Twelve months after Taiwan joined the world's most
important trade organization, consumers have access
to a wider selection of goods at lower prices and local
companies are bobbing in a sea of new competition,
with some weathering the storm better than others.
On the first day of 2002, after twelve years of negotiations with thirty countries and the drafting or revising of more than fifty domestic laws, Taiwan entered the World Trade Organization (WTO). "Joining the WTO has long been the consensus and aspiration of our people. It is also a milestone for the ROC's participation in international organizations. Essentially, accession to the WTO enables Taiwan to open a new 'window of the century' and a 'window of the world,'" stated President Chen Shui-bian, after the WTO Ministerial Conference formally approved the accession of the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu in November 2001. President Chen urged people to take advantage of Taiwan's membership and reminded them that entering the trade body would involve challenges.
Although it will take at least several years to see the impact of WTO membership on Taiwan's macro economy, some benefits and challenges are already apparent. Consumers, for example, experienced immediate benefits. Retail prices for many imported goods dropped after the average tariff on more than four-thousand industrial and agricultural products fell from 8.2 percent in 2001 to 7.1 percent in 2002. According to the Directorate General of Budget, Accounting and Statistics (DGBAS), the consumer price index dropped 0.2 percent in 2002. The difference in retail prices, however, has usually been too little for most consumers to notice. "To me, it doesn't make much difference if beef is two dollars more or if apples are three dollars less," says Lin Shu-huei, a middle-aged housewife. "What bothers me is that a bottle of rice wine now costs six or seven times more than before. This is the only noticeable change concerning my daily life, and frankly I think the government screwed up on the rice wine issue."
Compared with the average consumer, local farmers are dealing with a much different situation following Taiwan's WTO membership. Agriculture was already a declining sector before the start of 2002, contributing to less than 3 percent of the island's gross domestic product (GDP) in 2001. Tariffs on some one-thousand agricultural products have been cut from 20 percent in 2001 to 14 percent in 2002, and will be cut to 12.9 percent by the end of 2004 or 2007. In nontariff areas, restrictions on the origin of certain agricultural products, in more than ten product categories, were eliminated. For another twenty-two products, such as pork bellies, chicken, offal, and some fishery products, import restrictions were replaced by tariff rate quotas, whereby a low tariff rate applies to a certain amount of products imported and items above the quota are taxed at increasingly higher rates.
Liberalization through the reduction of tariffs and elimination of nontariff measures in the agricultural sector was expected to create new business opportunities to the tune of US$1.7 billion. The result has been lower prices and more selection for consumers, but farmers are continuing to suffer. Last year, agricultural production contributed less than 2 percent of GDP. Things are not expected to get any better when many of the products from across the Strait, which are currently restricted for quarantine reasons, hit the market.
The average tariff duties on more than three-thousand industrial products were cut from 6 percent in 2001 to 5.8 percent in 2002, and will be reduced further to 4.2 percent by the end of 2004, along with the removal of a number of other nontariff restrictions. The industrial sector, which was undergoing liberalization prior to WTO accession and was accustomed to international competition, was expected to fare better than the agricultural sector. WTO membership, in fact, is considered responsible for sharpening the industrial sector's competitive edge by allowing wider access to the global market under the most-favored-nation trading status. Statistics from the DGBAS suggest that Taiwan's industries have already started to create advantageous conditions. Industrial production increased 6.6 percent in the first eleven months of 2002 and exports increased 5 percent over the year.
Manufacturers targeting the domestic market, such as automakers, were considered more vulnerable. The concern was that local carmakers would lose their cost advantage following tariff cuts and the lifting of import quotas. What has happened, however, suggests that Taiwan's carmakers had adequately prepared for international competition. In 2002, the production of locally made automobiles not only did not drop but increased by 11 percent compared with the previous year, and the market share grew from 83.9 percent to a record 87 percent.
Champion Chen, editor-in-chief of Car News , a trade monthly published in Taipei, points out that local manufacturers started to prepare years before Taiwan's accession into the WTO. "They've been upgrading their designs and manufacturing processes, finding out what local car buyers want, and responding much faster than foreign carmakers," he says. "Tariff cuts and quota lifting may have made imported cars more accessible and less expensive, but the impact on the local industry and the market is insignificant because local carmakers have already found their niche and are making the most of it."
The service industry, which accounts for two-thirds of the country's GDP, was also expected to see changes following Taiwan's accession to the world trade body. Eleven sectors were targeted in WTO negotiations, including commercial; communications; construction and related engineering; distribution; education; environmental services; financial; health-related and social; tourism and travel-related; recreational, cultural, and sporting; and transportation services.
Because many of these categories had already experienced some liberalization prior to 2002, Taiwan's WTO membership has had little impact. The insurance industry, for example, opened to companies from the United States in the 1980s and to companies from other countries in the 1990s. Insurance companies from overseas enjoy identical treatment, and no restrictions apply to those who want to invest in or merge with local companies. In addition, insurance companies now have more latitude to invest in the stock market, derivatives, bonds and securities, as well as overseas financial markets.
Wang Ling-lu, a representative of an American life insurance company, points out that both local and foreign insurance companies are competing on a level playing field. Not only does WTO membership not have any impact on the local or foreign companies that are already present, but it can also help Taiwan's companies grow. "Now that both Taiwan and China are WTO members, we see a great opportunity to expand our services in the underdeveloped, talent-hungry, and lucrative mainland market," she says. "In fact, some managerial-level personnel from Taiwanese insurance companies are already taking action."
Local banks are also finding opportunities in the new WTO environment. Foreign banks have operated in Taiwan for decades, says Chen Wen-cheng, manager of a local bank, and a clear market division has emerged between local and foreign banks. "People tend to turn to foreign banks to buy new financial products, but street vendors come to us to deposit their daily earnings," he says. "Our advantage is our easily accessible network of branch offices. Old habits don't die once we become a WTO member."
Chen notes that the relatively light impact on local companies does not mean that they are not concerned. Banks are aggressively developing new products, and like the insurance industry, they are taking advantage of the opening of the financial markets in China. Several Taiwanese banks have already set up offices on the mainland. Chen himself will soon head to China to work at his company's Shanghai office. "It's rather difficult to get a big jump in business in a developed market like Taiwan, but the chances are much greater in underdeveloped ones like China," he says.
To facilitate the free flow of merchandise, capital, and services, it is important to have a free flow of personnel, which, unfortunately, is an area where Taiwan has been dragging its feet. It continues to be a difficult and time-consuming process for international companies, and even local companies, to bring their mainland personnel to Taiwan for meetings, training, or work. "American companies can't have a regional meeting here because they can't get their mainland partners together, so they have to do it else where," says Richard Vuylsteke, executive director of the American Chamber of Commerce in Taipei. "You lose out on conferences and the income of local hotels from international firms as well as domestic ones."
Another important component in the WTO negotiations was the protection of intellectual property rights (IPR). "With a view to meeting international IPR standards, we have implemented new protection measures and amended regulations covering broadly defined categories of industrial property rights and copyrights. We regard IPR protection as important to our international standing and are making every effort to rout out IPR violation," said Lin Yi-fu, minister of economic affairs, at the Joint Conference of ROC-USA & US-Taiwan Business Councils and Modern Engineering & Technology Seminar held last September.
To support this pledge, the government declared 2002 the "Year of Action for IPR Protection" and assigned the Ministry of Economic Affairs the responsibility of enforcing regulations. The Intellectual Property Office and the National Anti-counterfeiting Committee were established to undertake measures necessary to protect intellectual property. A special police task force was set up to handle IPR cases. An investigation and crackdown campaign was also launched to curb piracy.
What the government has achieved in IPR protection so far, however, does not seem to justify the efforts. American companies and the US government are not satisfied with the island's attempts to protect intellectual property. "The legal structure is in pretty good shape, but the problem is the enforcement--the punishment is so light that it's basically one night in the karaoke bar for offenders," Richard Vuylsteke says. "What you need to do is break some machines and put some people in jail. When that happens, we'll see a tight enough IPR environment."
Another source of frustration for negotiators of Taiwan's WTO pact is the lack of political headway membership has provided. When it comes to the free flow of goods, services, and personnel across the Taiwan Strait, the WTO has not served as a platform for cross-Strait negotiations as President Chen Shui-bian, among others, had hoped. Yen Ching-chang, Taiwan's representative to the WTO, indicates that China has on several occasions politicized economic issues, and has not been willing to negotiate with Taiwan as an equal member of the trade body.
But what does the government and the general public think of Taiwan's hard-earned WTO membership? Is it a political achievement, or is it an economic opportunity? "My observation is that Taiwan is now in the world's most important international economic organization, but it's not taking advantage of it," Richard Vuylsteke says. "We're not seeing the enthusiasm. We're not seeing the government or the people of Taiwan embracing the challenges as well as the opportunities. Frankly, I don't understand it. Neither do my companies." Interestingly, except for the agricultural sector and the rice wine issue, WTO-related issues have not captured much public attention--after the first day of 2002.