The WTO Challenge: Taiwan Braces for Exposure to World Markets

On 11 November the fourth WTO Ministerial Conference, held in Doha, the capital of Qatar, passed Taiwan's membership application without a hitch. The WTO has been termed the United Nations of trade, and membership will enable Taiwan, which finds its diplomacy obstructed at every turn, to develop multilateral trading relations with other member countries on an equal footing. This will help Taiwan increase its scope for economic development. But the commitments Taiwan has made to opening its markets and reducing tariffs following WTO entry will have a direct impact on those industries which have hitherto enjoyed protection in the form of import controls or other government policies. The WTO represents the unification of economies worldwide into a single global market, and fields such as education, cinema and the arts, which are the lifeblood of culture and ethnic identity, are also sure to be faced with new challenges as they are drawn into the great trend towards globalization. WTO membership opens up a new future for Taiwan in which there are opportunities everywhere, but also many difficulties to be overcome.

That is why on 16 November legislators broke off from their intense campaigning for the year-end elections to attend a specially convened Legislative Yuan session, in which they passed various pieces of legislation necessitated by Taiwan's WTO accession.

The effects of WTO accession have already been strongly felt in Taiwan's market-firstly with "red-label" rice wine, which after several previous rounds of panic buying has once again become well nigh impossible to buy. Because rice wine has been "upgraded" from cooking wine to a spirit, the tax on it is due to rise, not fall, and opportunistic hoarding by retailers to drive up prices has forced the Taiwan Tobacco and Wine Board to take the unusual step of requiring consumers take their household registration certificates with them to its sales outlets to buy limited quantities of the wine. But long queues for rice wine are still the order of the day.

After long years of waiting, from the start of the WTO Ministerial Conference in Doha on 9 November the attention of people in Taiwan was fixed on the accession process.

The General Agreement on Tariffs and Trade, which came into being in 1948, held many negotiations to promote global trade liberalization. Taiwan was once a GATT member, but dropped out after withdrawing from the United Nations in 1971. In 1995, under the agreements that emerged from the Uruguay Round negotiations, the GATT was transformed into the World Trade Organization. Both sides of the Taiwan Strait saw no alternative but to actively seek WTO membership to safeguard their own economic interests. Taiwan had already begun new preparations and negotiations for accession in 1992. But its many efforts to join over the past 11 years were all foiled by obstruction from mainland China. However, both sides have now joined the WTO together, and besides bringing opportunities for cross-strait conciliation, this will also usher in a new phase in cross-strait economic interaction.

After Taiwan's accession was approved, President Chen Shui-bian and Premier Chang Chun-hsiung both expressed goodwill, stating that future discussion and dialogue on the subject of the "three links" can take place within the WTO framework, in order to reach consensus and allow cross-strait relations to develop positively. As for how WTO membership will affect the economies on both sides of the strait, it is generally believed that with the mainland currently in a period of rapid economic growth, although there will be a substantial impact on its domestic markets in the short term, it will benefit from its products' freer access to other countries' markets, and WTO accession will also attract an inexhaustible stream of foreign investment and new technologies. Meanwhile Taiwanese companies need to quicken the pace of restructuring and upgrading in order to be able to take advantage of mainland markets, so as to enhance their economic strength and broaden the scope of Taiwan's economic development.

From 2002 many rights and duties associated with WTO membership will gradually be implemented in Taiwan. In the first year a total of 3470 industrial products, including car tires and steel to name but two, are due to be added to the list of goods on which import tariffs will be reduced from the current 6.03% to 4.15%.

Over the course of the last decade Taiwan has undertaken a series of trade liberalization measures, including the dismantling of many import controls and the lowering of tariffs. Hence the Industrial Development Bureau of the Ministry of Economic Affairs predicts that the small further tariff reductions required after WTO entry will have only a limited impact on industry, while membership will open up greater opportunities for industries that are competitive in export markets, such as petrochemicals, plastics, textiles, textile finishing, information technology, and telecommunications. In the domestic market, most goods can already be imported freely, although the automotive sector is still protected by regional import quotas and will be affected by the opening of Taiwan's market to vehicles from the US, Japan and Korea. Other local industries that will need to improve their competitiveness in response to WTO entry are electrical appliances, heavy electrical engineering, papermaking and foodstuffs.

Compared with the prospects for commerce and industry, the impact on the weaker agricultural sector will evidently be greater. From 2002, tariffs on 1021 agricultural products will be reduced from 20% to 12.8%, and the market for rice will be opened for the first time. For some time already, the Council of Agriculture has been responding with measures such as subsidies for taking land out of production.

Also, in the face of massive smuggling from the mainland, local production of various items such as garlic, day lily flowers and shiitake mushrooms is already uncompetitive. The COA predicts that over the next three years the amount of land under such crops will be reduced by half. In terms of protective measures, the government has the power to increase tariffs on 20-plus important types of produce when imports exceed certain levels, and is preparing a NT$100 billion fund to provide subsidies to farmers hit by imports. The COA has stated that as appropriate it will also apply "special protective measures" for farm produce, to combat dumping of imported produce. But in the long term Taiwan, with its small land area and dense population, will still need to develop towards high-quality produce and rural tourism to revitalize the rural economy.

The biggest winners from Taiwan's WTO membership will be consumers. Apart from a more diverse choice of agricultural produce, customs duties on imported motor vehicles will be cut by 30%, and many large supermarket chains have already signed agreements with mainland Chinese manufacturers to import large quantities of products such as electrical appliances at bargain prices. In a time of economic recession, consumers will be able to enjoy the same standard of consumption while spending less. But rice wine will soar in price, because during bilateral negotiations the US insisted that it should be classed as a spirit, so that it will be subject to a local tax of NT$185 per liter from 2003. However, the entire alcohol and tobacco monopoly system will be reformed after Taiwan enters the WTO. The Ministry of Finance plans to liberalize the market in three stages, to allow private-sector production of tobacco and alcohol products. In the first year it will permit private distilling of rice wine, which is surely good news for aficionados.

As the WTO comes to "rule the roost," there will be both winners and losers among Taiwan's industries. Most observers believe that overall, WTO entry will bring short-term pain but long-term gain. The most recent estimates from the Council for Economic Planning and Development predict that over the next five years WTO membership will add an average 0.64 percentage points to Taiwan's annual GDP growth rate, and that over the same period there will be an overall benefit of NT$8.9 billion in increased personal income due to economic liberalization and other factors. However, in the short term unemployment will also increase. The CEPD expects additional unemployment of 0.22% in the first year after accession. Economics professor Wu Chung-chi of National Taiwan University also cautions that because professions such as law, accountancy and architecture will be opened to foreign practitioners, this wave of unemployment will disproportionately affect white-collar workers.

WTO membership will affect all aspects of life for people in Taiwan, and will bring substantial changes. But little attention has been paid to the effect on fields such as education, cinema and the arts, which emphasize diversity and local cultural distinctiveness. To look at the example of Hong Kong, that territory introduced special legal provisions to protect its cinematic culture from an invasion by the foreign film industry. But in Taiwan there has been no sign of any measures to respond to the impact of WTO membership on local cultural industries, which seem to hold less allure for politicians than agriculture. Joining the WTO may be an inevitable trend, but at a time when all countries are eager to conquer new territories overseas and put up a protective umbrella for their weaker domestic industries, perhaps Taiwan too should be giving more balanced attention to the future of different sectors of society.

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On 11 October 2001, the WTO Ministerial Conference approved Taiwan's membership application. Economic affairs minister Lin Hsin-i immediately gave a speech thanking all countries for their support, and stressing that Taiwan will fulfill all its membership obligations. (courtesy of Central News Agency)

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Having to show your household registration to buy rice wine is a first in Taiwan. The swingeing tax increase due after WTO entry has sparked several waves of panic buying. (photo by Jimmy Lin)