The Impact of the Liberalization of EHP on Taiwan’s Industries 

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Abstract:

Regional economic integration in Asia Pacific, especially in East Asia, has become a trend for the economic development of this area. Multilateral free trade agreements (FTA), such as the Trans-Pacific Partnership (TPP) and Regional Comprehensive Economic Partnership (RCEP), overtake the bilateral mode of economic integration. To avoid being marginalized, Taiwan must find a way to get involved in the current economic integration. The Economic Cooperation Framework Agreement (ECFA) is a point of departure for Taiwan to envision its role as a participant in the future world economic development. In the past three years, the Early Harvest Program of ECFA have come into effect. Taiwan’s import and export do benefit from such tariff concessions, but the benefit is not as great as expected. According to the Intra-Industry trade index, the profit and improvement that the EHP promised is only delivered halfway. Only half of the industries that enjoy the preferential tariffs under the EHP show improvement. The review shows that the effect of tariff concessions does not come as expected and factors other than tariff carry stronger weight in the course of this liberalization. Partly because products and services listed in the EHP are basically products which Taiwanese industries have ceased production and produce below demand. Cheap Chinese imports, supersede imports from the USA, Japan, and European countries, serving as major supplies for Taiwanese industries to lower the production cost. Yet, the quality of these cheap Chinese imports is what concerns to many Taiwanese industries, as no inspection on imports if they are semi-finished products. Neither does the supervision and control of where and how these semi-finished are processed. Conducting interviews with industries such as petrochemical, textile, electrical and electronic manufacturing, and metal manufacturing, the survey aims to understand the impact of Chinese imports, which enjoy the preferential tariffs under ECFA, on the quality of Taiwanese production. Survey results indicate that the impact of the EHP is of a limited extent. Taiwanese industries have the advantage of customized services for international corporations and products that are produced strictly on schedule and of satisfactory quality. In addition to this product competitiveness, the EHP which rules out the relatively vulnerable Taiwanese industries, also helps to keep the impact of Chinese imports under control. However, the overwhelming flow of Chinese imports worries Taiwanese industries a great deal. Chinese lower-priced and finished products are very likely to take over the market and put Taiwanese upstream industries out of business. The preferential tariffs on Chinese imports also benefit some large Taiwan-based companies in China. They are making even greater profit on products they import back to Taiwan. This makes them bigger and stronger, and jeopardizes those small and medium-sized businesses in Taiwan. In the face of the continual liberalization of Cross-Strait trade, most Taiwanese industries are taking action on production of high-valued products, quality enhancement, design innovation, product differentiation, and market segmentation. For example, synthetic fiber industries are producing functional textiles; engineering plastics industries are developing the technology of optical thin films; and metal manufacturing industries are making key components for the automobile industry. That the current regulations do not apply to those semi-finished Chinese imports worries Taiwanese industries and consumers. The relatively low quality Chinese imports are liable to do damage to the “MIT (made in Taiwan)” Logo if they assemblized in Taiwan and exported to other countries. Thus, Taiwanese industries are asking for the government’s strict regulation and inspection of Chinese imports, including the semi-finished Chinese products. Industries such as hand tool manufacturing, textile, and lighting equipment manufacturing are unanimously asking the government to actively promote the MIT Logo and issue the Certificate of Origin to the products that are genuinely made in Taiwan. Analyzing the interviews, we come up with some directions for the future policies. The suggestions are as follows: I. To promote FTA. The tariff is a significant burden for Taiwanese industries to compete with Korean when exporting goods to American and European countries. The tariff concessions should be carried out precisely and all at once. Also, measures should be make to compensate for the small and medium firms and vulnerable industries who may suffer from trade liberalization. II. After trade liberalization, competition that forces down prices is inevitable. Yet price competition may lead to a Taiwanese market flooded with Chinese low-quality products, which is also a threat to consumers. Thus, conducting more intensive random customs inspections and market sampling inspections is a necessary step that Taiwanese government must take in the face of trade liberalization. III. Product authentication should be enhanced, the imported consumer goods should follow the CNS standards, and intermediate goods imported must be regulated. The MIT Logo should only be obtained by products compliance wiht product certification, including rule of origin and quality certification. IV. In addition to post-market inspection, pre-market oversight should be taken to address consumer product safety issues. Many countries have adopted similar methods to improve consumer product safety. V. The government should assist Taiwanese industries in every possible way to meet the requirements of REACH regulation. With REACH certificates of compliance, Taiwanese exports will be more competitive in quality. VI. The government should encourage and promote the strategic alliances among industrial supply chains, in order to improve the ability of offering customized products and services of Taiwanese industries. VII.It is urgent for the government to take measures to keep human resources in Taiwan sustainable as many Taiwanese companies are losing managerial and marketing talent, R&D and skilled technical personnel, and some experienced staffs.