Weekly News Backgrounder from Taiwan's Government Information Office

News Backgrounder

July 21, 2010

I. GIO Minister Updates U.S. Forum and Media on Cross-Strait Economic Pact
ROC Government Information Office Minister Johnny C. Chiang delivered a speech, “Taiwan—Building Partnerships for Asia-Pacific Economic Integration,” at the Carnegie Council for Ethics in International Affairs in New York on July 13. During his talk, he stressed that the signing of the Economic Cooperation Framework Agreement (ECFA) by Taiwan and mainland China represents a major step toward overcoming Taiwan’s economic isolation, achieving mutually beneficial cross-strait cultural, trade and investment cooperation and speeding up the economic integration of Asia.

Minister Chiang stated that signing the ECFA is only the first part of a longer process. Taiwan is a member of the WTO and has the right to sign FTAs with other WTO members, and President Ma Ying-jeou has already made FTA talks with Taiwan’s other trading partners an “administrative priority.” Now that the ECFA has been signed, there is no basis for the Chinese mainland hindering Taiwan from seeking to negotiate FTAs, he added.

During the subsequent question and answer period, Minister Chiang stated that the ECFA is an economic agreement that has nothing to do with politics. He noted that President Ma has vowed not to address such issues as independence or unification during his term in office. The President has said that building the cross-Strait relationship is a very long process with no set timetable. Minister Chiang observed that over one million tourists from the Chinese mainland have visited Taiwan so far, and he is certain that they now know what democracy is. In his view, this is the optimal way to demonstrate what freedom is all about.

The GIO Minister began his weeklong U.S. visit on July 10, during which he visited such mainstream international media as Time magazine, The Wall Street Journal and Newsweek. He was also interviewed by Jayshree Bajoria of the U.S.-based Council on Foreign Relations.

In response to U.S. media concern about Taiwan’s request to purchase arms from the United States, Minister Chiang replied that mainland China habitually opposes the sale of weapons by the U.S. to Taiwan. However, Taiwan seeks to purchase such weapons not because of an arms race with the mainland but rather to safeguard the security of the people of Taiwan. Taiwan’s stance in cross-strait talks must be backed up with the power to defend itself, and a credible deterrence is essential to prevent any miscalculations that might result in military conflict. Taiwan’s security remains under threat; so, based on the government’s sovereign obligation to protect the Taiwan public, it must continue to purchase weapons of a defensive character from the U.S.

As for how the ECFA will affect Taiwan’s economy, Minister Chiang explained that, given the frequency of cross-strait economic and cultural exchanges, the ECFA was signed to initiate the institutionalization and liberalization of extant economic relations between the two sides of the strait. Currently, 41 percent of Taiwan’s exports go to mainland China and Hong Kong. Once the ECFA takes effect, 539 of Taiwan’s tariff items on the “early harvest list” will be subject to tariff reduction or elimination on the mainland, boosting Taiwan’s GDP growth by 0.4 percent.
Although mainland China is currently flush with capital, Taiwan-based businesses on the mainland nevertheless bring more than just investment capital to that market; they also possess such advantages as management skills, adaptability and market savvy. Thus, the ECFA, once it goes into effect, will boost the regional competitiveness of Taiwan’s industries.
II. Tourism Specials Promise a Summer of Fun
Taiwan’s Tourism Bureau is promoting travel without a car this summer by providing shuttle buses in 10 of Taiwan’s cities and counties. Excursionists can save money and limit their carbon emissions as they travel on 21 routes connecting railway and high-speed rail stations with scenic spots through the bureau’s “Tour Taiwan Sightseeing Shuttle Service.”

From now until the end of September, shuttle buses to the following 11 destinations may be ridden free of charge: Dongshan River and Jiaoxi in Yilan County; Lion Mountain in Hsinchu County; Nanzhuang, Penglai, and Xiangtian Lake in Miaoli County; Xitou in Nantou County; Chiayi City; and Taitung City, Eastern Coastal Areas and Offshore Islands, and East Rift Valley-Luye in Taitung County. Stops for these shuttle buses are located at railway stations and high-speed rail stations near scenic spots and are marked by large, red signposts bearing the Tour Taiwan logo.

Shuttle buses are scheduled to depart every hour during weekdays, and every half-hour on weekends and holidays. Tickets to destinations other than the 11 already mentioned may be purchased at stations or the fare may be paid on the bus. For details, please visit http://www.taiwantrip.com.tw.

One item never far from the top of a traveler’s list is food. The Government Information Office is holding an online contest on Taiwan’s foods, entitled “Taiwan’s Yummy Snacks.” The four rounds of the contest will be held between July 15 and September 28.

For this event, eight of Taiwan’s specialty foods have been chosen to face off in four rounds. In the first round, pig-blood cake battles stinky tofu; then in round two, it’s oyster omelets against Taiwanese meat balls; in the third round, steamed dumplings will be matched up against braised pork rice; and to close things off, pearl milk tea will go toe-to-toe with mango shaved ice. Participants need only log on to the contest website to vote for their favorite food. Contestants may only cast a single vote each round, and all those who voted for the winner will be entered into a prize drawing. To access the contest website, please visit the Republic of China Government Entry Point at http://www.taiwan.gov.tw/.

III. Taiwan to Launch Investment Recruitment Campaign
Following up on the signing of the cross-strait economic cooperation framework agreement, the Council of Economic Planning and Development (CEPD) briefed the Cabinet on July 15 about a global investment solicitation plan aimed at raising Taiwan’s regional competitiveness. CEPD Minister Christina Liu said that a joint-service center for global investment recruitment established by the Ministry of Economic Affairs (MOEA) is scheduled to begin operation on August 8. The various ministries and central-government organizations were asked to submit investment proposals by July 20, from which the CEPD and other ministries would jointly select seven flagship plans. Among those expected to be incorporated into the initiative are internationalization of medical service, globalization of Taiwanese cuisine and digital convergence. The CEPD aims to attract US$55.9 billion in investment over the next six years.

In addition, the CEPD has scheduled investment recruitment seminars for Taipei, Taichung and Kaohsiung on August 23, 27 and 30, respectively. It will put forth a comprehensive action plan before the end of September and, in order to attract more investors, will organize a Taiwan Road Show to Japan, Singapore, Hong Kong, Europe and the United States from October to December.

As cross-strait relations have stabilized, Taiwan is fast becoming a lucrative investment destination. The MOEA announced on June 15 that direct investments by overseas Taiwanese and foreigners totaled US$2.2 billion in the first six months of 2010, an increase of 22.53 percent over the same period last year. Moreover, foreign investors are lining up to establish R&D centers on the island. According to the MOEA, after Microsoft’s decision to invest US$21 million in a “Software and Services Excellence Center” in Taiwan, Hewlett-Packard also applied for MOEA funding to build within three years a large development center that will employ 1,000 people. The MOEA has also granted approval to Sony, DuPont, Corning, Fujitsu, ASML and other multinational corporations to set up R&D centers in Taiwan.

Weekly News Backgrounder from Taiwan's Government Information Office

News Backgrounder

July 7, 2010


I. ECFA Will Accelerate Asia’s Economic Integration: President Ma

After Taiwan’s Straits Exchange Foundation and its mainland Chinese counterpart, the Association for Relations Across the Taiwan Strait, signed the Economic Cooperation Framework Agreement (ECFA) on June 29, the Cabinet approved the agreement and forwarded it to the Legislature for review on July 1.

At a press conference held the same day, entitled “New Inflection Point for Taiwan, New Era for Asia – Choosing Correctly at a Critical Juncture,” President Ma emphasized that the agreement will spur breakthroughs in three areas: allowing Taiwan to overcome its economic isolation; encouraging economic relations between Taiwan and mainland China toward reciprocity and cooperation; and accelerating Asia’s economic integration.

The ECFA, said the president, holds far-reaching implications for Taiwan’s future, which the international community will be examining with keen interest. It will further solidify cross-strait peace while bringing about structural changes in the Asia-Pacific regional economy, he opined.

The agreement could also prevent the nation from being economically marginalized, the president said. It provides a systematic framework for mutually beneficial cooperation across the Taiwan Strait that will create more business and job opportunities.

The agreement, he added, will speed up economic integration in Asia, making Taiwan a more valuable asset in the eyes of the Asia-Pacific and the world. It has the potential to transform Taiwan into a springboard for enterprises around the world to enter mainland Chinese markets.

Following up on the signing of the ECFA, the Council for Economic Planning and Development (CEPD) will organize business fairs to solicit foreign investment in 12 focal industries in Taiwan. From October to December, the CEPD will make presentations in Japan, Singapore, the United States and Europe.
II. World Strongly Supports Cross-Strait Pact

The international community has voiced its support for the Economic Cooperation Framework Agreement (ECFA), signed on June 29 between Taiwan and mainland China, for its promise to bolster stability in Asia and increase trade. Foreign nations and bodies shared their hopes for cross-Strait interactions to continue expanding.

On June 29, a U.S. Department of State official said, “The United States welcomes the increased dialogue and interaction,” and hopes that relations between the two sides “will continue to expand and develop.” The cross-strait economic pact, the speaker continued, would help to increase trade and lead to a more stable Asia.

Catherine Ashton, the EU High Representative for Foreign Affairs and Security Policy, issued a statement on June 30 affirming that the signing of the ECFA “contributes significantly to stability and security in East Asia.” The statement went on to read, “The European Union believes that the expansion of cross-Strait economic relations has a potential also to benefit the development of its already significant trade and investment links in East Asia.”

The Ministry of Foreign Affairs of Japan, meanwhile, said on June 30 that the Japanese government welcomed the ECFA, and that it looks for Taiwan and the mainland to solve their problems peacefully through direct dialogue.

“The conclusion of the ECFA will further enhance economic cooperation between both sides and pave the way for the normalization of the cross-Strait economic relationship,” said Singapore’s Ministry of Foreign Affairs on June 30. “It will,” the ministry continued, “also be helpful in promoting regional economic integration.”

In a July 5 interview with Taiwan’s Central News Agency, Director-General Pascal Lamy of the World Trade Organization (WTO) affirmed that the ECFA with mainland China was a major achievement by Taiwan in meeting its overall trade objectives. This agreement would help improve cross-Strait relations and ensure Taiwan’s industrial competitiveness, while also furthering its economic integration with the world and attracting foreign investment.

The WTO Secretariat’s Trade Policy Review on Taiwan pointed out that a cross-Strait economic agreement would help improve relations across the Taiwan Strait and could prove beneficial to Taiwan in signing free trade agreements (FTAs) with its other major trading partners. Taiwan will then be better equipped to meet the competition created by FTAs signed between other Asian nations.

III. Taiwan’s Digital Economy Ranking Rises

Taiwan has again come into the international spotlight for its information and communications technology (ICT) development. It was listed at No. 12, four spots higher than the previous year, in the 2010 digital economy rankings released by the Economist Intelligence Unit (EIU) on June 29. The rankings are viewed as an indicator of economic competitiveness.
The EIU pointed out that Taiwan’s rise in ranking is attributable to its advantage in broadband technology, which, together with its sound legal and enhanced social environments, makes it an exemplary model for applying digital technology to creating economic and social benefits. This development has become increasingly common in Asia, where such leading “digital economies” as Taiwan and South Korea are outperforming Europe and North America in broadband quality.

EIU derives the annual rankings from surveys on the development of ICT in major economies, evaluating their network infrastructure and Internet use for social and economic purposes. It is hoped that both individuals and enterprises can, in a sound regulatory framework and through investment in communications infrastructure, contribute to increasing efficiency and prosperity. The “digital economy” benchmark is a reflection of how the use of ICT ultimately contributes to the world’s overall economic and social progress.

Weekly News Background from Taiwan's Government Information Office

News Backgrounder
June 30, 2010
I. Taiwan Set to Sign ECFA with Mainland China

A preparatory meeting for the fifth round of talks between Taiwan’s Straits Exchange Foundation (SEF) and mainland China’s Association for Relations Across the Taiwan Strait (ARATS) was held on June 24 in Taipei. Led by SEF Vice Chairman Kao Koong-lian and his ARATS counterpart Zheng Lizhong, the two sides finalized the ‘early harvest’ list under the proposed economic cooperation framework agreement (ECFA), and agreed on the texts of the ECFA and of another pact on intellectual property rights protection. The two sides signed these agreements at the fifth round of SEF-ARATS talks on June 29 in the mainland city of Chongqing.

According to the SEF, a total of 539 goods and services proposed by Taiwan have been included in the early harvest list for immediate tariff or market concessions. These consist of petrochemical products (including petrochemical and plastic materials), textiles, transportation tools (automobile components), machinery (machine tools) and other products. Taiwan negotiators also strived for the inclusion of 18 agricultural and fishery products for zero-tariff treatment when exported to the mainland, benefiting many farmers in central and southern Taiwan. Meanwhile, Taiwan has agreed to include 267 items proposed by the mainland.
According to the Executive Yuan, the signing of the ECFA is a critical step toward upgrading national competitiveness that can open more business opportunities for local industries. It will not only enhance Taiwan’s international competitiveness and lure foreign investors, but will also put Taiwan in step with globalization and regional economic trends.

Studies by the Chung-hua Institution for Economic Research indicate that the signing of the ECFA will help Taiwan’s economy grow by 1.65 to 1.72 percentage points and create 257,000 to 263,000 job opportunities. Other benefits for Taiwan include earlier entry into the mainland market over competitors, attracting foreign investment, transformation of Taiwan’s economic structure and turning the island into a gateway and preferred business partner for the Chinese market.

The agreement will now pass to the Executive Yuan for approval and to the Legislative Yuan for review before it can be implemented. The Legislature will convene a special session in July to review the pact.

Many renowned economists hold the view that the ECFA will bring tremendous benefits for Taiwan’s economic development. Economics Nobel laureate Oliver Williamson pointed out that the ECFA would benefit both Taiwan and mainland China by promoting mutual prosperity and development. Nevertheless, he also emphasized the importance of self-protective measures. Business strategist Kenichi Ohmae described the cross-strait economic pact as “a carefully crafted vitamin for Taiwan.” Combined with a 17-percent business income tax rate and 370 direct cross-strait flights every week, Ohmae said that Taiwan could well become a business operations hub for Greater China.



II. Progress Made in Post-Morakot Reconstruction Efforts

On August 8, 2009, Typhoon Morakot brought torrential rain to southern Taiwan, causing deaths, inflicting severe losses on the tourism industry and damaging basic infrastructure in the mountainous regions of Kaohsiung County and other areas. At the time, President Ma Ying-jeou pledged that reconstruction efforts would be expeditious.

An all-weather remote emergency video communication system began operation in Namaxia Township on June 26. It is the first installation of its kind in Taiwan and will allow for more effective response to severe weather. The president stressed that the system can function under extreme conditions. Such a system, he said, is important for people living in remote areas, as they are more susceptible to the effects of climate change.

Meanwhile, on June 25, the premier announced that Provincial Highway No. 18 to Alishan reopened. This decision was in response to the needs of local residents and hopeful tourists. Along with the reopening of the Alishan Railway, this will help increase tourism to the area. Premier Wu pointed out that Alishan is a favorite destination for both domestic tourists and those from Japan and mainland China. Meanwhile, to attract more foreign tourists to Alishan, the Tourism Bureau will implement new marketing campaigns.

The reconstruction commission stated that the largest amount of rainfall dumped on Taiwan by Typhoon Morakot — nearly 3,000 millimeters — fell on the Alishan area. This was nearly a world record. The torrential rains inflicted terrible damage on the region’s environment and transportation system. As such, restoring regular operation of the Alishan Railway and tour buses is key to stimulating economic development there.

Source: Government Information Office, Republic of China (Taiwan)

More on Trade

Courtesy of Taiwan Image.

We assume that, by now, every English-language Taiwan blog out there has the scoop on R.O.C. the Boat when it comes to American Enterprise Institute and Armitage International's much welcome report released last week, by Dan Blumenthal and Randall Shriver. The report is a product of the work of the Taiwan Policy Working Group, which a joint project by the two Washington foreign policy organizations. The report makes many solid recommendations for ways in which the Taiwan-U.S. relationship can be strengthened for the good of their alliance as well as for the health and stability of cross-Strait relations in general. Not surprisingly, trade was part of the recommended agenda:

The United States and Taiwan can strengthen their economic ties to the benefit of both economies. The two economies already share a strong partnership, but as Taiwan's leadership in computer components and next-generation telecommunications technology indicates, there is much room for further growth.
. . . .

A U.S. Taiwan FTA would have bilateral economic and strategic benefits, and it could also provide economic benefits to the region by fostering inter-Asian trade liberalization. U.S. action could have a positive domino effect on other countries, such as Japan, that do not want to see Taiwan excluded from the Asian economic arrangements for both economic and political reasons.

Just a brief excerpt from the good deal that the report had to say about the benefits of trade between Taiwan and the U.S. and the greater benefits a bilateral free trade agreement would bring.

Taiwan's Chief Negotiator, Mr. John Deng from the Office of Trade Negotiations in the Ministry of Economic Affairs (MOEA), is ready to talk turkey with the office of the USTR to get an agreement hammered out. Unfortunately, there are three other bilateral FTAs pending in Congress and public sentiment towards free trade is beginning to cool (to use a gentle term). In the following short piece by Chief Negotiator Deng, "Looking Forward to a U.S.-Taiwan FTA," provided by the MOEA's office in Washington, D.C., Mr. Deng concisely lays out the case for such a trade agreement and calls on American voters to voice their support for a Senate Concurrent Resolution designed to nudge the process along:

Looking Toward a U.S.-Taiwan FTA
Mr. John Chen-Chung Deng
Chief Negotiator, Office of Trade Relations
Ministry of Economic Affairs, Republic of China

In late December, Senators Max Baucus (D-MT) and Jon Kyl (R-AZ) introduced Senate Concurrent Resolution 60, thereby demonstrating continued support in the U.S. Congress for the negotiation of a Free Trade Agreement (FTA) between the United States and Taiwan. Taiwan is grateful to these Senators for their action, and for the longstanding support and friendship of the United States. A U.S.-Taiwan FTA would ensure continued prosperity for Taiwan, and would bring with it many economic benefits for U.S. exporters as well.

Taiwan and U.S. Trade

In recent years, Taiwan has worked with the United States and the World Trade Organization to develop world-class labor standards, environmental safeguards and strong protections for intellectual property rights. Trading with Taiwan means supporting the values of a responsible member of the world community.

Despite a comparatively large level of trade, the U.S. and Taiwan feature different and largely complementary manufacturing bases. For instance, Taiwan produces almost three-quarters of the world’s laptop computers and LCD monitors, as well as four-fifths of the world’s PDAs, often incorporating U.S. technology and design specifications. Taiwan is also a major customer for U.S. exporters and is the largest per capita buyer of several important U.S. farm products including corn, soybeans, meat and wheat. A recent study shows that the FTA would increase U.S.
exports to Taiwan by an estimated $ 6.6 billion annually.

A U.S.-Taiwan FTA, however, would enhance economic opportunities far beyond our
two economies alone. With the strong American business presence in Taiwan, the FTA would encourage U.S. businesses to use Taiwan as a base of operations in Asia, and establish bilateral alliances with Taiwan’s entrepreneurs to explore business opportunities in third markets. Such trends would help to enhance U.S. trade relations with other Asian economies, while also ensuring a strong U.S. economic presence in the region.

Why a U.S.-Taiwan Free Trade Agreement?

Competition among Asian economies is fierce. In order to stay competitive, Asian nations are pursuing FTAs with their key trading partners. These FTAs are often sought not only for their economic benefit, but also for their political and security
significance. Taiwan, however, continues to be excluded from these FTAs as a result of China’s intention to isolate Taiwan from the global trade community. With both the U.S. and Taiwan being members of the World Trade Organization, the reality is that no impediment exists to their establishing closer economic relations through a mutually beneficial trade agreement.

The U.S. and Taiwan have a longstanding friendship stretching back over 60 years. As a result of U.S. engagement and influence, Taiwan was able to emerge as a democracy late last century. Democracy, however, requires economic prosperity. An FTA with the United States would ensure that Taiwan continues to remain prosperous, and that its democracy remains healthy. With this in mind, I wish to call on our friends in the U.S. to support the Concurrent Resolution as introduced by Senators Max Baucus (D-MT) and Jon Kyl (R-AZ).

U.S. State of the Union, Congress and TUFTA

From our viewpoint, watching President Bush's final State of the Union address on Monday night, it seemed like the president had chosen a short list of priorities to focus on for his last year in the White House, one of which is to press for Congress to pass the United States' remaining outstanding negotated Free Trade Agreements. From the address (transcript here):

I thank the Congress for approving a good agreement with Peru. And now I ask you to approve agreements with Colombia and Panama and South Korea. (Applause.) Many products from these nations now enter America duty-free, yet many of our products face steep tariffs in their markets. These agreements will level the playing field. They will give us better access to nearly 100 million customers. They will support good jobs for the finest workers in the world: those whose products say "Made in the USA." (Applause.)

These agreements also promote America's strategic interests. The first agreement that will come before you is with Colombia, a friend of America that is confronting violence and terror, and fighting drug traffickers. If we fail to pass this agreement, we will embolden the purveyors of false populism in our hemisphere. So we must come together, pass this agreement, and show our neighbors in the region that democracy leads to a better life. (Applause.)

- President George W. Bush, 2008 State of the Union Address

With free trade seemingly high on the White House's priority list, there may be better prospects ahead over the next year for the passage of these outstanding agreements. Hence the prospects for a Taiwan-U.S. Free Trade Agreement (TUFTA), which has not been hammered out yet between the two allies, seems brighter as well. Reenforcing this logic are statements made recently by Senate Finance Committee chair Max Baucus (D) of Montana and committee member Jon Kyl (R) of Arizona, as reported in this article by the publication from the Economic Division of TECRO, TaiwanNow:

from TaiwanNow, January 2008 issue
"View from Taipei - Baucus: ‘Launch U.S.-Taiwan FTA Talks’"

Congress Looks Ahead to What’s Next and Needed After Pending Trade Agreements

In late December, Senate Finance Committee Chairman Max Baucus (D-MT) introduced a concurrent resolution calling on the United States to both “increase trade opportunities” with Taiwan and launch negotiations on a bilateral free trade agreement. Co-sponsored by Senator Jon Kyl (R-AZ), the resolution, S Con Res 60, comes at a time when trade has become an easy scapegoat for U.S. economic problems on the campaign trail and as an uncertain outlook for the global economy may push the U.S. and other nations to consider protectionist measures.

During this period of economic uncertainty, it takes bold leadership to look beyond what is politically popular in the short-term to embrace good policy in the long-term. Taiwan is both grateful to Senators Baucus and Kyl for their bipartisan vision and for the longstanding support and friendship of the United States. Negotiating trade agreements with commercially significant economies will help safeguard U.S. economic competitiveness in the years to come, and the case for a U.S.-Taiwan FTA has never been stronger.

As the Senators highlight in their resolution, Taiwan and the United States are among each other’s most important trading partners. U.S.-Taiwan bilateral trade in 2006 totaled $61.2 billion, and Taiwan ranks as the 9th largest U.S. trading partner, the 11th largest export market for U.S. goods; the 6th largest market for U.S. agricultural products and the “3rd, 4th, 5th and 6th” largest buyer of U.S. corn, soybeans, beef and wheat, respectively. Not surprisingly, studies show that both the U.S. and Taiwanese economies would experience significant gains from a bilateral trade agreement. According to the Peterson Institute of International Economics, a U.S.-Taiwan FTA would increase U.S. goods and services exports to Taiwan by up to $6.6 billion annually.

Senators Baucus and Kyl have long been supporters of a U.S.-Taiwan FTA. Baucus introduced the U.S.-Taiwan Free Trade Agreement Act of 2001, and he and Kyl, along with eight other senators, wrote to President Bush in 2003 urging him to launch talks on an agreement. There has also been similar support for a bilateral FTA in the House, with members introducing resolutions calling for the launch of a U.S.-Taiwan FTA in 2003, 2006 (signed by more than 66 representatives) and most recently H Con Res 137 in May 2007, a proposal co-sponsored by Congressional Taiwan Caucus co-chairs Shelley Berkley (D-NV), Steve Chabot (R-OH), Dana Rohrabacher (R-CA) and Bob Wexler (D-FL.) as well as Rep. Jim Ramstad (R-MN).

Which brings us back to 2008: We hope that members of Congress and the private sector will support an economically significant U.S.-Taiwan FTA and the resolutions introduced by Senators Baucus and Kyl and Reps. Berkley, Chabot, Rohrabacher, Wexler and Ramstad this year. The time for Taiwan is NOW.

Taiwan's Titanic Tech Trade

We came across an article from last Friday on PC Magazine's website entitled, "China-Taiwan Showdown Involves Politics, PCs." Glenn Smith's article is an interesting look at the ways in which a serious turn for the worse in the relationship between Taiwan and China could pose a serious threat to the world's IT electronics market. At face value, Smith's thesis seems a bit obvious: Taiwan is the world's leading producer higher end electronic devices, and many of the components used to assemble these products are sourced from factories in China, so of course a serious confrontation across the Taiwan Strait would harm the industry. Yet the scope of the possible harm done can sometimes be easily overlooked.

According to Smith's article, "Taiwan is the world's number one volume supplier of motherboards, WLAN NIC cards, VoIP cards, VoIP routers, laptops [83%], DSL customer premises equipment, cable modems, IP phones, PDAs [73%], VoIP terminals, LCD monitors [70%], switches, WLAN access points, color tube monitors and large LCD panels." Not only does Taiwan lead in all of these categories, it commands over half the global market share's dollar value in each and every one of them. Taiwan's tech industry is truly a global juggernaut.

Although over the years an increasing share of this nominal output has been manufactured by Taiwanese-owned fabrication outfits in China, virtually all product design originates in Taiwan's venerable scientific industrial parks. Furthermore, TFT-LDC lens and semiconductor production still remains largely on Taiwan soil. From the article:

Tze-Chen Tu, general director of the Industrial Economics & Knowledge Center (IEK), at Taiwan's Industrial Technology Research Institute (ITRI), said that every country wants to keep its first-tier industries at home, and that technology transfers are banned if thought harmful to economic or national security.

"We don't like to see them go but even when Taiwan companies shift manufacturing to China, they come back for design and for critical components," said Tu.

The net result? According to Smith, whereas the production and export of existing electronics to the United States and other tech-consuming countries might be maintained during a crisis, "if things fall apart and a Tom Clancy scenario unfolds in the Taiwan Strait you can forget about upgrading your PC or laptop for a while. The hundred miles of shallow seas separating Taiwan and China happen to be the most important yet most precarious link in the global ICT [Information and Communications Technology] supply chain."

All these are very good economic reasons for the United States and most other countries to take a vested interest in maintaining peace and trade communications across the Taiwan Strait. Yet, in highlighting Taiwan's central role in this global industry, we are also shining light on the real benefits that could be reaped by businesses and consumers in both Taiwan and the United States from a free trade agreement between the two countries.

The electronic 'triangle trade' that currently exists between the U.S., Taiwan and China is formed as major American firms such as IBM, Intel and Apple look to Taiwan firms to design critical components for new products which are then manufactured and assembled in China and shipped to consumer outlets in the U.S. Due in large part to this dynamic, the United States is Taiwan's largest source of foreign direct investment and 3rd largest export market, while Taiwan, an island of 23 million, is the United States' 9th largest trading partner and 8th largest export market. Lowering trade barriers on any leg of the ICT trade flow would lower artificially imposed production costs and therefore equal higher company profits and lower price tags for consumers.

As mentioned in earlier posts on this site, there are of course other economic areas in which Taiwan and the United States, as close allies and trading partners, have formed strong ties. U.S. exports to Taiwan in 2006 amounted to $23 billion and Taiwan is a leading consumer of American meat and produce as well as cars and other industrial products. One 2002 study by the U.S. International Trade Commission (USITC) projected that a Taiwan-U.S. Free Trade Agreement (TUFTA) would double American exports to Taiwan in the agricultural and auto sectors while raising overall exports $3.4 billion or 16% (at the time) annually. In 2004 a study by the Institute for International Economics (IIE) raised the expectations for annual increases in exports to $6.6 billion. Clearly the potential for growth in American exports Taiwan is increasing in proportion to current trade volume and considerably outpacing the current level of growth.

As we have long been consistently advocating here at R.O.C. the Boat, a US-Taiwan Free Trade Agreement would bring tangible economic benefits two both the United States and Taiwan--two countries whose economies are enmeshed but to a large degree do not overlap. Furthermore, an FTA would grease the wheels of the Asia-Pacific tech trade and add to the stability of the region. Finally, according to the same 2004 IIE study mentioned above, TUFTA would create more economic gains for the U.S. than those of 10 other current or potential FTA partners, including Australia, Singapore, Chile and New Zealand. At a time when the U.S. economy seems to be hitting a rough spot at best and perhaps moving into recession at worst, pursuing a free trade agreement with Taiwan would certainly give several sectors of the American economy something sunny on the horizon to look forward to.

Taiwan-U.S. Free Trade

When Peru-U.S. Free Trade was approved in the U.S. House of Representatives by a wide margin in early November, the outlook appeared grim for the remaining agreements in the wings--Columbia, Panama and Korea--to find approval soon, as the political climate quickly began to cool towards trade. The Nelson Report in November relayed the news that, "Democratic presidential candidate Hillary Clinton late yesterday let it be known that if and when KORUS, Colombia and Panama FTA's come up for a vote, hers will be 'no'. Whether she ever gets to that point depends, of course, on the House, and today, Majority Leader Steny Hoyer announced that there will be no votes on these three at all this year."

Without Taiwan even on the docket, the prospects for a Taiwan-U.S. Free Trade Agreement in the immediately future are admittedly unlikely. Yet Taiwan is still on Congress' trade radar, as was demonstrated earlier this month when Senator Max Baucus of Montana introduced S. Con. Res. 60, a concurrent resolution which, if passed, would nudge the office of the U.S. Trade Representative towards opening extensive trade negotiations with America's eighth-largest export market.

We've listed in the past many of the prime reasons why it is in both countries' interest that a Taiwan-U.S. free trade agreement (TUFTA) become reality sooner rather than later. The economies of Taiwan and the United States are heavily symbiotic, with little overlap in their respective key industries. Although free trade is seen by many as conributing to the percieved evils of globalization, classic talking points against free trade do not apply to the situation of trade between Taiwan and the United States.

S. Con. Res. 60 has been referred to the Senate Finance Committee, which is incedentally chaired by Senator Baucus. If you have a Senator on the committee, drop his/her office a line and voice your support for the resolution.

U.S.-Taiwan Free Trade Agreement Roundtable

Photo of the aircraft carrier U.S.S. Kitty Hawk, which became the centerpiece

of a Sino-U.S. diplomatic tussle when it was not allowed to carry out a planned

visit to the port of Hong Kong this past Thursday and was forced to return to its

home port in Japan. Many family members of the sailors had traveled to

Hong Kong, looking forward to celebrating Thanksgiving with the crew.

Yesterday at the Sigur Center, the Asian Studies center within the international affairs school at the George Washington University, a panel discussion was held that featured guests from the Taipei Economic and Cultural Representative Office (TECRO, Taiwan's officially 'unofficial' embassy in Washington) as well as the Heritage Foundation and the American Enterprise Institute for Public Policy Research, two eminent Washington policy think-tanks.

The issue of the day was whether the United States and Taiwan should enter into serious negotiations and eventually finalize and enact a free trade agreement. The event began with a rather informative presentation by the director of TECRO's economic division, Mr. Francis Liang, who highlighted the many reasons why a Taiwan-U.S. FTA would be beneficial to the economies and populations of both countries involved. Thanks to the provision of extra copies of this presentation in paper form for audience members at the event, we are able to forward some of the more interesting facts and figures to you:

• Taiwan has experienced an average annual growth in GDP of 7.8 % over the past half century, and currently engages in foreign trade to the tune of $437 billion U.S. dollars and is the second largest holder of Foreign Exchange Reserves in the world ($266 billion).


• Taiwan produces 72% of the world's laptops, 79% of PDAs and 68% of LCD monitors. In the cover article of a May 2005 issue of Business Week, Bruce Einhorn referred to Taiwan as "the hidden center of the global economy."
  
• In 2006, Taiwan was the United States' 9th largest trading partner, 11th largest export market, and the largest importer per capita of U.S. agricultural products. In the same year, the United States served as Taiwan's 3rd largest trading partner, second largest export market, and Taiwan's largest source of foreign direct investment. Taiwan-U.S. bilateral trade was worth $62 billion dollars last year.

In addition to hard facts and figures, Mr. Liang helped explain the current trade situation in the Pacific Rim and how this adds to the need for an FTA. Currently, major Pacific Rim players such as Japan, China, Korea, Singapore, and Australia are vigorously signing and seeking new free trade agreements in the region. If the United States doesn't work to improve its trade relations and hammer out agreements with its top East Asia/Pacific allies, it may get edged out of the trade game in the Pacific.

This is just a sampling of what Mr. Liang had to say. On the other hand, Philip Levy, a resident scholar at AEI, was rather hesitant about the prospects for TUFTA. Mr. Levy's major hang-up when it comes to this topic is the "China factor." To put it simply, he, like many other academics, government officials, and 'China hands' in the United States, is simply fraught with worry at the prospect of 'antagonizing' the government of China in any way whatsoever.

Levy argues that whatever benefit Taiwan gains by formalizing an FTA with the United States will be cancelled out by the drop in foreign investment that would presumably follow if the PRC government stepped up its threats, military activity, and the familiar sabre-rattling routine in general in response. According to his hypothesis, Taiwan would then be unable to reap the benefits of TUFTA and would only have caused greater threat to its very existence.

What we believe is overlooked in Levy's line of reasoning, is why the very idea of a Taiwan-U.S. Free Trade Agreement raises the hackles of any PRC government official or general in the PLA. By engaging in deeper trade relations with Taiwan, the United States would be affirming in a practical way its values-based alliance with Taiwan's government. Rather than increasing the likelihood of Chinese acts of aggression against Taiwan, this step would make it more difficult for China to recklessly threaten Taiwan without thereby antagonizing the United States!

Humanists and 'starry-eyed idealists' in the U.S. are already more likely to favor Taipei over Beijing due to our countries' common interests in democracy, human rights, civil freedom, etc. More cynical observers of American foreign policy on the other hand—who were probably thinking yadi-yadi-yada by the time they got to the end of the last sentence—would also be more unlikely to tolerate PRC aggression against Taiwan, as American economic interests would become increasingly tied to Taiwan's national interests.

Besides, as Mr. Tkacik touched upon in his usual fire-and-brimstone manner, what with all the recent news concerning ongoing Chinese involvement in human rights violations, faulty Chinese commercial imports and the snubbing of the United States Navy with the recent U.S.S. Kitty Hawk Thanksgiving Day incident (just to name a few), maybe its high time that the United States did engage in a little diplomatic antagonizing towards the PRC government.

Summarily, at the conclusion of a free trade agreement between Taiwan and the United States, American officials would perhaps reasonably be a bit on edge for fear of economic and political backlash from Beijing. More important however is that, from that point onward, every time officials in Beijing contemplated the forceful unification of Taiwan with China, they would worry more than ever about the prospects of antagonizing the country that represents China's largest export market and the world's sole remaining superpower.

It seems to us that, in terms of American foreign policy vis-a-vis Taiwan and the People's Republic of China, improving American trade relations with Taiwan using the vehicle of a Free Trade Agreement is one of the best moves that can be made within the even the most conservative definition of the status quo.

Some Helpful Articles:

Yesterday we saw two helpful and refreshingly fair articles on the internet.

The first is an editorial by the Houston Chronicle, entitled, "Their dilemma, and ours," in which the Chronicle underscorses the dark irony we have to live with when democratic Taiwan continues to get the international 'cold shoulder', while oppressive Beijing happily frolicks towards the 2008 Summer Olympics without the slightest reform to China's cruel and stifling political system. Some highlights:

Neither independent nor subjugated, commanding one of the world's largest economies but officially recognized by few nations, the island democracy of Taiwan endures a tenuous existence in a world that requires global access. If that weren't bad enough, it is menaced by a hostile neighbor that claims ownership.

and:

Taiwan's dilemma offers a similar set of difficulties for the United States. Taiwan's de facto U.S. ambassador, Joseph Wu, outlined for members of the Houston World Affairs Council the several bitter ironies of the situation. The United States must maintain workable relations with China and can't recognize Taiwan, even though:

• China menaces Taiwan with missiles and threats, while Taiwan poses a danger to no one.
• Taiwan is a major U.S. trading partner, importing many tons of agricultural products, including Texas beef, and exporting electronic equipment that meets high standards of quality and safety. China sends us tainted food and toxic toys.
• Taiwan has curbed its air and water pollution, but China's regime fears environmental activists more than environmental degradation.

Chinese leader Hu Jintao recently called for talks with Taipei officials to maintain peace in the region. China and Taiwan should "resume talks on an equal footing as soon as possible," Hu said before his recent summit with President Bush in Washington.

and:

As for the United States, the least it can do is grant Taiwan the same generous trading terms it recently gave South Korea, one of Taiwan's chief competitors. Washington should also champion Taiwan's desire to work with vital international institutions such as the United Nations' World Health Organization. To deny Taiwan access is to punish a peaceful, democratic ally while rewarding an oppressive competitor.

We couldn't have said it better ourselves. Pay particular attention to the call for increased trade (TUFTA?) and UN/WHO membership for Taiwan in the pentultimate sentence. These actions are the first solid step towards righting the wrongs collectively forced upon Taiwan over the many years that it has been a legitimate democracy.

The second article was by Simon Tisdall of the U.K. rag The Guardian. Entitled, "Taiwan squeezed as US and China negotiate," it highlights an unsettlying dynamic that was recently discussed during a panel discussion at the Heritage Foundation: the more the United States suffers from diplomatic tunnel vision dealing with the Middle East, the more it is forced to rely on major regional players like China to help maintain at least a semblance of order elsewhere in the world. In doing so however, the United States may end up bargaining away foreign affairs objectives it would never have conceded otherwise. One can easily see how this might apply to Taiwan:

According to Taiwan's president, Chen Shui-ban, China now has 988 missiles aimed at Taiwanese targets and is continually adding to its arsenal. Chen, who strongly opposes unification and the communists' "one China" mantra, recently described Beijing as a threat to regional peace and said it was preparing to take the island by force by 2015. Last month China said it had deployed a high-performance radar system designed to complement its surface-to-air missiles and jet fighter interceptors.

Robert Gates, the US defence secretary, questioned the build-up during a visit to Beijing last week. The two sides agreed to create a military hotline to help defuse crises. But Gates' overriding stated priority was securing China's backing for steps to curb Iran's nuclear activities. On Taiwan, he merely reiterated Washington's formulaic support for maintaining the status quo.

. . .Taiwanese officials say China has become adept at manipulating the Bush administration. "They are under pressure from China. China is very clever. If they want to do something on Taiwan, they call the White House and tell the Americans that Taiwan is rocking the boat. Then the US government puts pressure on us," a senior official said. "Of course we are afraid about the growing cooperation between the US and China. It's a problem for us. It is definitely squeezing Taiwan."

TUFTA Part II

A birds-eye view of the Industrial Technology Research Institute in

Hsinchu County, Taiwan [image courtesy of Taiwan Journal]

. . . many of our global competitors are actively seeking to "lock-up" East Asia's fast growing economies into economic relationships that exclude the United States and U.S. firms, it is worth reflecting on this trend.

Today, there are 176 free trade agreements in existence in the Asia Pacific region alone, and many more either under negotiation or consideration.

• China already has an FTA with ASEAN that covers goods, and a comprehensive services FTA between the two parties will enter in to force[sic] in July. In addition, the Chinese are actively negotiating or have proposed FTA discussions with, among others, Korea, Japan, India, Australia, New Zealand, the GCC, Pakistan, and the South African Customs Union.
  
• Japan has concluded FTAs with Singapore, Malaysia, and the Philippines, and is considering engagement with the major players within Asia.
  
• India has implemented FTAs with Thailand, Singapore, and Sri Lanka and, as the aforementioned facts indicate, is actively entertaining discussions with the region's larger economies.
  
• Demonstrating that the interest in establishing trade deals in Asia is not limited to the region itself, the EU is actively courting partners that include China, India and. . .Korea.
  
• We are witnessing efforts to construct an exclusive Asia Pacific regional free trade bloc – so-called ASEAN +3 or +6 arrangements.

A number of these FTAs unfortunately do not constitute high standard, comprehensive FTAs of the variety that we have negotiated. However, they do afford preferential trading positions to the companies of these countries, and do have the effect of placing U.S. businesses, workers, and farmers at a relative disadvantage in accessing fast-growing East Asian markets. One potential effect of this web of agreements is to encourage U.S. companies seeking to compete in these markets to relocate production to those countries.

- from the testimony of Ambassador Karan Bhatia, Deputy U.S. Trade Representative to the House Ways and Means Trade Subcommittee, 20 March 2007

Although the above excerpt is from testimony given by DUSTR Bhatia to the Trade Subcommittee regarding a free trade agreement with Korea (KORUS), Mr. Bhatia's words ring just as true when one considers the need for a Taiwan-U.S. free trade agreement (TUFTA) and, indeed, further trade agreements with many countries in the East Asia-Pacific region.

Without lowered tariffs and higher levels of economic cooperation with key countries in the region, American industry and economic interests will increasingly be edged out of the Pacific Rim marketplace. In order to remain competitive, the United States ought to act to increase its free trade portfolio in this region, and a good place to start would be agreements with strong regional players -- like Taiwan -- that pose relatively little direct competition to major American industries.

The beauty of a U.S.-Taiwan FTA is that each economy brings to the table strengths that the other lacks. Lowered prices on Taiwan-produced electrical components that are crucial to the electronics industry (and are probably in the computer that allows you to read this), will lower overall prices of electronics sold in the United States. Taiwan's investment and financial sectors will encounter added stability with the increased service quality brought about by improved competition from American financial service companies, and so on, and so forth. Even the Korea-U.S. Free Trade Agreement that Ambassador Bhatia so aptly endorsed in the Trade Subcommittee hearing is in some respects less attractive than TUFTA, in that any final form of KORUS will have to negotiate around headed competition between the large automotive industries that are so important to each country's economy.

Hence, we have here a few more reasons why Congress and the Administration should take more time to seriously look at and move towards the signing of a free trade agreement between Taiwan and the United States.

The Case for Taiwan-U.S. Free Trade

Free Trade has for some time been a driving force behind United States foreign relations and the role many Americans envision for their nation in the twenty-first century. Scholars, economists, innovators and businessmen and women envision a global marketplace where trade barriers have been drastically lowered or eliminated altogether; where products are more easily distributed worldwide and exchanged freely internationally as well as domestically.

Free trade, of course, is not an idea that has arrived without protest. There are concerns that unique cultures and the identities of underdeveloped nations will fall prey to the larger international market, as purveyors of locally produced goods are driven out of business by large corporations producing similar goods for less elsewhere. Yet when two modern and industrially developed nations engage each other in free trade, there cannot be much doubt that the relationship is beneficial for both.In this light, there is much to gain and little to lose when it comes to a Free Trade Agreement (FTA) between the United States and Taiwan.

Proponents of such a bilateral international deal on both sides of the Pacific have brought forth various proposals for a Taiwan-U.S. Free Trade Agreement, or TUFTA. Beginning in 2001 with the introduction of a bill by Senator Max Baucus of Montana (D) entitled, “United States-Taiwan Free Trade Agreement Act of 2001,” members of Congress from both sides of the aisle have increasingly sought to hammer out a finalized version of TUFTA for approval by the governments of the United States and Taiwan.

Most recently, on May 1, 2007, House Concurrent Resolution 137 was introduced by Congresswoman Shelley Berkley of Nevada (D) on behalf of herself and Congressmen Jim Ramstad (R-MN), Robert Wexler (D-FL), Steve Chabot (R-OH) and Dana Rohrabacher (R-CA). The bill would express “the sense of the Congress that the United States should increase trade opportunities with Taiwan by launching negotiations without delay to enter into a free trade agreement with Taiwan.” H. Con. Res. 137 currently has 27 cosponsors and is awaiting action by the House Subcommittee on Trade.

We believe that a Free Trade Agreement between Taiwan and the United States is an important next step in preserving and strengthening the economic and strategic alliance between Taiwan and the United States. Taiwan is a natural economic hub for the East Asia and Pacific region, and by negotiating lower trade barriers, the U.S. government will secure an arrangement in which American firms will be better able to access supply chains throughout the region (including in China) by participating in Taiwan’s marketplace. Taiwan too will benefit by increasing the level of bilateral trade with its fourth largest trading partner and introducing American influence and competition into its large yet underdeveloped domestic services sector.

Taiwan already heavily imports quality U.S. agricultural goods such as beef, fruits, and nuts, and these imports would expand under lower tariff rates. Taiwan’s consumers would benefit from lower overall prices while American farmers, ranchers and growers would benefit from an expanded market for their products. In short, the current proposal for TUFTA would enhance and catalyze an already symbiotic economic relationship.Every year that passes without the creation of a United States-Taiwan Free Trade Agreement represents a massive missed opportunity worth billions of U.S. dollars in terms of bilateral trade and the strengthening of commercial networks in the western Pacific Rim.

As the United States continues to expand its international Free Trade portfolio, we can only hope that TUFTA appears at or near the top of the list.