This coming January, Taiwan will provide an inspiring example for much of the world when its citizens again cast ballots to choose their national leaders through a free and fair election. The people of Taiwan are justifiably proud of the democratic political system they have built up in the several decades since martial law was lifted in 1987 and the first direct presidential election was held in 1996. The next seven months will be filled with the excitement of vigorous campaigning, first to select the nominees of the major political parties and then with competition among the final candidates.
Based on past experience, however, there is a risk that this crucial exercise of democracy will almost entirely monopolize public attention and put a serious crimp in the workings of government for more than half a year. Under the best of circumstances, such a “political holiday” would be a questionable luxury. But at this critical point in its history, Taiwan can hardly afford to take time out from its efforts to reinvigorate the economy, protect its sovereignty, and secure a greater international role for itself. With the world currently undergoing disruptive change at an unprecedented pace, this is no time for Taiwanese – or foreigners who care deeply about Taiwan – to narrow their focus to domestic politics only.
The external pressures on Taiwan are mounting dramatically. In the economic sphere, the U.S.-China trade war is putting a profit squeeze on many Taiwanese enterprises, threatening potential shifts in global supply chains in which they have long played a crucial part. In adjusting to the new realities, Taiwan is at a severe disadvantage in one key respect – its lack of bilateral or multilateral trade agreements with its main trading partners. Further, the advent of the digital economy and the sharing economy is presenting challenges by shaking up traditional ways of doing business. At the same time, China has been ratcheting up the military and security pressure on Taiwan – sending ships and aircraft to circumnavigate the island on intimidation missions, building up its presence in the South China Sea, and seeking to tighten Taiwan’s diplomatic isolation.
The domestic challenges are also daunting. How to meet the needs of a rapidly aging population despite increasing budgetary constraints? How to alleviate the “five shortages” – land, power, water, labor, and professional/technical talent – that pose a predicament for potential industrial investors? In particular, the sufficiency of future energy supply continues to be a source of nagging concern for largescale manufacturing operations among the AmCham membership.
The forthcoming political season will be constructive if it can focus attention on these genuine issues, rather than merely concentrating on personalities and other distractions.
Despite the serious challenges, there is also much in the current environment that is running in Taiwan’s favor. For all the disruption it is causing to the world trade order, for example, the U.S.-China tariff war is prompting a number of Taiwanese manufacturers to consider moving their China-based operations back to Taiwan, either completely or for the most technically sophisticated portions. That is highly positive news in terms of job creation, tax revenue, and overall industrial development.
At the same time, the state of Taiwan’s relationship with the U.S. appears better than it has been in decades – as numerous U.S. government visitors to Taipei have attested to. One reason is the deterioration in American relations with China, which has been eroding not only because of disputes on trade policy but out of a broader recognition in the U.S. that China is a determined strategic rival.
But Washington’s appreciation for Taiwan as a source of stability and cooperation in the Indo-Pacific region has broader dimensions. The two countries collaborate in a wide variety of ways. The joint Global Cooperation Training Framework, for example, provides a platform for Taiwanese experts to interact with counterparts from Southeast Asia and elsewhere on many subjects of concern to both the U.S. and Taiwan. And the recent opening of a new US$255.6-million complex to house the American Institute in Taiwan, which takes the place of an embassy in representing U.S. interests in Taiwan, was perhaps the most concrete expression of the continuing American commitment to Taiwan.
Internally, Taiwan has also made encouraging progress in tackling many of the regulatory obstacles that have hampered business operations by both domestic and foreign-invested companies. In last year’s Taiwan White Paper, AmCham Taipei was delighted to announce that 11 of the issues from the previous year’s White Paper had been rated by our committees as resolved – an all-time record. This time the number from last year marked as “solved” is almost as high – 10 items, including four from the Cosmetics Committee, two from Insurance, and one each from Agro-chemicals, Capital Markets, Human Resources, and Telecommunications & Media.
In addition, an Assets Management issue from the 2017 White Paper was resolved, bringing the total to 11. In this year’s submission, the committee hails that change in the way distributors’ commissions will be calculated starting in 2020 as a “crucial breakthrough” that will help “assure a sounder investment environment for all industry participants and investors.”
Among the latest White Paper successes is one that had not been officially announced as of press time, but which the government has confirmed is coming. That change, by the Ministry of Labor, will allow certain supervisory personnel and professional or technical workers to be exempt from regulations on work time and overtime calculation, as befits the requirements of a knowledge-based economy.
Another recent constructive development has been revitalization of interest in the Taiwan market by private equity funds. Last year, Amcham Taipei’s Private Equity Committee had even suspended operations, discouraged by what seemed to be a negative government attitude toward PE investment. The Committee has now reactivated, and several PE investment cases have recently gained approval. The return of PE capital will boost Taiwan’s foreign direct investment, and provide valuable assistance to enterprises in need of management restructuring and guidance in approaching international markets.
BOLD STEPS ARE NEEDED
Given this combination of circumstances – gnawing challenges but auspicious opportunities – what should be Taiwan’s course of action? AmCham is convinced that the current situation calls for bold measures aiming to achieve a breakthrough in Taiwan’s relationship with the global trading community, starting with the U.S. With so much now in flux in the world economy, previous assumptions about what can actually be attained may no longer be valid. We therefore urge the Taiwan government to make an all-out effort to demonstrate to the U.S. authorities that Taiwan would be a highly appropriate candidate for a bilateral trade agreement (BTA).
Making that case first requires finding ways to remove any existing irritants in the U.S.-Taiwan trade relationship. Holding points in reserve as possible bargaining chips during negotiations is not the way to gain support from the U.S. government, particularly under the current administration. What would undoubtedly most impress American officials would be displays of Taiwan’s deep commitment to international standards and respect for sound scientific evidence, as well as close cooperation with Washington in promoting a fair and open international trading system.
For Taiwan, resolving major outstanding economic issues with the U.S. would necessarily involve some sacrifice, but the rewards could be immeasurable. A BTA with the U.S. would have both economic and strategic implications. Besides opening the way for increased two-way trade and investment, it would strengthen Taiwan’s overall ties to the U.S. and help diversify Taiwan’s commerce to avoid over-reliance on any one area. A trade agreement between Taiwan and the U.S. would also give more countries and trade groups cover to resist political pressure and enter into similar agreements with Taiwan. A prime example might be the 11-member Comprehensive and Progressive Agreement for Trans-Pacific Partnership in which Japan has been playing the leading role.
Although Taiwan has made considerable progress in the past few years in resolving issues raised in AmCham’s Taiwan White Paper, the 2019 edition of the White Paper still identifies important ways in which Taiwan could significantly improve the regulatory process. There continue to be cases in which Taiwan deviates from accepted international practice and instead formulates its own unique regulations. For multinational companies serving numerous markets, it can be an enormous burden to maintain a separate compliance system for a single market of only 23 million people. Another frustration for industry is when inconsistent interpretations of regulations are received from different agencies, or even different officers in the same agency.
Three different chapters in this volume – from Digital Economy, Energy, and Travel and Tourism – urge the government to set up a high-level agency or commission under the Executive Yuan to deal with nagging issues in their industry that are difficult to resolve because of the lack of consensus among the many different offices involved. Their comments point to the frequent need for greater coordination within government and clearer lines of decision-making authority.
Two committees – Retail and Cosmetics – cite shortcomings with the 60-day notice and comment period for proposed new laws and regulations that the government, with AmCham’s encouragement, put into effect in 2016. The objective is to introduce more transparency and consultation into the rules-making process, ensuring that new regulations will be feasible and effective. The system, modeled on provisions of the Administrative Procedures Act in the U.S., can be effective only if there is two-way communication between government and stakeholders. But in the experience of those two committees, industry receives no meaningful feedback from the government after submitting its comments. For the system to work properly, release of the final version of the regulation should be accompanied by the government agency’s response to the stakeholders’ suggestions, explaining which ideas were accepted and which rejected – and why.
THE IMPORTANCE OF INNOVATION
As Taiwan carves out its way forward in this increasingly complicated competitive environment, we believe it is on the right track in focusing attention on the “5+2 Innovative Industries” that the government has earmarked as priority fields for development. These industries include green energy, biomedicine, and such advanced technological sectors as artificial intelligence and the internet of things – all fields with high growth potential and in which Taiwan enjoys competitive strengths.
At the same time, we offer the reminder that the need for innovation is not confined to high-tech industries. It extends across the board to encompass traditional manufacturing industries as well as the service sector, including government services. Every government department should be held responsible for developing new and innovative approaches to the activities within its jurisdiction. In this regard, keeping close track of international trends is essential, as initiatives introduced in other parts of the world may serve as vital reference for innovations that can be adopted in Taiwan.
The observance this year of the 40th anniversary of the Taiwan Relations Act – the U.S. legislation that has enabled U.S.-Taiwan relations to proceed smoothly without formal diplomatic ties – is a reminder of the resiliency of Taiwanese society. Despite periodic setbacks over the decades, Taiwan has maintained its place among the world’s major trading economies and has steadily strengthened its democratic foundations.
As it faces the latest set of challenges, Taiwan needs to take advantage of the opportunities being presented by the historic economic and geopolitical shifts taking place in the international environment. There is no guarantee as to how long those favorable conditions will continue. If Taiwan is ready for bold action, AmCham Taipei is prepared to be a vocal advocate in support.