These findings were supported further in a Time magazine report on November 20, 1989, which stated that a joint study by Japan's MITI (Ministry of International Trade and Industry) and the U.S. Department of Commerce had found that consumer costs in Tokyo run 40 percent higher than in New York City.
For a long time, Japanese consumer interests had seemed oblivious to the situation. People directed their attention to inflation and failed to grasp the significance of the high price level. Perceptions began to change when Japanese tourists were exposed to price levels in the U.S. They experienced the reality that almost everything costs far less in the U.S. than in Tokyo, even in pricey U.S. vacation locales. Price awareness has been building in Japan, and major articles on ''price gouging" in the Japanese domestic market have also appeared in the U.S. media—and have possibly played a role in the U.S. Commerce Department's decision to become active in this field.
A similar process of mounting awareness and activity has been underway in Taiwan—by both the government and consumers—as noted in the following article by senior economic journalist Osman Tseng (曾慶祥). It is an understandable development as the ROC moves further toward global integration and shifts from "living to export" to "serving domestic demand."
Prices for most of the products sold in Taipei are higher than in many other Asian and American cities, according to a survey conducted in March 1989 by the Council for Economic Planning and Development (under the Executive Yuan, or Cabinet). The survey compared prices for similar goods sold in Taipei, Hong Kong, Singapore, Manila, Kuala Lumpur, Seoul, Tokyo, and Boston, and covered six broad categories of products: cosmetics, detergents, foodstuffs, household appliances, musical instruments, and automobiles. A total of 50 specific products were surveyed in these categories.
Taipei leads all other cities in prices for 17 of the 44 items for which complete and comparable information could be obtained. It ranks second in prices for an additional 12 products and third for eight more items. Prices for automobiles in Taipei are especially high. They are nearly twice the auto price level in the U.S. (Even at that level, they are still lower than auto prices in South Korea.) The Council has not yet published detailed findings that tell which other products sell for higher prices in Taipei than in the other cities mentioned, nor by what percent they deviate from the foreign prices.
The Commodity Price Supervisory Board of the Ministry of Economic Affairs is preparing to conduct a similar survey in the near future. It will cover more international cities, including Bangkok, Melbourne, Los Angeles, New York, London, Paris, and Geneva, as well as the cities mentioned above. This flurry of activity in a field rarely examined before by any local agency, whether government or private, reflects the growing sensitivity of the government to pocketbook issues affecting consumers.
In a recent letter to the China Post, one of Taiwan's two English-language newspapers, a foreigner residing in Taipei complained of Taiwan's high prices. He recounted his recent visit to a Paris supermarket where he bought a liter of grape juice, a liter of mineral water, two large packets of biscuits, and a large loaf of bread for a total of 21 francs (about US$3.25). He pays more than twice as much for a similar basket of food in Taipei.
The expatriate also pointed to Taiwan's "artificially" high prices for imported consumer goods. He voiced hopes that the government would make sure that local prices would be kept more closely in line with "international realities" for the good of all.
Local citizens are becoming increasingly aware of the situation because they hear that they have to pay much more for Taiwan-made products sold domestically than overseas customers do for similar Taiwan goods. One taxi driver, for example, recently quoted his relatives living in the United States as saying that the U.S. prices for Taiwan-made products cost only around one-half of what the same items cost in Taiwan. Such complaints are becoming more common.
There are many causes for Taiwan's high price levels, according to interviews with several government officials, people in business, and ordinary consumers. The causes include sharply increased production costs in recent years, high taxes, deeply rooted government protection, and a costly distribution system.
The high cost of beauty—the commodity tax for cosmetics runs as high as 80 percent, among the world's highest.
During the last three years, costs of factory and office buildings have increased several fold, mainly because of realty speculation. Meanwhile, wages have also gone up sharply, rising by 40 to 50 percent. The increase in production costs results in higher prices, particularly for newly introduced products and services.
Heavy taxes are another major factor in Taiwan's high consumer prices. Automobile companies, for example, have to pay commodity taxes ranging from 25 to 60 percent, in addition to a flat 25 percent corporate income tax. For companies selling cosmetics, the commodity tax runs as high as 80 percent, among the world's highest.
The distribution system in Taiwan has much to do with the high level of consumer prices. For many products, both imported and Taiwan-made, sole sales rights are granted to a distributor. This enables the distributor and the manufacturer or importer to exercise more control over prices. The Taiwan market, with limited land space and only 20 million consumers, is especially vulnerable to such manipulation.
The sole agency distribution system is changing for products which face increasingly competitive markets. For example, few manufacturers of household appliances such as TV sets and washing machines are now selling their wares the usual way—through agents, wholesalers, and retailers. Because of acute competition at home and abroad, manufacturers are vending their products directly through various district distributors, who act both as wholesalers and retailers. This way they can save on marketing costs and reduce sales prices. Both manufacturers and distributors are shifting to a low markup policy in order to push down sales prices.
For example, the factory price for an 8.2 kilogram automatic washer marketed by Sampo Corp., a leading Taiwan producer of household appliances, is NT$11,000. The prices its distributors quote to consumers range from NT$12,000 to NT$13,000. According to Eric Chen, financial manager of the company, the price levels allow a net four to 10 percent profit for Sampo and a gross 10 percent profit for the distributor.
Despite the efforts of local household appliance manufacturers to cut price tags, their prices are not always appreciably lower than for similar imported models. Take for example a comparable U.S.-made Whirlpool washer, which sells for only NT$13,000, even though the importers of the product have to add on shipping costs and a 15 percent tariff.
The prices for products which are still manufactured under strong government protection are usually extremely high. Automobiles are a case in point. Currently, the government imposes a 42.5 percent import tariff on small cars and 48 percent on trucks and passenger cars. In addition, the import of Japanese cars is totally banned, a move based on Taiwan's continuing huge trade deficit with Japan.
One result of such heavy protection is that locally-made cars are priced considerably higher than similar models produced by overseas automakers. For example, the 1,800 cc Telstar newly introduced by Ford Lio Ho Motor Company, a joint venture in which the American Ford Motor Co. holds a 70 percent share, sells for NT$480,000 in Taiwan, more than 50 percent higher than the price for the same model which its parent company sells in the U.S.
The high level of prices for Taiwan-made cars, however, does not necessarily mean high profits. This appears to be the case in the structure of the price for the Ford Lio Ho model. Its price tag of NT$480,000 breaks down this way: NT$270,000 (about 56 percent) goes to the automaker, NT$70,000 (about 15 percent) is paid as government tax, and the remainder (about 29 percent) is used as commissions for distributors and retailers.
According to the Industrial Development Bureau of the Ministry of Economic Affairs, the profitability of the auto industry has dropped to below 10 percent because of rising production costs and import competition. A more important reason for the relatively low profit margin is the industry's small scale of production. None of the eight automakers in Taiwan has an annual production capacity of more than 100,000 cars.
Taiwan's high tax rates and the high base used to calculate tariffs and taxes are the main reasons why many imported consumer products cost substantially more when they are put on sale in the domestic market. An imported product is usually subject to two major government charges: tariffs and commodity tax.
Again take the example of imported small cars, with tariff rates set at a steep 42.5 percent. The effective duty, however, is much higher than that, since it is calculated on the CIF value (cost, insurance, and freight) plus harbor fees. This marked-up taxable amount is then used as the tax base to assess the car's commodity tax of 22 percent.
That is why a U.S.-made Toyota 2,000 cc, which carries a U.S. price tag of US$12,000 (about NT$312,000) sells for NT$730,000 in Taiwan, and a BMW 316I, which is priced at an equivalent of NT$400,000 in West Germany, is sold for NT$930,000 in Taiwan. In both cases, the Taiwan price is over 2.3 times the price on the respective foreign markets.
And it is mainly for the same reason that a 20-inch Sony hi-fi color TV, which is sold for the equivalent of NT$12,740 in New York, is marketed for nearly twice that in Taipei; and a National microwave oven, whose U.S. price is the equivalent of NT$5,000, costs almost double that amount in Taiwan.
As for why Taiwan-made products sell in the U.S. for only about one-half of what they sell for in Taiwan, this can be attributed to three major factors. One is that Taiwan's export products are not liable to commodity tax, and customs duties originally levied on raw materials used in the manufacture of export products are refundable.
Another reason is that export products are usually produced in large volume, and the costs of a unit of output are lower than for products manufactured exclusively for the small domestic market. The export price can thus be set low enough to beat the competition abroad and yet turn a profit on export sales. (If export prices were set below cost, this would be "dumping" and would soon invite stern countermeasures from Taiwan's trade partners, especially the U.S.) Evidently these economies of scale are not passed on to domestic buyers for some of the reasons explored here.
A third reason is that distribution costs are lower in the U.S. because of the prevalence of low-price, high-volume retailing, which limits the price markups even of low-volume retailers to the premium which people are willing to pay for convenience, service, and other non-price values.
Prices, prices, may fall down—consumers are slowly becoming aware of their interests in the marketplace.
Few of the people who are concerned about the high price level in Taiwan believe that the problem will remain unconquerable for long. First of all, government authorities have begun paying serious attention to the problem by surveying international cities to determine the facts concerning the wide discrepancies that exist between local and overseas prices. Already there is a growing consensus among the responsible government officials that the most effective way of attacking Taiwan's higher consumer prices is to open the local market to more foreign competition.
In fact, local consumers are already benefiting from Taiwan's repeated tariff reductions and the relaxation of import controls over the years, as many local companies keep cutting prices to beat import competition. For example, prices for household appliances and automobiles have dropped six to 10 percent this year.
In addition, the government is moving to reduce the commodity tax on a wide range of products and has promised more such reductions in the future in response to growing pressure from manufacturers, who have long called the tax outmoded and urged its removal. As for the program to refund taxes to exporters, the government has already begun phasing it out.
It is likely that the government will eventually change from CIF to FOB (free on board) as the valuation base on which to calculate import duties. The U.S. has long felt that such a change would make American products more competitive on the Taiwan market and help narrow the trade gap between the two sides.
Beyond revamping tax systems and liberalizing import controls, many government officials believe a fair trade law will also help address the problem of Taiwan's high consumer prices. In view of this, the government is seeking the passage by the Legislative Yuan in the coming year of a draft law which is designed to ensure fair trade and free competition.
Another sign of the times is that a local Chinese newspaper, the United Evening News, ran a long series of articles beginning in mid-December 1988 which explored the answers to the question of why import prices were so high. In November 1989, the ROC Government Information Office awarded its prize for public service journalism to the newspaper for this series.
There is therefore reason for optimism as consumer awareness continues to grow in Taiwan. People are less inclined to tolerate being overcharged and are beginning to protect their interests. This consumer awareness, given time, should be strong enough to stimulate correction of the high price problem.