Formosa Plastics Group (FPG) is in trouble in Vietnam over a steel mill in the nation’s Ha Tinh Province it spent 10 years constructing and plowed NT$340 billion (US$10.55 billion) into. Pollution from the plant is being blamed for a massive fish kill in the region, which Vietnamese authorities at first said was caused by an algal bloom. Locals are irate, and the Vietnamese government has accused FPG and its subsidiary Formosa Ha Tinh Steel of pumping wastewater into the ocean.
It has been reported that FPG chairman William Wong (王文淵) and vice chairman Susan Wang (王瑞華) — visiting Vietnam to try to solve the problem — have been detained and their passports confiscated, while the group offered to pay US$500 million in compensation.
A China Steel Corp investment in India has also hit a snag after the Indian government reneged on its promises. These two incidents send out serious warnings about the government’s “new southbound policy.”
The policy entails encouraging Taiwanese businesses to move trade and investment away from China and toward Southeast Asia and the Indian subcontinent.
Southeast Asia has much to recommend it — abundant resources, cheap labor, a large population and huge markets. However, there are significant cultural and linguistic differences between countries in the region, as well as unstable politico-economic environments in countries not yet run according to the rule of law. As such, non-economic risks are much too high.
At present, the GDP of Southeast Asian countries and India together amounts to about half of China’s. Taiwanese businesses have been operating in China for several decades, and share a language and culture. It will be difficult for the government to entice Taiwanese businesses to move south.
It is also difficult to argue that conditions in these countries — with the exception of Singapore with its political stability and application of the rule of law — are any better than in China. Indeed, in some cases, with corrupt government officials, changeable policies, inadequate infrastructure and lack of the rule of law, these countries are in significantly worse shape than China. Also, if anything goes awry in China, arbitration channels do exist — this is not the case in some Southeast Asian countries. Unless Taipei can somehow cover intrepid investors’ backs, encouraging them to move to Southeast Asia could well be like sending lambs to the slaughter.
If the government wants to make a success of the policy, it will have to initiate an investigation into the Ha Tinh Steel incident. If it finds accusations against FPG to be unfounded, it will have to assist the group in talks with Vietnamese authorities and ensure that justice is done. If the allegations turn out to be true, FPG will have to face the music, and the government should make the facts of the matter known to serve as an example for other companies wishing to invest there.
Before it expects companies and investors to take such risks, the government should enter into talks with Southeast Asian countries — collectively or individually — and India and sign a raft of agreements. These could be free-trade agreements on preferential export duties or bilateral investment and tariff accords, giving guarantees and assistance to investors.
Bodies such as the Ministry of Foreign Affairs and the Taiwan External Trade Development Council should also foster closer relationships with the governments of these countries and open up high-level communications channels with them, so that these are in place should problems arise.
Policy slogans are nice. Plaques hung on office doors look impressive. However, if companies and investors are sent down the mines like canaries in cages, the new southbound policy is bound to go south.
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