Mon, Oct 15, 2001 page18

• Liu Da-nien talks on the WTO challenge

  International economics and trade policy specialist Liu Da-nien, a research fellow at the Chunghua Institute for Economic Research talked in depth with `Taipei Times' reporter Stanley Chou recently on the impact on both Taiwan and China of entry into the WTO, and offered strategic advice for the government to deal with the challenges to come

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  Taipei Times: Taiwan is expected to enter the WTO as early as next year, what kind of impact will membership bring to Taiwan's economy?

  Liu Da-nien (劉大年):There are three important impacts to consider here. First is the( impact of WTO entry on Taiwan's economy, the second is its impact on China's economy -- which has become one of the most important export markets for Taiwan -- and lastly, its impact on the cross-strait relationship. When we discuss the impact, we have to consider all three of these elements.

  

  Liu Da-nien gestures during an interview on the likely consequences of Taiwan's entry into the WTO.

  PHOTO: CHIANG YING-YING

  TT: Let's talk about Taiwan first. What kind of impact could it bring to Taiwanese sectors, such as the agricultural sector?

  Liu: In the agricultural sector, WTO entry is expected to bring a significant impact, with the average nominal tax rate for tariffs in the agricultural sector to be lowered from last year's level of 20 percent to 15.21 percent in the first year and down to 12.9 percent by 2006 when the tariff-reductions conclude. The tariffs on a total of 1,021 agricultural products is going to be cut by an average of 35 percent [within the next five years]. Since the tariff-cut is comprehensive, its impact would be also comprehensive.

  Products like garlic and mushrooms, for example, will face strong competition from China. Other products like coconuts will face competition from Southeast Asia. The poultry sector will also be affected, since import prices will be less than domestic prices.

  The consequence is that the unemployment rate is likely to increase when the agricultural sector eliminates unnecessary labor.

  TT: What measures should the administration take to ease the impact on the agricultural sector?

  Liu: The most important measure that the administration should take is to adjust the transportation and distribution of agricultural products (農產運銷). Since there is little effect on the service of transportation and distribution for agricultural products, the administration should pay more attention to this to increase competitiveness .

  TT: What about the impact on the industrial sector?

  Liu: Generally speaking, since the importation of most industrial products have been liberalized, the impact of WTO entry will not be too significant. On the whole, WTO entry could bring more advantages than disadvantages to the domestic industrial sector, since Taiwan is basically an international trade-oriented economy.

  As for [industrial] tariff reductions, the average nominal tax rate is going to drop from 6.03 percent in 2000 to 5.79 percent in the first year after WTO entry, to 4.05 percent in 2004 when the tariff-reductions are completed. There are 3,470 industrial products involved in the tariff-reductions with an average reduction of 31.18 percent.

  The most important tariff-reductions in the industrial sector include beer and alcohol, medical equipment, furniture and paper products. Their tariffs will be reduced to zero upon entry. The tariff on most information technology products will be reduced to zero, according to the Information Technology Agreement signed in 1997.

  Other important aspects of the non-tariff agreement include abolishing the monopoly system on tobacco and wine. The local content requirement on automobiles and motorcycles will also be abolished. An import quota system on automobile and motorcycle products will be adopted upon entry and the quota will be removed completely ten years after entry.

  Industries that will benefit after WTO entry are mainly the exporting industries, such as the machinery industry and the information technology industry. Industries like textiles will will see [additional] benefits since there will be no quota on Taiwan's exports of textile products after 2005.

  On the other hand, industries that concentrate on the domestic market, such as vehicles and paper, will face competitive pressure after entry, since the nominal tax rate will be reduced on average from 6 percent to 4.14 percent.

  TT: What should the administration do to offset the challenges facing the industrial sector?

  Liu: The administration has already proposed measures to increase competitiveness including assisting firms in upgrading domestic R&D, promoting industrial automation and assisting small and medium businesses to expand into international markets by setting up business liaisons abroad.

  TT: What kind of impact will the service sector see?

  Liu: There will be minimal impact on the service sector, since most WTO commitments have already been implemented.

  At the behest of WTO members, for example, in the financial services sector the government has already deregulated foreign investment in the local securities market and the shareholder ceiling in listed companies.

  TT: What type of imported labor changes will Taiwan experience?

  Liu: More expatriates are expected to work in Taiwan after WTO entry, and therefore the administration is going to set up a single-window to process white collar workers.

  Deregulation in the service sector is going to produce competitive pressure for domestic service companies. However, that pressure is not going to reduce the total output of the domestic service sector. On the contrary, through foreign investment and advanced technologies introduced by foreign competitors, service quality will improve and prices on service products is likely to come down. Both could improve the international competitiveness of the domestic services sector.

  TT: What kind of impact will China see after joining the world trade club?

  Liu: The impact of WTO entry for China is much more significant than for Taiwan. The basic reason is that most industries in China have not yet been deregulated, therefore the impact will be much more significant. However, despite the cost it will have to pay, since China is the seventh largest exporter in the world, it has little choice but to enter the WTO.

  The most important consequence of China's entry is that it will attract more and more foreign investment, including a significant increase from Taiwan, and China is likely to continue as one of the fastest areas of economic growth in the world [over the next few years].

  TT: What kind of impact will membership have on the cross-strait trade relationship?

  Liu: If Taiwan uses the exclusionary clause [of WTO regulations], it could become a hurdle to the expansion of the cross-strait economic relationship. In the long-term, Taiwan should not use the trade relationship [created with China] under the WTO framework to [improve] the cross-strait relationship.

  TT: Do you have any advice for companies or for the Chen administration prior to entry?

  Liu: Since the multilateral trading organization [WTO] is going to dominate the trade environment in the 21st century, industries and corporations should seek [further international] development under the trade framework.

  As for the administration, they should be adopting the "bird's nest strategy" (鳥巢策略) to keep the roots of corporations in Taiwan, instead of using the "bird cage strategy" (鳥籠策略) to limit Taiwanese corporations. [In other words] Taiwanese businesses should use China as a production base [to reduce production costs], and use Taiwan as a distribution and operations center.

  Under this strategy the Taiwanese government should not restrict its businessmen from investing in China -- the bird cage strategy -- like the "no haste, be patient" policy. Instead, Taiwan should take the opportunity that comes with entry into the WTO to make itself a bird's nest for businessmen. [Commercial] links with China are a must for Taiwan to become an Asia-Pacific distribution and operations center. This is the only correct direction for the Taiwanese government.

  For your information

  The likely impacts of WTO entry

  * Agriculture will be the most badly affected sector, with tariff protections to drop significantly. Cheaper Chinese imports will likely result in higher agricultural unemployment in the short term. * The industrial sector has been largely liberalized, but the abolition of the tobacco and wine monopoly and the end of local content requirements for automobiles and motorcycles will bring some pain initially. * The service sector will benefit from healthy competitive pressure from an influx of foreign technology, personnel and industry standards, with the sector likely to enjoy a period of expansion.
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