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Cross-Strait relations are the lifeline of Taiwan’s survival and development

In this interview with EBR, the President of TAITRA describes the external trades’ Status Quo, talks about the bilateral economic and legal relations with mainland China and explains how his country deals with critical issues such us labor opportunities, climate change and decreasing birthrate.

By: Christos Trikoukis - Posted: Thursday, May 27, 2010

Export-oriented service industry is a crucial part of the Taiwan’s economic development in the past several decades. In the past, the strategies to access our major markets are import-substitution and export-oriented. In recent years, mainland China has become our major base for product manufacture.
Export-oriented service industry is a crucial part of the Taiwan’s economic development in the past several decades. In the past, the strategies to access our major markets are import-substitution and export-oriented. In recent years, mainland China has become our major base for product manufacture.

Interview with Mr. Yuen-Chuan Chao, President & CEO of Taiwan External Trade Development Council (TAITRA).

What is the Status Quo of Taiwan’s external trade, and what are the response models of Taiwan’s industries to the global challenges, etc.

Compared to the growth ratio of -2.53% under economic recession in 2008, we had external trade boosts at a growth ratio of 4.7% in 2009, as the world has eventually been moving out of recession in the end. Our total foreign trade value was US$496 billion in 2008, but it declined to US$378 billion in 2009. Of the figure for 2009, exports registered US$203.67 billion, while imports reached US$174.37 billion, yielding a trade surplus of US$29.3 billion. Total foreign trade value in 2009 was less than that in 2008, again owing to the global economic recession.

As for our relations with major trading partners, Mainland China, which accounted for 26.3% of Taiwan’s total exports, was its top export destination. Behind Mainland China were Hong Kong (13.8%), the U.S. (11.7%), Japan (7.0%), and Singapore (4.23%). As for Taiwan’s imports, Japan accounted for 20.8% of Taiwan’s total imports, followed by Mainland China (13.97%), the U.S. (10.35%), South Korea (6.03%), and Saudi Arabia (4.99%). It is worth noting that Japan and Korea were our leading sources of trade deficit besides the Middle Eastern countries.

As for the composition of Taiwan’s trade in 2009, exports of machinery and electronic machinery accounted for the number one of total exports; while agricultural products and processed agricultural products the last. As imports are concerned, agricultural and industrial raw materials were the major category, which shows that our businesses are confident about the global economic recovery and are importing huge amounts of raw materials to process.

Now, coming to Taiwan’s government strategies toward global challenges; Taiwan has been strategically marketing itself when facing the global challenges. For example, there were 8 important procurement groups from China, including provinces of Sichuan, Guangzhou, Jiangsu, Henan, and from specific sectors such as LCD, were invited to Taiwan to build up or strengthen their supply chains with our businesses last year. These groups have committed to procure Taiwanese goods with a price soared to US$15 billion. Our business people also target at the 5 emerging markets, that is, Russia, Brazil, India, ASEAN and the Middle East. Representation groups from Taiwan traveled to these countries, seeking for local buyers. Eventually, they have succeeded in getting opportunities worthy of US$3.71 billion.

Besides, we have been working well under the WTO framework to gather the abundant chances as government suppliers since Taiwan has officially become the 41st member of the Government Procurement Agreement (GPA) on July 15 last year. With the strategic steps taken to enhance the global awareness of Taiwan’s membership as well as boost the driving force of our participation in overseas GPA tenders, products worth US$50.78 million have been sold to the contractors in the U.S., Romania, France, Spain and Japan last year. In the first 3 months of this year, our businesses have got the biz opportunities of another US$50 million in the LED lighting industry.

The year of 2010 sees important business sectors that are yet to boost. These target industries are those of cloud computing, green and environmental, cultural and creative, medical instrument, construction, and high-quality agricultural products. Taiwan’s strategy to respond to the global challenges is like this: We go for the target industries with the international trend, where business opportunities are. In 2009, there were 12 international medical-tourist events in Taiwan, specially targeted to promote sightseeing and medical treatment, with which our health screening industry specializes. There were around 80,000 foreign visitors that came to Taiwan for this purpose last year, and among which 1,400 businesspersons came for medical screening services. Another example was that our people were good at pursuing selling opportunities of their high-quality fruit products via 1,134 supermarket channels, which created US$320 million worthy of business opportunities last year.

There are changes in the bilateral economic and legal relations after the ECFA comes into effect. What does the general public in Taiwan respond to the dramatic changes? How does the ECFA change Taiwan’s, or even the world’s future, both in economic and societal perspectives?

Needless to say, cross-Strait relations are the lifeline of Taiwan’s survival and development. The relations are especially crucial when you take prosperity and stability in the Asia-Pacific region into consideration. The outcome of latest presidential election 2 years ago in March, 2008 was a vote by our people for a second transfer of political power, and also fundamentally changed the cross-strait situation in the recent decade. In his inaugural address, President Ma expressed the hope that the two sides of the Taiwan Strait would be able to grasp the historic opportunity to open a new chapter of peace and co-prosperity in the cross-Strait relations. He also called for both sides to "face reality, pioneer a new future, shelve controversies, and pursue a win-win solution” in seeking a point of balance in both sides’ common interests.

The purpose of signing the ECFA, like all the other Free Trade Agreements (FTAs), is to help the people of Taiwan promote business and boost the country’s competitiveness. Take, the FTA between mainland China and the ASEAN as an example, which took effect last January, nearly 90 percent of products imported from ASEAN members carry nearly zero tariffs.

According to a 3-month review of the People’s Daily on March 30, Sino-Vietnamese bilateral trade reached US$2.15 billion in January, up 30.6 percent on the same period last year; Thailand's exports to China rose by 84.4 percent in the first two months this year; and, China replaced the United States as the biggest export market for Thailand. There are also examples of positive effects after the inking of ASEAN-China FTA, and also on the contrary to what have been expected. China-made shoes did not flood the Indonesian market and, in the first season of 2010, and Indonesia's footwear industry brought in huge investment from overseas.

Of course it is possible that the overall result of signing the ECFA with China will cause injuries to our industries, but personally I don’t think that is likely to happen. Given that tariffs will still be imposed on Taiwan-made products, we are losing our competitive edge here in Asia. From this perspective, there is no denying that signing the ECFA is of great urgency. If Taiwan does not sign the ECFA, the country risks being marginalized and losing competitiveness overseas. Moreover, Taiwan would be in a precarious economic situation if our neighbors all proceed with economic integration. Concluding the ECFA has nothing to do with deepening Taiwan’s economic reliance on mainland China from this perspective. The talks and inking of the ECFA is also in line with the government’s sustaining policy of “Putting Taiwan First for the Benefit of the People” in cross-Strait affairs.

The ECFA can also help Taiwan pursue business activities with other countries on an equal footing. In this way, Taiwan’s businesspersons can expand their reach in the global market, as opposed to concentrating on the mainland Chinese market.

In short, the ECFA allows our merchandise to enter the mainland Chinese market without duties, and predictably our market share in China will be expanded. In the near future, Taiwan is going to have dramatic changes in the fields of merchandise trade, service trade, investment protection, intellectual property rights, defensive measures, economic cooperation, and dispute settlement mechanism.

As for the social changes, based on a study of Chung-Hua Institution for Economic Research last year, Taiwan’s GDP is going to increase 1.83 percent and the number of employment will increase 257,000 to 263,000. Of course there is a public survey saying that the ECFA has nothing to do with improving unemployment, according to Taiwan Think-tank.

People talk about defects of joining ECFA for many months recently. Therefore, an analysis of Common Wealth Magazine indicates that we will gain much more market access to China, most notably the industries of mechanics, chemical, plastic and rubber, textile, steel, and petroleum and coal products. The economic changes in Taiwan will be vast, as economic integration usually adds up our privileges in competition.

It goes without saying there will be certain influence on our industries after we join in the ECFA. According to the Ministry of Economic Affairs, 17 industries that will be impacted include those producing bags and suitcases, bedding, ceramics, clothing , herbal medicine, home appliances, pesticides, printing, shoes, socks, sweaters, swimwear, stone, towels, underwear, wood and woven socks.

To face the challenges that might come together after the effect of the ECFA, TAITRA, together with the Taiwan Design Center, will dedicate ourselves to the assist our businesses in their international marketing competitiveness by enhancing the product quality, creativity, and packing design, with professional suggestions and consultation. In addition, with the Taiwantradefairs we have been organizing in mainland China, including those in Dongguan, Tienjin, Nanjing, Shandong, and Chongqing, and the Taipei Trade Shows we organize here, Taiwan’s brand section, a.k.a. “MIT” are also being allocated, to promote Made in Taiwan products.

Concerning the general Taiwanese public’s response, the Taiwanese people are more and more concerned about possible changes to the society after the tax agreement is signed. According to a survey conducted by the China Times Poll Center last month, the number of people who know the ECFA well has been higher from 57% last December to 74% last March, adding up 17% in 3 months. People are more and more concerned about the development of inking the ECFA. Fortunately, 43% of the people in Taiwan are positive toward the signing of the ECFA, and only 24% of the adults understand the details of the agreement, though.

As you know, the people of Taiwan usually support peaceful dialogues and a harmonious situation between the two sides of the Taiwan Strait. The majority of the public believe that institutionalized negotiations are crucial to maintaining peaceful and stable cross-strait relations, and approve of organizing sustained cross-strait negotiations. Most of the time the public also agree that the establishment of communication channels between the competent authorities on both sides of the Taiwan Strait is conducive to handling issues arising from cross-strait exchanges.

In conclusion, I am optimistic that an affluent society of Taiwan is emerging very soon right after the ECFA comes into effect, as what has been shown by the ASEAN-China FTA in the past quarter, since we share so many economic and cultural similarities between Taiwan and mainland China.

The majority of Taiwan’s businesses that require low labor wages have moved to China. How do you create employment opportunities that give high labor wages? What are the actions that government and businesses have taken to maintain the foundation of Taiwan’s industries? How do you develop an export-oriented service industry?

As Taiwan’s labor-intensive industries, as well as those of the low labor wages, are no longer competitive and have moved out of the country, it is important for us to encourage new opportunities and new markets for higher labor wage. Exactly 1 year ago, our government has announced and started its planning for development strategies of six key emerging industries: tourism, medicine and health care, biotechnology, green energy, culture and creation, and high-end agriculture. The goal is to upgrade industrial competitiveness and break through the difficulties facing exports.

In his speech to the members of the Science and Technology Advisory Council Meeting in November 2009, the incumbent Premier Mr. Wu Den-yih also talked about the government’s industrial strategies in the future. Further to the past strategy toward developing hardware construction, he defines the six key emerging industries as an important step of the government to promote “soft power” of the country.

The six key emerging industries are expanded from the industries formerly with comparative advantages, especially those of the ICT (communications, information, optic-electric, and semiconductor industries. We had to make the most of our privileged advantages, which can also best help the related programs of green energy, and biotechnology (in which medical equipment and medicine manufacture). And, the biotechnology program also supports the programs of high-end agriculture and medicine and health care. These programs all dedicate to promote high labor wage industries for our fellow compatriots.

Export-oriented service industry is a crucial part of the Taiwan’s economic development in the past several decades. In the past, the strategies to access our major markets are import-substitution and export-oriented. In recent years, mainland China has become our major base for product manufacture. After the financial tsunami in 2009, the market needs of European and American countries diminished drastically, by which the export of China to the world in general shrank and caused a negative impact on Taiwanese investment in China. It is time that Taiwanese businesses target at the domestic market in China, and hopefully we can formulate a perfect division of industry sectors between Taiwanese and Chinese businesses, according to a speech delivered last March by Dr. Tain-Jy Chen, former Minister of Council for Economic Planning and Development.

Generally speaking, the Chinese companies are good at building infrastructure, while our businesses pay much attention to the feelings of the consumers and the responses of the market as a whole. If well coordinated, the end products will be competitive enough; and, as Dr. Chen referred that, if China alters its policy from export-oriented to domestic-demanded, and if Taiwan transforms our models from export processing to value creating and at the same time sustain product innovation, such division of labor will be complete.

That is the unique ways how we can make an export-oriented service industry expansion occur under the ECFA framework. The Chinese Mainland has to lift trade barriers such as those that are against free circulation of goods and services. Qualification and certification of goods and services, along with an effective registry system for well-known brands and protection of trademarks and intellectual property rights, according to Dr. Chen, our service industry (especially that of ‘the fourth industry’ which provides intellectual service-specific services) and cloud-computing techniques can together create a win-win situation in the Chinese market.

Taiwan’s birthrate is decreasing. What are the issues that Taiwan may encounter, and what are the government policies responding to the issues?

According to Ministry of the Interior, there were 191,311 babies delivered last year of 2009 (with a crude birth rate of 8.29 per thousand), which was the lowest in our history and in the world. The babies born in 2008 were 198,733, with a crude birth rate of 8.64 per thousand, which was a 0.35 per thousand decreases. Among the babies delivered last year, 7,472 were born to unmarried mothers (3.91% of the total babies).

Besides a possible issue of shortage in labor force yet to come, we encounter a serious problem about education at this moment. In this part of the world where education and diploma go first when competing with the others at adolescence in the Taiwanese society, there have been a lot of professional colleges and universities that have been founded to meet the needs. A decreased number of babies delivered means shortage of students in most of the schools. For one thing, empty schools imply waste of educational resources. Idle classrooms and teaching materials discourage promotion of education standards. Diplomas become worthless when competition in high education is so loose that students can get passing grades very easily since the school authorities are afraid of losing tuition fees by dropping out students. Teenagers who get very low marks at high school still can enter universities that are numbered from behind, which usually becomes a joke that is often heard. It is a vicious circle.

As a result, the Ministry of the Interior has made several strategies last January, including an integrated policy of babysitting, babysitting compensation for families, diversified infant education services, and privileged mortgage compensation for families with more than 3 descendants.

What are Taiwan’s policies toward climate change?

Taiwan is an extremely fragile island country, and climate change has a great impact on the inland environment, natural ecosystem, sufficient and stable food supply, protection of fresh water, river mouths, and the ocean. All these require a global solution together with care for the local needs.

The people of Taiwan care about impacts by high-polluting and high-carbon industries such as the 6th Naphtha Cracker Plant and the companies in the Central Taiwan Science Park. Our legislators are also very concerned about policy measures to promote green energy and environment protection, both of which are an international trend.

As a result, the EPA sent its delegates to the 2009 United Nations Climate Change Conference, appealing nations to support our membership to the related treaties. Our government has promised to be abided by the carbon decrease schedule and objectives established by the conference. The Green House Gas (GHG) Emission Act has been drafted by the Executive Yuan, and to be reviewed and passed by our Parliament, the Legislative Yuan. The GHG Act is to regulate the related industries to implement Carbon Emission Investigation on their manufacture chain and supply chain. It is aimed at effectively managing carbon decrease of local companies in Taiwan.

According to the EPA, Carbon Emission Investigation has been voluntarily conducted by several companies including Taiwan Semiconductor Manufacturing Co., Ltd., China Airlines, Kingbus Co., and Taipei 101. All of these companies publish their GHG diffusion amount all the time. These are the facts demonstrating that our people are willing to actively challenging the impact of climate change.


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