Facing the same challenges of a stronger China in Asia and a weakening economy at home, a Japanese trade group said on Friday that Taiwan and Japan should forge a closer relationship and establish a free-trade pact to benefit the two countries. The suggestions came from an annual white paper released by the Japanese Chamber of Commerce and Industry in Taipei and indicate that Taiwan and Japan need to tackle the problem of China’s growing economy together.
Other suggestions in the paper were that Taiwan should speed up follow-up negotiations with China over the cross-strait Economic Cooperation Framework Agreement, sign more free-trade pacts with other regional economies and develop a more friendly environment for Japanese businesses in Taiwan.
The Japanese trade group has the same stance as its US and European counterparts: All of them hope the Taiwanese government can strengthen the nation’s investment environment and protect their country’s investors. They also expect their governments to establish direct dialogue with the Taiwanese government to resolve bilateral trade issues and economic challenges.
However, the Japanese chamber’s suggestions demand close attention, as Japanese firms made more investments in ASEAN economies than in China during the third quarter of the year because of China’s labor shortage and wage increase problems, as well as because of anti-Japanese sentiment triggered by the dispute over the Diaoyutai Islands (釣魚台). To secure investment at a time when Japanese companies are looking to Asian countries other than China, Taiwan must act quickly and efficiently, because regional competitors are probably thinking the same thing.
For both Taiwan and Japan, there has certainly been an economic threat from China in recent years. The main challenge has been China’s fast economic growth leading to relocations of Taiwanese and Japanese industries to China. Such relocation has inevitably led to outflows of both capital and talent. China has now become the largest export market for Taiwan and the biggest trade partner for Japan, meaning Beijing has greater influence on them than they do on it.
However, sharing the pain of China’s economic magnetism is in itself probably not the most important factor in pushing Taiwan and Japan to collaborate. A common interest in promoting security is more likely to advance the trade relationship between the two countries. Moreover, a relationship that wins strong support from the Taiwanese and Japanese public also matters. A fundamental problem in the relationship between China and Japan is that it is stuck in the past, as reflected in the anti-Japanese protests, while there is much less of such sentiment in Taiwan.
Taiwan and Japan have long enjoyed a good global supply chain relationship, with Taiwanese companies having primarily manufactured products using Japanese electronic components and machinery. What underlies this relationship is a strong commitment to mutual benefit which should be reflected in further collaboration between the two countries: Japan adjusts its Asian investment strategy and Taiwan secures technology know-how to upgrade its industrial infrastructure.
Taiwan-Japan trade ties still have ample room for improvement and there will be challenges before companies in the two countries can develop their business relationships into strategic partnerships.
As stated in the chamber’s white paper, Taiwan’s continued loss of high-end talent to China worries Japan. News that two former senior executives of AU Optronics Corp have been charged with allegedly leaking trade secrets to a Chinese rival highlights concerns over industrial espionage, but also over China luring Taiwanese talent through generous salaries. If the hemorrhaging of industrial talent continues, what will Taiwan have to offer to foreign investors, including Japan?
The white paper is not just a summary of important issues, but also a warning to Taiwan that policymakers need to take note of.