The government likes to hold up the petrochemicals sector as the principal model industry in its propaganda about the economic cooperation framework agreement (ECFA) it wants to ink with China, claiming that this sector stands to reap the greatest benefits once the agreement is signed.
The first hole in this argument is that the government’s claim that 500,000 people are unemployed in the petrochemicals sector is an exaggeration. To get that misleading figure, the government has thrown in many downstream and subsidiary processing industries willy-nilly. Second, according to available figures, the total value of Taiwan’s petrochemical product exports to China for 2008 was NT$674.4 billion (US$21.1 billion).
The Chinese market accounts for 64 percent of Taiwan’s total petrochemical exports — the highest proportion among all export product categories. In other words, Taiwan’s petrochemical industry is heavily dependent on exporting to China. In effect, Taiwan has long since become an offshore petrochemicals processing zone for China.
It would appear on the surface that, among all Taiwan’s plastics factories, the formation of ASEAN plus One (China) will have the greatest impact on the Formosa Plastics Group (FPG). This is because FPG constituent firms Formosa Chemicals and Fiber Corp (FCFC), Nan Ya Plastics Corp and Formosa Plastics sell a large part of their products to China.
For example, FCFC sells more than 80 percent of its exports of PTA — one of its main products — to China. In fact, however, ASEAN and China classify PTA as a Normal Track II product, and it continues to be subject to a 5 percent tariff. Besides, ASEAN countries export very little PTA to China, so the impact is not great at all.
So what is FPG so worried about? In 2007, the group exported a third of its diesel fuel to China, and in 2008 it supplied 40 percent of China’s total diesel imports. However, now that China’s two state-run oil companies have increased their production capacity and improved their quality, China has started to gradually cut its orders for oil from Taiwan.
This has put Taiwan’s petrochemical, gasoline and diesel export markets in a critical situation. In addition, as China and ASEAN form a free-trade area and cut tariffs between them, Taiwan’s oil exports to China will face stiff competition from Southeast Asian oil exporting countries. No wonder, then, that FPG cares so much about whether Taiwan signs an ECFA with China.
It looks as though the ECFA process is just a puppet show played out by government bureaucrats and a handful of petrochemical groups that export most of what they make, or by a small group of companies that stand to profit while other firms in Taiwan’s petrochemicals manufacturing chain are sacrificed and jobs lost. Surely it is time for the government to step back from the brink.
Chang Feng-yi is executive director of the Taiwan Labor and Social Policy Research Association.
TRANSLATED BY JULIAN CLEGG
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