organization to either delay Taiwan's entry or force Taiwan to enter as a separate customs region of China.

Such fears were dispelled on Friday when representatives from both the United States and the European Union made it clear that no such behavior would be tolerated and that China would not be allowed to sign its protocols of accession until Taiwan had already received the nod of approval from the ministers' meeting.

Taiwan was due to sign the accession protocols on Monday, and it must then have them ratified by its legislature which, although in recess to fight an election campaign, has convened a special session on November 16 to do this. One month after ratification is completed, Taiwan will become a full WTO member.

Speculation that the Taiwan legislature's usual infighting will delay this is probably scaremongering. The Kuomintang, the principle opposition party which, in fact holds a majority of seats in the legislature, has agreed to cooperate fully with the government.

For Taiwan, the impact of WTO entry is two-fold. First, there are the changes that will naturally result from Taiwan opening itself to greater international trade. And then there is also the question of how WTO membership might redefine the prickly relationship with China.

Domestic impact
While different sectors have different tariff rates, the general rule of thumb is that overall tariffs will fall by a third as a result of WTO entry, though this drop might in some cases take up to seven years to be accomplished in full.

Average tariffs on industrial products will full to an average of 4.15 percent from the current 6.03 percent by 2004. Tariffs on agricultural products will be lowered from an average of 20.02 percent to 12.86 percent by 2007.

Meanwhile, after 10 years of cautious opening, the island's financial sector will be fully open to foreign players, while the ceiling on foreign investment in the highly lucrative telecoms sector will be lifted.

There can be little doubt that the better access to global markets that WTO membership will provide should be to Taiwan's benefit - it is, after all, the world's 14th largest trading power. Understandably, nebulous long term benefits do not capture as much media interest as short term pain that some are going to feel from greater foreign competition. Sectors that are particularly likely to feel a chill are:
Automobiles: Out will go Taiwan's domestic content requirements, while tariffs will also drop by almost half, although only over an eight-year period. Nevertheless, the market share of imported cars is expected to rise from 10 percent to 30 percent. Taiwan has a dozen auto manufacturers for a market of less than 500,000 units a year, cheaper imports might see more than half of these companies go to the wall.
Service industries: Many of the 14 laws that the legislature passed last month in preparation for approval of the WTO bid covered the opening of the service center. WTO rules prohibit the selective disbarment of foreign individuals and investment within the service sector. Taiwan previously had a forest of reciprocity requirements according to which Taiwan treated others as they treated it. In principle, these were intended to ensure fair play, in practice they just acted as bars to foreign competition. Taiwan's service sector has been notoriously less efficient than its Hong Kong and Singapore counterparts. The equities, banking and insurance sectors are especially vulnerable.
Other "traditional" industries: Also likely to be affected are industries such as chemicals, petroleum refining and textiles. Many of these were started by the government for import substitution purposes and have benefited from import restrictions and tariff barriers for years.
Agriculture: By far the most heavily affected sector will be agriculture. For more than a decade farming in Taiwan has become increasingly uneconomic, even with the high levels of subsidy the sector has traditionally enjoyed. The removal of most of these subsidies is likely to result in as many as 50,000 farmers leaving the land. Whereas some protection in the form of import quotas will be left on rice and fruit farming, and they may remain competitive, sugar cane, corn, soy beans, and sorghum, red beans, garlic and mushrooms are all expected to become uneconomic. The lifting or restrictions on pork products will also hit Taiwan's pig farmers.

What people have spoken of as "the collapse of Taiwan agriculture" is more important as an emotive issue than an economic one. Few Taiwanese will object to cheaper food. But while Taiwan is now a highly industrialized society in which few have much contact with the land, nevertheless, most people are only one or two generations removed from a rural background and the countryside is thought to be a worthy repository of traditional values. As a result, hardship for farmers is a hotter political issue than their numbers might warrant.

China
WTO entry for both Taiwan and China impacts the cross-Strait relationship in three different ways.

First, for Taiwan it necessitates a major relaxation of the numerous restrictions Taipei has placed on cross-Strait trade and investment. On Wednesday last week the government effectively abandoned the policy known as "no haste, be patient" which restricted maximum investment in China to US$50 million per project, while companies are allowed to invest up to 40 percent of their capital, up from 20 percent, in China-based projects.

Taiwanese companies will now be allowed to invest directly in China without going through third countries, they will not be taxed on earnings in China if they have already been taxed in China, and they will be allowed to repatriate their profits.

Restrictions on the sectors in China in which Taiwanese companies may invest have also been largely lifted, only 195 categories out the more than 7,000 on China's tariff schedule remain barred, while only investments over $20 million (up from $3 million) will need special government approval. Moreover, the government the following day announced an "automatic permission" system in which the government gave itself 30 days to veto any particular investment, otherwise the investment would be considered automatically approved.

These changes mark a huge departure from the previous system. That the old system was widely ignored, and that the business sector, almost without exception, has long lobbied for a more relaxed policy, does not mean that the changes are without political significance.

Some, such as former president Lee Teng-hui, the architect of the "no haste" policy, and labor groups demonstrating on Sunday over rising unemployment, have spoken out against the dangers of hollowing Taiwan's industrial sector by moving too much capacity to China. The debate about whether economic closeness to China threatens Taiwan's security, the reason why "no haste" was implemented in the first place, still rages.

Second, it means that Taiwan is liable to be flooded with low-priced albeit low-quality Chinese manufactured goods. Since most Taiwan manufacturing aims at high-quality goods for export, this will not be cataclysmic for Taiwan industry. But there has been surprisingly little attention paid to its possible effects.

Third, there is the issue of direct links and wider cross-Strait political concerns.

For 50 years Taiwan has maintained a ban on direct commercial, communication and transportation links with China. The first of these has now been abandoned. The second and more especially the third need some degree of cooperation and consultation between Taiwan and China before they, too, can be ditched. Many people have though that WTO membership should result in the lifting of the transport ban - though there is nothing in the WTO rules that says that members must have direct transportation links with each other. This is likely to prove wishful thinking.

It is not that China is unaware of the advantages of direct transportation links in particular. Rather it is that Beijing thinks that Taiwan, as an island trader, has a greater need for these than China, with its vast domestic market and industrial hinterland, does. As a result, Beijing has made talks about starting direct links dependent on Taiwan making political concessions, in particular that Taiwan acknowledge the "one China principle".

What this principle is depends on who China's audience is. For Taiwan it means that there is one China of which Taiwan is a part, but fails to identify that one China with the PRC. Talking to other countries it is not so coy. As a result, many in Taiwan believe that any agreement on "one China" is basically surrendering sovereignty to China without a fight. As a result, Taiwan's current government will have no part of "one China".

This standoff means that direct cross-Strait transportation will prove elusive for some time to come. Taiwan has said that it hopes that the issue might be discussed in the forum of the WTO, just about the only arena where Taiwan and China ever meet as equals. China is, however, adamantly against any discussion of cross-Straits issues in the WTO. Since, according to Beijing, Taiwan belongs to China, problems with Taiwan are domestic in nature and an international forum is an entirely inappropriate place for them to be aired.

Which in a way is Taiwan's point. That cross-Strait issues are amenable to discussion in the WTO goes some way to showing that they are not China's domestic business, and thereby hardening the de facto sovereignty that Taiwan enjoys and is widely recognized internationally into the de jure variety that Taiwan's government so craves.

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