The government has been calling on local manufacturers to develop new products and services to remain competitive. However, there is a blind spot that the government has failed to detect. That is the government has itself forgotten to develop innovative policies to assist firms to cope with new industrial challenges, such as the recent global economic slowdown.
Tough medicine is required these days. Last week, the Directorate General of Budget, Accounting & Statistics (DGBAS) lowered its export growth forecast for this year to minus-1.72 percent, with the eurozone debt crisis, the fragile US economic situation and wobbly Chinese economy making it unlikely that Taiwan will be able to eke out annual growth of 0.07 percent as it had been expecting in May. That prompted the agency to slash its annual GDP growth projection from 2.08 percent to 1.66 percent this year. To buoy decelerating exports, the Ministry of Economic Affairs last week proposed extending tax rebates to the full range of export goods. Such a tax refund is nothing new for Taiwan and it is a seemingly effective tool in many developing countries.
Four years ago, this kind of stimulus measure was implemented to boost exports during the global financial meltdowns which froze private consumption and crippled exports. In July of last year, when the US-South Korea free-trade pact took effect, the government used this trick again. This allowed exporters to recoup custom tariffs in order to minimize the pact’s annihilation of Taiwan’s exports by South Korean firms.
The fact is offering tax rebates helps lower the price of exports, but it does not enhance the value of locally made products. For the same reason, the central bank is facing constant pressure to keep the New Taiwan dollar weak against the US dollar. This gives exporters a price advantage over competitors. However, the central bank has realized that devaluing the currency is not a cure-all. It has also realized that cheaper products will not help exporters. New remedies are required immediately.
In a rare call, central bank Governor Peng Fai-nan (彭淮南) said recently that government agencies should assist HTC in exporting more phones overseas, implying that government agencies need to use more effective and inventive ways to stimulate exports. The DGBAS attributed a 20 percent monthly decline in exports to the US last month to HTC’s poor performance. Compared to the previous month, the Taoyuan-based company shipped US$730 million less of goods to the US last month.
Peng’s brief comments sparked a debate on how to rescue HTC and prompted patriotic calls to buy more HTC phones. It would be pragmatic to help HTC in their patent battles with Apple and other rivals. As a result of an intellectual property lawsuit with Apple, HTC’s new smartphones were temporarily barred from entering the US market in May. This development affected HTC’s second-quarter sales figures. However, HTC was allowed to enter the US market and ship new products to its partner T-Mobile after the company submitted evidence that it has revised its products to circumvent disputed patents.
As patent wars become a way for big brands to keep local firms at bay, the government should better utilize the patent portfolios and resources owned by the state-funded research body Industrial Technology Research Institute.