Wednesday, July 7, 2010

Even More Important is Keeping Our Roots on Taiwan

Even More Important is Keeping Our Roots on Taiwan
United Daily News editorial (Taipei, Taiwan, ROC)
A Translation
July 7, 2010

ECFA has been signed. Taiwan's economic situation has now entered a new phase. This does not mean immediate tariff reductions on the 539 goods and 11 services our side negotiated. The other side's 267 products will soon run their course. Everything must wait until January 1 next year before taking effect. Tariffs will not be fully eliminated until late 2012. How will this transitional period differ from the previous one or two years?

Only one thing will be different. Before ECFA was signed, the Ma administration and the opposition DPP were engaged in a tug of war. To promote their agendas, one side painted an overly rosy picture. The other side resorted to political intrigue, electioneering sleight of hand, and ideological demagoguery in an all-out campaign to demonize ECFA.

That is all in the past. The two parties must immediately end their war of words. They must work on behalf of the nation and the people. The ruling and opposition parties must pursue the same goal. They must ensure that ECFA works to our full advantage, and reduce any ill effects to the minimum.

Green Camp politicians allege that ECFA will merely enrich the wealthy, widen the gap between rich and poor, and strengthen the strong while weakening the weak. Lee Teng-hui is screaming that ECFA will hollow out Taiwan's industrial base, and that people will starve. Such scenarios are alarmist and exaggerated. But they are scenarios those in authority must be prepared to deal with. The new economic situation may lead to inequities, and the government must ensure a smooth transition.

The gap between rich and poor may increase for three reasons. The first is the dumping of low cost products produced by cheap labor on Taiwan. Manufacturers on Taiwan may be forced to engage in desperate price-cutting. The second is changes in industrial structure. Capital-intensive and technology-intensive companies will profit handsomely. Traditional production-based SMEs will shrink endlessly. The former will hire fewer workers at higher wages, leading to the polarization of rich and poor. The third is tariff reductions, large scale liberalization, and industry-wide corporate relocations. These will lead to capital outflows, a brain drain, and the hollowing out of industry.

Of the three, the third is the most frightening, but also the least likely. For two decades, we have watched companies pick up stakes on Taiwan to relocate on the Mainland. The most critical factors are the lack of direct links, which increase transportation costs; too high tariffs, which reduce the competitiveness of exports when compared to Mainland products; and cheap and abundant Mainland labor, against which Taiwan simply cannot compete. Now, given direct links and ECFA, the first two reasons have ceased to exist. For upstream industries not reliant on cheap labor, the reason for relocation has also disappeared. The industrial chain on Taiwan is more complete. The service sector is stronger. The basic infrastructure is better. The rule of law is more deeply rooted. Upstream vendors who relocated earlier may well return. Cheap Mainland labor may tempt manufacturers. But the wave of Foxconn pay raises is rapidly diminishing this temptation. If the ROC government can plan a "special economic zone" as soon as possible, and establish an attractive economic and trade environment, what reason does it have to fear the hollowing out of Taiwan's economy?

Low cost Mainland products may force wage cuts in weaker Taiwan industries -- if the government does nothing. But low cost Mainland products are of notoriously poor quality. Taiwan manufacturers offer far better quality, creativity, and design. Given a level playing field, at home and abroad, we have a comparative advantage. The problem is that in the past the government did nothing. It allowed inferior quality brands, counterfeit brands, deceptive business practices, and "big box stores" to run amok. It allowed local goods to be squeezed out by inferior quality goods, leaving Taiwan manufacturers nowhere to go. Only recently has it responded properly.

In terms of industrial structure, those most likely to benefit from tax cuts and liberalization are highly competitive big businesses. Those most likely to be harmed are small and medium enterprises unable to engage in multinational operations. This is the biggest detriment to the equitable distribution of jobs and income. But the true strength of Taiwan lies in this group of SMEs. The Ma administration should make timely use of its 95 billion in capital. It should support and promote tens of thousands of promising small and medium enterprises. If the scale of these businesses can be doubled, hundreds of thousands of new jobs can be created. Creating job opportunities is the best way to solve economic problems. It is the most important goal of economic development.

In short, ECFA does far more than solve problems for Taiwan companies. More importantly, it improves Taiwan's economic health. In other words, it benefits us not merely by "advancing into [Mainland] China." Even more importantly, it helps us keep our roots on Taiwan.

2010.07.07 02:34 am










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