Address Exports Decline, Remedy Structural Causes
China Times editorial (Taipei, Taiwan, Republic of China)
March 17, 2014
Summary: The economy on Taiwan has performed poorly in recent years. Last year exports of many of the one hundred most exported products declined. South Korea's Samsung by itself can integrate considerable research and development. We lack a Samsung, We must rely on the government to make an aggressive start.
Full text below:
The economy on Taiwan has performed poorly in recent years. Last year exports of many of the one hundred most exported products declined. These include machining centers, which declined 22%, and petrochemical industry raw materials such as terephthalic acid, which declined 74%. Others, such as light-emitting diodes (LEDs), chips, wafers, blank optical media, set-top boxes, and built-in or external Internet modems, declined 12% to 32%. LCD panels and parts declined approximately 6%. Most other basic industries, base metals and products, machinery, transportation equipment, and textiles declined. For example, bicycle exports declined nearly 5%.
Take imports. Import substitution industrialization is increasingly difficult. Japan has traditionally been a major exporter to Taiwan. In 2013 overall imports from Japan fell 9%. But some imports rose. Most were products we cannot currently produce ourselves, and are unlikely to produce in the future. They include automobiles and machinery and equipment for the manufacture of semiconductor integrated circuits. Meanwhile, imports from South Korea rose 4% last year. It has clearly replaced Japan in the manufacture of many other electronics products, optical equipment. integrated circuits, polarizers and polarizer panels, and processed glass panels. South Korea does not consider Taiwan its match. It is now gunning for Japan.
There are three structural causes for poor export performance. The first is Taiwan's unsuccessful economic integration. Other countries have kept pace. The current tension in the East China Sea will probably accelerate Free Trade Agreement negotiations between the Mainland and the Republic of Korea. It could be signed this year. South Korean and Taiwan exports overlap by 63%. They include petrochemical, rubber and rubber products, textiles and textile products, steel, machinery, semiconductor devices, flat panel display equipment, and integrated circuit components. The two have a highly competitive relationship. Current FTAs cover 6.4% of all exports from Taiwan. They cover 36.5% of all exports from South Korea. If South Korea and Mainland China sign an FTA, that percentage will become 62.6%. On Taiwan, the trade in services agreement remains blocked by the Legislative Yuan. That is the most serious crisis.
Seeking to sign the Trans-Pacific Partnership Agreement (TPP) and Regional Comprehensive Economic Partnership (RCEP) are steps in the right direction. But "distant waters cannot put out nearby fires." The biggest obstacle to Taiwan signing the TPP is political resistance to agricultural imports, including chicken, organ meats, and rice. Joining the RCEP is not easy. It requires support from Mainland China and the ASEAN countries. Only then can one even begin negotiations. Meanwhile, the trade in services agreements remains stalled. Such delays may be interpreted as passivity or even hostility toward international and regional integration. This will discourage other nations from supporting our bid to join the TPP and RCEP.
Secondly, the Intel and Microsoft based computer market has changed. Our domestic industry failed to change accordingly. Taiwan's manufacturing industry boom of the 1980s has slowed. The industry boomed once again during the 1990s. But the main reason was it became the world's supply center for personal computers. This was later extended to include other PC components, including monitors, power supplies, chassis, and peripherals. But this structure has undergone revolutionary changes over the past five years. Handheld devices have replaced the PC. They have gradually become the mainstream consumer electronics product. This has had a significant impact on the industry chain on Taiwan. Handheld devices are flourishing in many foundries on Taiwan. They have earned considerable profits, but nothing compared with the past. HTC is a domestic brand. It has had a difficult time competing with Apple and Samsung.
Finally, our industries have not done enough R&D. As a result we are being squeezed from front and rear. The "flying geese theory" states that if one fails to advance, backward countries will soon catch up. During the Ten Great Construction Projects era, Taiwan made huge investments in intermediate materials production. These replaced imports. The Mainland and ASEAN are now taking the same path. Taiwan has only one option. It must increase R&D. It must continue to move forward. Only then can it avoid being caught from both front and rear. It must breakout. But the situation is not optimistic.
As matters stand, the Ministry of Economic Affairs, the Ministry of Science and Technology, and the Ministry of Education, are the three ministries most closely related to research and development. They should cooperate to integrate research and development potential currently dispersed among various universities. These three ministries should identify which technologies will be the first to breakthrough. They should then work on them together. They should create an incentive mechanism. Researchers should be encouraged to engage in research and development that will directly benefit individual industries or an industry as a whole. Take applied sciences. Current journal articles in the West are heavy in reference data, such as educational evaluation modes. These do not meet the needs of industry. As a result, professors or researchers have become blind followers of Western studies. South Korea's Samsung by itself can integrate considerable research and development. We lack a Samsung, We must rely on the government to make an aggressive start.