Numerous changes have occurred in the economic environment since AmCham’s 2021 Taiwan White Paper was published last June. Some, such as Taiwan’s successful inoculation of over 80% of its population and economic growth in 2021 of 6.28% – its highest growth rate in 11 years – were positive. Others, including ongoing global supply chain disruptions caused by shutdowns in China and the war in Ukraine, have been unfavorable, to the point that a growing number of forecasts of Taiwan’s 2022 economic growth have been lowered to under 4%.
The position papers in this year’s White Paper reflect a sense of frustration among many of AmCham’s 26 industry committees. Our members feel that the momentum to mold Taiwan into a world-leading hub of technological and medical research and development, industrial innovation, and digital transformation, as well as an attractive location for foreign investment in a range of industry sectors, is waning or has even come to a halt in some cases. Now is not the time for Taiwan to rest on its laurels, our committees argue, especially as the island finds itself in a “golden moment” of international attention, support, and goodwill.
With this sense of urgency, the Chamber calls on officials in the Taiwan government to step up efforts to raise Taiwan’s international competitiveness. It must also do more to accelerate integration with close economic partners like the U.S., a message we repeat to the U.S. government in the following section, Requests to Washington. After all, AmCham’s aspirations for the future of the relationship rest on both governments working in tandem to continue carrying it forward.
We believe strongly in Taiwan’s capacity to continuously improve its regulatory system and accelerate digital transformation, but too much policymaking still involves creating industry regulations and standards that are unique to Taiwan and often more restrictive than those of international counterparts. This tendency makes it harder for Taiwan to become more globally connected and reduces its attractiveness to foreign investors, as well as to multinationals that would otherwise seek to enter the Taiwan market or expand operations here.
Other regulatory barriers are more industry-specific. For example, pharmaceutical and medical device manufacturers have for many years criticized the long review time needed for approval of new, innovative products, as well as the low reimbursement prices generally offered. As a result, parent companies are often discouraged from emphasizing the Taiwan market. On the other hand, we were heartened by the Taiwan Food and Drug Administration’s announcement last October that it would accept Medical Device Single Audit Program (MDSAP) reports for expedited licensing of new medical device products. We hope that this same spirit can be applied in the future to other issues impacting the regulation of healthcare industries.
There are numerous ways to address these regulatory concerns. Many of our committees view the increasing appetite for collaboration and progress through strategically formed public-private partnerships as a net benefit for Taiwan, and many of them urge expanding this approach to target both industry-specific and cross-sectoral issues.
Further, the more Taiwan is able to align its regulatory system with that of key partners like the U.S., the better positioned it is to negotiate trade and economic agreements with those partners. While AmCham acknowledges the benefit of a building-block approach to trade liberalization and integration and encourages the Taiwan government to pursue this channel as well, we continue to prioritize a comprehensive trade accord as our central advocacy goal. It is therefore critical that Taiwan continue removing outstanding barriers to trade and investment, or at least demonstrate its willingness to engage in negotiations that inevitably involve sensitive sectors.
Taiwan must act boldly and swiftly to position itself as an essential piece of the global economy that cannot be overlooked. In addition, it should not rely on the demand for products from only one industry or sector, but must diversify. Doing so will benefit both private and public sectors, as well as Taiwan’s economy and society as a whole.
VIGOROUSLY PURSUE TRADE COLLABORATIONS
Taiwan may experience some disappointment from not being included among the initial line-up of partners in the Biden administration’s new trade initiative, the Indo-Pacific Economic Framework (IPEF). However, there may be room for it at a later stage to participate in a less formal context, such as in individual working groups on secured supply chains and other relevant issues.
In addition, it now has an opportunity to re-center the pursuit of trade agreements with the U.S. and other partners– in particular, a U.S.-Taiwan bilateral trade agreement (BTA) – as the cornerstone of its economic policy. The Tsai administration should immediately elevate this matter to the highest priority level, especially considering the deeply encouraging statement released following a May meeting in Bangkok between U.S. Trade Representative Katherine Tai and Taiwan’s chief trade negotiator, Minister Without Portfolio John Deng. That statement, while vague, left the door open to bigger possibilities for trade and economic cooperation between the two sides.
In addition, support for a BTA has in recent years received widespread and growing support from both sides of the aisle in U.S. Congress. And the increasingly positive U.S.- Taiwan relationship, especially with regard to bilateral trade and economic ties, gives Taiwan an opening to lock in ties with a BTA. Lastly, President Tsai’s commendable initiative in lifting Taiwan’s decade-long ban on the import of U.S. pork products containing the feed additive ractopamine signaled her administration’s dedication to resolving thorny trade issues.
Nevertheless, the continued hesitance in Washington to expand U.S. market access, and rather to focus on less traditional mechanisms like the IPEF, poses both hurdles to and opportunities for Taiwan’s BTA ambitions. Taiwan must make an extra effort to prove its credibility as a good trading partner and demonstrate that it is willing to accept the necessary conditions and leverage Taiwan’s generally admirable record on labor and environmental policies that are so central to U.S. resistance to international trade liberalization.
ENSURE ENERGY STABILITY
AmCham’s member companies are increasingly worried about the Taiwan government’s ability to meet its energy transition and carbon reduction goals in the next several years, while ensuring that Taiwan will have sufficient energy supply and a stable enough grid and power transmission and distribution systems. Both elements are required to achieve sustainability at home and contribute to the global climate effort even as Taiwan works to fulfill the current power needs of its manufacturing sector and allow for growth of the next high value-added industries.
The Chamber’s 2022 Business Climate Survey showed that Taiwan’s energy supply has become a front-and-center issue for our members, as 77.9% of respondents expressed a moderate-to-high degree of concern about power sufficiency, while 70.9% said they were concerned about grid resiliency. The severe power outages in March this year, following the two that occurred during the White Paper drafting process last May, only exacerbated this feeling of apprehension.
An article titled “How Can Taiwan Avoid an Energy Crisis?” in the May issue of AmCham’s TOPICS magazine explored the reasons behind the multiple power outages, as well as potential solutions offered by academics, specialists, and industry insiders. And in this year’s White Paper, the Energy Committee has put forward four clear and actionable suggestions for the government that help answer the main questions posed in the TOPICS report. In particular, the Committee’s ideas on how to build grid resilience through incentivization of load-balancing technologies and establishment of a power reserve market and pricing mechanism are important to consider as Taiwan begins allocating billions of NT dollars to upgrade its grid infrastructure.
For many years running, the Energy Committee has also been making concrete recommendations for accelerating renewables projects and expanding Taiwan’s capacity to accommodate natural gas-fired power plants. Faster progress on these issues will be crucial in whether Taiwan can meet its energy goals and significantly decrease its carbon emissions.
Taiwan has little time to spare in implementing these measures. As the Committee’s paper notes, robust economic growth in the years ahead is likely to increase electricity demand by 2.5% annually. Unless handled adroitly, the continuing move from fossil fuels to mainly clean energy sources will inevitably strain the electric system’s capacity to consistently provide power to residences, businesses, and industry.
PROMOTE A SUSTAINABLE FUTURE
Taiwan’s leaders have set ambitious goals to transform the island’s energy mix to incorporate more renewable sources over the next decade, as well as to achieve carbon neutrality by 2050. As the devastating effects of climate change intensify, such targets become ever more important for both Taiwan and the rest of the world. While we applaud Taiwan’s drive to carry out such progressive aims, both our Energy and Sustainable Development Goals Committees highlight the urgent need to begin adopting decarbonization technologies such as carbon capture, utilization, and storage (CCUS) solutions to meet that challenge.
This effort, as well as many other sustainability-related causes, could benefit greatly from the input of industry through regular communication, consultation, and PPPs. The recently formed Taiwan-U.S. CCUS Industries Alliance could and should be a starting point for building public and private sector support for creating a viable CCUS ecosystem in Taiwan. At its first forum in April, the group emphasized that although Taiwan possesses the technological capabilities to develop CCUS solutions, a lack of a regulatory framework and differing policies regarding carbon storage between central and local environmental agencies pose major hurdles to the development of this potentially game- changing endeavor. We strongly urge the government to engage more deeply with industry on such initiatives as we work together to reduce carbon emissions.
AmCham looks forward to the establishment of the Ministry of Digital Affairs (MODA) and recognizes the government’s continued efforts to usher in Taiwan’s digital transformation. Despite significant signs of progress on this front, it is clear that for Taiwan to keep up with regional competitors like Singapore and South Korea, it must seriously accelerate its digitalization of industries and government.
For an economy as advanced and innovation-oriented as Taiwan’s, it is odd that so much daily activity, particularly in the banking and finance sector, still involves the in-person exchange of paper documents. While consumers are provided with an ever-growing selection of domestic and overseas digital services, as well as e-payment and online- only banking options, many businesses are unable to open bank accounts or apply for corporate loans online.
For its part, the public sector has taken steps to modernize its functions, notably by migrating more of its operations to the cloud. However, the Technology Committee notes that rather than produce a single, concise set of guidelines for cloud adoption for all agencies and vendors to follow, the government has opted for several – sometimes conflicting – sets. The result, the Committee states, “hinders the development of the government’s digitalization policy and uses up many administrative resources.”
Also critical in Taiwan’s digitalization process will be the adoption and refinement of sensible cybersecurity policies to safeguard the sensitive data of government, industry, and individual users without creating an additional burden on legitimate businesses.
IMPROVE THE TALENT MARKET
Taiwan benefits from a strong pool of well-educated, highly motivated, and hard-working talent, many of whom have received education and training overseas. This talent base is one of the island’s most valuable economic assets, yet Taiwan suffers from shortages of talent in certain key industries, as well as of less-skilled labor. Low salaries and inferior working environments in which long hours and overwork are the norm increase the attractiveness of well- paying job opportunities outside of Taiwan for a growing number of young professionals.
While our members continuously laud Taiwan’s workforce for its trustworthiness, business ethics, and dedication, they often lament the lack of international mindset and lagging English skills among local employees. One way to improve this situation, raised as a suggestion in our Talent Circulation Alliance position paper in 2020, would be to vastly expand Taiwan’s efforts to attract foreign talent, including better promotion of existing scholarship and internship programs, visa options, and recruitment platforms. In addition, AmCham continues to support the NDC’s Bilingual 2030 initiative as a way to boost the English skills of local Taiwanese talent. These programs should also be regularly evaluated to ensure that they are reaching the desired target audience and recruiting the kind of current and future foreign professionals necessary to meet Taiwan’s talent needs.
As the Semiconductor, Technology, and Travel & Tourism Committees note, cultivating a large, diverse talent pool through modernized labor laws, relaxed hiring restrictions, industry-academia cooperation, and improved recruitment and incentive programs would help fill personnel gaps in their industries and further internationalize Taiwan’s workforce.
ENABLE SAFE REOPENING
AmCham Taiwan recognizes the challenge the Taiwan health authorities have faced in setting pandemic control policy in recent months in light of the rapid spread of local infections. We commend them for their tireless work in ensuring that Taiwan can move from a “pandemic” approach of heightened virus restrictions to an “endemic” one of living with COVID-19.
Of particular interest to the Chamber was the decision in March to allow people from low-risk countries to enter Taiwan for short-term business travel, something we had expressly called for in previous months. The shortening of the quarantine period for overseas arrivals, close contacts of confirmed cases, and even those who test positive for COVID-19 is another encouraging step. We look forward to a continued gradual easing of restrictions on daily life in Taiwan.
In terms of economic impact, the most significant steps for Taiwan to take now would be lifting border restrictions on overseas visitors and ending its ban on the sale of outbound travel packages to Taiwanese consumers. Considering that over 80% of Taiwan’s residents are fully vaccinated (with another 65% boosted) and the vast majority of new cases are now associated with community spread, maintaining tight controls on international travel puts Taiwan out of step with other countries that have already reopened. We therefore call on the government to begin the transition to a fully reopened Taiwan and send more definitive signals that a reopening is effectively underway for Q4 2022.
DOUBLE TAXATION CONCERNS
As both our Tax and Semiconductor Committees make clear, Taiwan’s current tax rules on drop-shipping – a logistically efficient approach to dispatching finished goods to end-customers that potentially could help alleviate the current global chip shortage – pose a barrier to Taiwan’s business competitiveness vis-à-vis regional trade rivals like China and South Korea. Under the current regulations, drop-shipping transactions are deemed Taiwan sales and taxed as such, resulting in the risk of double taxation of the drop-shipped goods. As demand for drop-shipping continues to rise, a change in approach deserves increasing attention.
Another issue related to double taxation is the 30% withholding rate currently levied on Taiwanese securities investment trust enterprise-issued funds that invest in securities issued by U.S. corporations and receive dividends. According to our Asset Management Committee, this rate is three times the 10% withholding required in countries that have concluded double taxation treaties with the U.S. Such a disparity makes such funds less attractive to Taiwanese investors seeking to invest in the U.S. stock market. It also presents another reason for Taiwan to seek to quickly conclude a double taxation agreement (DTA) with the U.S.
While we continue to urge our partners in the U.S. government to begin laying the groundwork for a U.S.- Taiwan DTA, we consider it equally important for the Taiwan side to increase its own efforts to prepare for such
an agreement. One of the many benefits afforded by a DTA would be to make direct investment in both countries more attractive, which under current conditions would meet Taiwan’s interests in diversification and enhanced competitiveness.
AmCham Taiwan highly values our cordial working relationship with the Taiwan government, and we look forward to continuing collaboration with the National Development Council and other relevant bodies in the year ahead. Although we appreciate the increased government engagement we’ve received on White Paper issues over the past several years, we also wish to stress that decisive action on a host of pressing issues is greatly needed. Progress on the issues in the AmCham White Paper will also enhance the prospects of Taiwan meeting its other international economic policy goals, such as entry into the Comprehensive and Progressive Trans-pacific Partnership Agreement (CPTPP).
Through increased industry involvement in policy development as well as productive dialogue and partnerships between AmCham members and the relevant government authorities, Taiwan can make meaningful progress on surmounting some of its toughest challenges. As always, the Chamber stands ready to help with facilitating these efforts in any way it can.
A Note on This Year’s Scores
The main purpose of the White Paper is to provide the Taiwan authorities with practical and constructive suggestions on how Taiwan’s economic prosperity, income equality, and international integration can be enhanced through improvements in the business climate – and to stimulate public discussion of those issues. In total, the 2022 White Paper contains 96 different issues (excluding sub-issues) raised in position papers presented by 26 formal committees and two other industry groups.
The Chamber understands that not all of these issues will be acted on, at least not immediately, but we appreciate that all will receive due consideration. We recognize the government’s attention to our issues in the regular meetings held between our industry committees and their relevant government agencies, as well as the detailed responses we receive to each issue that appears in the publication.
This year, reviewing the status of the 87 issues (and some sub-issues) submitted in 2021 and rated for their progress a year later by the various committees, we find to our concern that only five items have been marked as “solved” – less than half those that were reported as such last year. In addition, the number of issues deemed to be making good progress fell from 23 last year to 13 in 2022. Finally, a much larger number of issues received a score of “under observation” (41), “stalled” (19), or “dropped” (9) than in the previous few editions of the White Paper. It is for this reason that the tone of our Overview section this year is more urgent and direct than in the past. Not only do we need to see Taiwan maintain its pace of reform and development, but to redouble it. Otherwise, we fear the people of Taiwan may miss the golden opportunity before them in the post-pandemic world.
Considering that senior officials are making a concerted effort to increase government efficiency in a wide range of areas, and that the government has consistently been stepping up efforts to attract foreign investment, AmCham believes that in the coming year the progress in tackling the White Paper issues should see substantial improvement.
For a detailed breakdown of the full set of scores for the 2021 White Paper issues, please refer to p. 18