Fri, Feb 24, 2006 - Page 8 News List

Oil prices shouldn't be decided by the market

By Lai Shin-yuan 賴幸媛

When the government recently decided to allow the market to dictate domestic oil prices, Chinese Petroleum Corp and Formosa Petroleum Corp immediately sought to raise prices. As a result, prices of commodities affected the rise will probably increase as well.

When commenting on this issue last week, Premier Su Tseng-chang (蘇貞昌) pointed out that the Executive Yuan would no longer directly dictate gasoline prices set by the producer, but would instead use a commodity tax and adjustments to the overall economic structure to stabilize commodity prices.

In other words, the government has not renounced intervening in commodity markets, but has simply switched to using external mechanisms to adjust the price.

The point at issue is that the nation's industries depend on foreign supplies of energy and raw materials. Once the government renounces direct measures for setting the price of oil, electricity and water at the source, what "external methods" will remain that will allow it to ease the fluctuations resulting from the operation of a free market mechanism?

For example, the recent rise in crude oil prices has forced up the international price of cane sugar, used to produce spirits and also an alternative energy source. Apart from setting the price directly through Taiwan Sugar Corp, the nation's largest sugar supplier, there is no way for the government to hold down sugar prices. Besides, a "shortage" is the issue and it is this that is plaguing the international energy market.

That is why many countries have listed oil, gas, fresh water, lumber and rare metals as strategic resources. In addition, political disputes such as East Timor's pursuit of independence from Indonesia, the row between China and Japan over the East China Sea and the US-led war in Iraq are all related to each nation's thirst for strategic resources.

Even the root cause of the divide between Islam and the West also has something to do with each side's ambitions to secure strategic energy resources.

Under such circumstances, it is puzzling to see the government taking a regressive approach and allowing market fluctuations to dictate the supply and price of resources, which are monopolistic in nature.

In the past, when Taiwan was developing its export-oriented economy, the government sought to differentiate the price of the resources used by ordinary people from those used by various industries.

The nation's economic resources could therefore be largely allotted to the nation's exporters. This method helped the nation successfully transform itself from an agricultural economy into an industrialized economy.

However, in the 1980s, when other nations began emulating and even catching up with Taiwan, efforts by the government to pursue industrialization began to decline.

Therefore, the nation now needs a fresh strategy in order to break new ground. Based on Taiwan's own history, we can see that direct government intervention certainly has its uses. What Taiwan lacks is a grand energy strategy, and as such is uncertain what kind of intervention might be effective or necessary.

Although the government has little choice but to allow energy prices to rise at the current time, the reason should not be because of a return to a market mechanism. Instead, what the government needs to do is explain what Taiwan's energy strategy is.

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