On Feb. 4, Taiwan's shipping giant Evergreen Marine Corp (長榮海運) announced that it would reflag more than half its container vessels as British and Italian to facilitate its business with China. The decision has drawn sharp criticism from Taiwan officials. In fact, this is neither a "relocation of industry," as Minister of Economic Affairs Christine Tsung (宗才怡) claimed, nor a challenge to the government's ban on direct links with China. This is also irrelevant to national identity. A correct interpretation of the matter should focus on the global business arrangements of a transnational corporation.
The passive purpose of Evergreen reflagging its ships is to reduce operational costs, such as insurance costs, especially war-insurance costs. The war-insurance premiums for global sea and air transportation have increased greatly since the Sept. 11 terrorist attacks. Since Britain is a traditional superpower in marine insurance, Evergreen might have reached an agreement on the insurance premiums with Britain before changing the registration of its fleet.
But the main purpose of Evergreen's move is to expand its market. A few years ago, the company bought an Italian shipping firm as its first step in entering the European shipping market. The shipper also signed a 60-year contract with Taranto City in 1998, which allows it to build new cruise vessels there to develop cruise-ship tourism in the Mediterranean Sea.
Apart from the European market, Evergreen is eying the growing shipping market of China. China bans Taiwan's shipping firms, including Evergreen, from operating subsidiaries or agencies at its ports. Hence, these firms are unable to directly run their businesses there and have to rely entirely on Chinese companies. This has greatly increased their operational costs. Perhaps Evergreen has already been given permission by Chinese authorities to enter China through its European subsidiaries.
Will Evergreen's decision influence the nation's overall competitiveness? Will other shipping firms in Taiwan follow in its footsteps? To answer these questions, we must closely observe the direction of the open-market policy of China's shipping industry. Although China is already a WTO member, the opening of the shipping market is not covered by WTO mechanisms. In other words, it is alright for the Chinese government to selectively open its market to certain countries or shipping firms. From the perspective of cross-strait relations, Evergreen and some other Taiwanese enterprises are defined as backers of President Chen Shui-bian (陳水扁) by China because of their firm support for Chen during the 2000 presidential election. From Beijing's point of view, Evergreen's moves certainly indicate something, as such a "pro-Chen" enterprise is now succumbing to market forces. Hence, Beijing will may well return the favor to the company in the future. Will Taiwan's other shippers follow the Evergreen model? Basically, it really depends on how Beijing regards each firm.
The fleet registration of any shipping firm is just a strategic choice for the sake of its business operations. Evergreen's decision to reflag its ships as British and Italian is not "relocation of industry." There is no comparison between its decision and the controversial issue of whether the government should allow local chipmakers to build 8-inch wafer plants in China. As for Evergreen's target -- the shipping of China's foreign-trade business -- it refers to the import and export business of China, not cross-strait trade. Therefore, it is certainly not a challenge to the government's China policy.
Yang Chung-cheng is an associate professor at the Department of Shipping and Transportation Management at the China College of Marine Technology and Commerce.
Translated by Eddy Chang
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