Taiwan Today

FCR: What are the most important eco­nomic issues for 1996?

P.K. Chiang: Internationally, our highest priority is to join the WTO, because it is the world's most important economic organization. Membership will definitely help us in international markets. This year we hope to complete all the bilateral talks needed for membership, as well as pass or revise all the necessary domestic laws to fit the application requirements. The main outstanding issue with our application is the mainland's schedule for WTO entry. If its admission is delayed, it's going to af­fect us. Nevertheless, we have to prepare ourselves as quickly as possible.

The second item on our international agenda concerns APEC [the Asia-Pacific Economic Cooperation forum]. We are sup­posed to finish drafting an action plan for liberalizing trade and investment. When we meet in the Philippines later this year, we're supposed to announce a common action plan. The senior officials' meeting is sched­uled for May. In September, New Zealand will host a trade meeting, and the APEC min­isters' meeting will be held in November. These meetings are essential for strength­ening liberalization and economic coop­eration in the region. The ROC is expected to play an important role.

Domestically, our goal is to make Taiwan a regional operations center. This can only be achieved by industrial upgrad­ing and improving our investment envi­ronment. These two priorities also go along with our agenda to join the WTO and to liberalize our economy. We have to work on opening up our domestic market and lowering tariffs. This means that MIT [made-in-Taiwan] products will face tougher competition both domestically and internationally. Increasing our competi­tiveness will depend on the success of our industrial upgrading. We've been upgrad­ing for years, but that process can only con­tinue as long as there is a steady supply of investment. The same is true of all further economic development. As a result, at­tracting foreign and local investors has also become a high priority.

What is the status of Taiwan's entry to the WTO, and what problems will mem­bership cause local business sectors?

It's not an issue of to be or not to be. If we don't join the organization, we won't enjoy the favored tariffs enjoyed by WTO member countries. If that happens, our products will lose competitiveness and will be weeded out of international markets. To secure fair treatment by these countries, we must join the organization.

Overprotection of our domestic indus­tries won't do us any good. In fact, lowering tariffs and opening our market to foreign goods actually improve our competitive­ness. The US has long been our number-one export market, and for years they've pressed us to lower tariffs. People here have resented the interference, but it has contributed to our industrial upgrading. The US pressure to eliminate piracy and emphasize the protec­tion of intellectual property rights [IPR] has also helped our high-tech industries to grow. Getting ready to join the WTO is like doing exercise—it's good for our health.

We've completed most of the negotia­tions necessary for membership, and not many categories are left for bilateral talks—automobiles, beef, chicken, gov­ernmental purchases, and several service industries are still incomplete. Yet these categories are difficult ones. I think both sides need to compromise a little. We've decided to do the automobile industry in stages, gradually lowering the tariff to allow our twelve auto companies time to adjust.

Actually, we're almost ready for WTO admission, but it's hard to say when we can enter. It depends heavily on the negotia­tions still under way, and we have no con­trol over the timetable. Moreover, the mainland has demanded that it be admit­ted first, and I think most WTO members have reached consensus on this point. Since the mainland's application is lagging behind, we're worried that we'll be de­layed as a result. For the time being, we are concentrating on the remaining talks, then we can negotiate on admission.

How successful has the APROC plan been thus far? What are the most seri­ous obstacles to its success?

The plan is not a one-year project. It' s long-term, and divided into stages. Our ministry is most concerned about the manufacturing center. We want to reach a GDP of US$300 billion by the year 2000.

What have we accomplished? Of course, it's not merely because of the APROC plan that Taiwan has continued to be prosperous. It flows from years of effort and successful economic policies. Al­though most of our labor-intensive indus­tries have moved offshore during the past decade, the predicted hollowing out of our industries has not occurred, nor has unem­ployment increased. Our foreign trade has been growing. It was US$50 billion in 1985, and $210 billion in 1995. Both trade and GDP growth indicate that our industrial upgrading is working.

Taiwan has undergone major trans­formations since 1987, when social movements after the lifting of martial law began having an impact on the economy. The NT dollar started to appre­ciate, a bubble economy emerged, and our economic growth started to slow down. From 1988 to 1994, the growth rate was always less than 10 percent. But last year, export growth exceeded 20 percent, and our exports to Japan in­creased 30 percent. These are signs of successful industrial upgrading.

We have also seen increased invest­ment from the private sector. The IC [in­tegrated circuit] industry has attracted at least NT$500 billion [US$18.5 billion] of investment capital in the last couple of years. People have maintained faith in investing here. The increases in our exports, production value, and invest­ment capital are all indicators of what we've accomplished. The APROC plan, being in the mainstream of our recent economic development, can claim a share of the success.

The most serious obstacle facing the APROC plan is our investment environment. This is deteriorating because of three prob­lems—two economic, one non-economic. One major economic problem is our labor shortage. Although Taiwan's population continues to grow, the workforce in manu­facturing has been shrinking. For the past seven or eight years, we have seen a loss of 0.3 to 0.4 million people in manufactur­ing. Most of them switched to service in­dustries. The number of people leaving farming is not large enough to make up for the loss in manufacturing. The vast number of illegal peddlers and piecework­ers also contribute to the labor shortage. We really have to start emphasizing the value of hard work and improving work conditions in order to get people back into the manufacturing sector.

The second major economic problem is a shortage of electricity. The fourth nu­clear power plant would be completed by now had it not been for stubborn opposi­tion by some so-called environmentalists. Our consumption of electricity far exceeds economic growth. During the last seven or eight years, capacity increased only 2 or 3 percent. We will have to wait another ten years for the nuclear power plant to open, but now that we've allowed the private sector to engage in power supply, I think we can catch up with demand by 1997 or 1998, when they finish building their power plants. Meanwhile, we have to share the limited power resources by divid­ing them fairly among residential users, in­dustry, agriculture, and commercial establishments. We have a similar problem with water supply, where we have to con­centrate on avoiding waste and search for new resources, such as building more dams.

The most serious non-economic prob­lem, in my opinion, is the increase in irra­tional protests, which is a result of an anti-business complex. The projected con­struction of a naphtha cracker and nuclear plants both encountered resistance in the name of environmental protection. But I think many activists are not really concerned about the environment. In­stead, they demonstrate in order to get compensation, or do it for the sake of opposition per se. People don't under­stand that such resistance will eventually hurt them, because it's going to affect the overall economy. A recession will hurt everyone.

What's the reason for the anti-busi­ness feelings? Basically, it's a misunder­standing of economic development. Most people think that business and industrial circles are creating profit only for them­selves. So when the government permitted construction of the sixth naphtha cracker, it was criticized for profiting only the consortium. This doesn't fit the facts. The Formosa Plastics Corporation consists of more than 140,000 investors: Wang Yung­-ching [chairman of the group] is a 9 per­cent shareholder, and the rest are small­ and medium-sized businesses that depend on him for the profit he helps create. Inves­tors and employees can make money, and the government can net substantial tax rev­enues each year. The real benefactors from this project are the government and the workers.

All industries create pollution, and this needs to be dealt with. But as long as a plant has pollution-control equipment that meets national standards, it should be allowed to operate. If it fails to meet the standards, it has to stop operations. And if its operations become hazardous to public health, it needs to be fined and to provide compensation to any victims. Environ­mental protection has to be balanced with economic development. But many of the so-called environmental protection cases are actually irrational resistance; they just want compensation in advance.

Many businesspeople say that their competitiveness and profits are signifi­cantly reduced by Taiwan's over-regu­lated environment. What is the government doing about this?

This question also ties in with our overall investment environment. Taiwan's administrative efficiency has come under scrutiny by foreign investors. First of all, we have strict regulations concerning in­vestment and business operations. In the past, the laws reflected a mentality that stressed forestalling dishonesty and cor­ruption. We therefore have some ex­tremely strict regulations, and civil servants often feel their hands are tied when dealing with businesspeople. From the private sector perspective, it seems that civil servants are inflexible and can only go by the book.

But revising laws is an extremely difficult process, and officials in the Ex­ecutive Yuan feel that it requires extraordinarily determined effort. It's like trying to move a mountain. It would be better for the Legislative Yuan to be more like a board of directors that sets the principles or major guidelines, but leaves the details to managers to do their jobs. But the Leg­islative Yuan often interferes with the management functions of government by becoming too involved in the details that concern the Executive Yuan. This has had a negative impact on the laws they pass, and it has slowed the overall function of government.

Secondly, businesspeople have to deal with too many government offices. In most cases, they have to deal with three levels of government-local, provincial, and central. It's really a waste of time and manpower, and it creates problems. We need a redistribution of authority among governments at each level so that business can be taken care of without overlapping responsibilities.

APEC seems to offer important oppor­tunities to Taiwan in the development of a strong regional economic presence. What are the highest priorities?

It is a rare opportunity for us to be part of such a prominent international organi­zation and be treated as an equal counter­part. It deserves our full attention. Our main task in APEC concerns liberalization.

In the Bogor [Indonesia] Declaration of 1994, all the participants indicated that the common goal was to achieve trade and investment liberalization by 2010 for de­veloped countries, and by 2020 for devel­oping countries. We will be like a team climbing a mountain. Everyone will have to help each other. If some lag behind, oth­ers have the obligation to push or pull to help them catch up.

The Osaka Action Agenda, adopted in 1995, has become the primary guideline for our common goal of liberalization. Every member country has to propose its own action plan, as well as suggest com­mon actions. We then must reach a consen­sus. By early 1996, each member should be able to say what kind of liberalization actions it's going to take—it's like a down payment for a common purchase.

At the recent Osaka meeting, every­one paid especially close attention to ag­ricultural issues. At first, the US didn't have much understanding of our agricul­tural policies. Later on, Malaysia took the lead in guiding the discussion; we [the ROC] thereby avoided being the first to take the heat. All the countries in this re­gion want prosperity, and liberalization will be a key factor in achieving this. It is therefore essential that we work on the lib­eralization of our own domestic market.

We are also talking about regional economic and technical cooperation. The ROC can play an important role here. Half of the APEC members are developing coun­tries. Can the American or Japanese expe­rience help them? These two leading powers are much more advanced in their economic development than Asia's devel­oping countries. I think APEC countries can draw on the Taiwan experience much more easily, because we are in the same region and have only recently become a developed country.

In the past few years, the ROC has been pushing for a Go South policy, urging our entrepreneurs to divert their investments to Southeast Asia. Our investments there have already helped create many employment opportunities, and our technological assist­ance has benefited their small- and medium­-sized businesses. We can contribute quite a lot in these areas. On the other hand, our country needs help in the areas of energy supply and the fishing industry. We want to learn from countries that are ahead of us in these areas.

What is the status of the Go South in­vestment policy?

The policy has two main purposes. First, to divert investors from overly con­centrating on Mainland China, which might cause us to lose advantage in cross­-straits negotiations. Second, Southeast Asian countries have huge workforces and abundant resources. If we can help these countries develop their economies, we will also profit. We can increase our exports to them as well as improve mutual relations, which will strengthen our national security.

The major difficulty for Taiwan com­panies in Southeast Asia is financing, but we are encouraging ROC banks to set up branches there. To overcome the shortage of management skills in the region we have started a program that recruits people to come here for two years of training. They can return as managers in Taiwan compa­nies or apply for loans to start their own busi­nesses. A third difficulty—adequate education overseas for the children of Tai­wan businesspeople—is being solved by the recent opening of many Chinese schools.

We regard Southeast Asian trade as being no less important than our trade with the US, Europe, or Japan. We already have US$27 billion worth of in­vestment in the region thus far, and we provide a great number of employment opportunities. Most of the countries have more than 8 percent growth, and we have contributed to that. We now have closer relationships with Southeast Asian coun­tries, which is politically advantageous. Economically, the region is gradually be­coming one of our major markets. It al­ready accounts for about 11 percent of our export market, which makes it as large as our Japan market.