2015 Taiwan White Paper

The June issue of Taiwan Business TOPICS includes the annual Taiwan White Paper, an assessment of Taiwan’s business climate in both the macro level and sector by sector. Download it here.

Foreword

In recent years during the preparation of the annual Taiwan White Paper, AmCham Taipei has reviewed the degree of progress on the various suggestions raised by our committees in the previous edition. The item-by-item scoring of the issues presented in the 2014 White Paper can be found on the chart on pages W16-W17 in English and on pages W18-W19 in Chinese.

Of last year’s 82 specific suggestions on ways to improve the business environment, the relevant committees rated three of them as “resolved” and another 15 as “showing satisfactory progress.” Considered together, those two positive categories accounted for 22% of the total, one of the better proportions over the past five years (see the accompanying chart).  The top ranking in 2013 was due largely to the active involvement by the government’s National Development Council to liberalize the regulatory environment, including the resolution of longstanding White Paper issues. We hope that effort will continue.

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Click the image to visit the White Paper download page.

The three issues from 2014 regarded as resolved are:

  • Infrastructure: The awarding of turnkey public contracts by a two-stage “selective tendering process” that pre-qualifies bidders according to their technical and managerial expertise before awarding the contract to the lowest bid from among the pre-qualified contenders.
  • Insurance: The regulator’s decision to follow global best practices by refraining from prohibiting insurance brokers from simultaneously transacting reinsurance brokering business under the same insurance contract.
  • Telecommunications & Media: Effective action by the National Communications Commission (NCC) to continue to improve the 4G environment for the benefit of both operators and consumers.

The suggestions rated as showing satisfactory progress cover a broad spectrum, including Asset Management (1), Banking (3), Chemical Manufacturers (1), Customs & International Trade (1), Human Resources (1), Manufacturing (1), Pharmaceutical (2), Retail (1), Technology (1), Telecommunications & Media (2), and Travel & Tourism (1). Besides the NCC, several other government agencies were cited for their good work on specific issues. The Financial Supervisory Commission, for example, was commended by the Asset Management Committee for facilitating the onshore-fund registration process and by the Banking Committee for progress in relaxing the rating requirement on distributing Offshore Structured Products to non-professional investors. The Pharmaceutical Committee recognized the effort of the Taiwan Food and Drug Administration in preparing for implementation of Patent Linkage and broadening of Data Exclusivity, and the Chemical Manufacturers Committee thanked the Ministry of Labor and Environmental Protection Administration for their consultation with industry and coordination with one another in implementing systems for chemical substance registration.

The 2015 Taiwan White Paper contained in this volume includes a total of 77 suggestions for improving the business climate, the lowest number in many years. In part, the decrease represents a conscious effort by AmCham to achieve a sharper focus in hope that each issue will receive even more attention and gain more traction in the coming year, but to some degree the reduced number would also seem to reflect the responsiveness of government agencies in tackling previous years’ issues.

Executive Summary

Coming down to the wire

  • AmCham enthusiastically supports Taiwan’s plan to seek inclusion into the emerging Trans-Pacific Partnership (TPP) trade grouping.
  • The Ma Ying-jeou administration has highlighted the critical importance for Taiwan of gaining admission into TPP in the second round, since Taiwan’s trade-dependent economy otherwise risks becoming increasingly marginalized.
  • The opposition Democratic Progressive Party (DPP) has also expressed its backing for TPP membership.
  • As it now seems possible that TPP could come into effect as early as next year, Taiwan needs to take decisive action to establish its credibility as a proponent of trade liberalization and adherence to international norms and standards.
  • Despite Taiwan’s prominence in as a trading economy, it cannot simply assume it will be welcomed into the TPP. Less economically advanced countries than Taiwan have shown a stronger determination to embrace significant reform measures to gain first-round TPP access, and the same could prove true of potential rivals for second-stage entry.
  • U.S. support cannot be taken for granted either, and acceptance will require unanimous consent from all 12 initial TPP members. Taiwan will first need to resolve major outstanding trade disputes with the United States and the other 11 parties.

Adhering to accepted practices

  • Although Taiwan is an excellent place to do business, there are still some nagging deficiencies in current regulatory procedures.
  • Correcting those shortcomings would enhance Taiwan’s qualifications and build political momentum for accession to TPP, but even more importantly would help strengthen the business climate and stimulate economic growth and job creation.
  • Unique-to-Taiwan rules and regulations impose heavy burdens, both for multinational corporations and domestic exporters.
  • Taiwan’s unique – and frequently ultra-strict – regulations are usually well-intentioned but often are cumbersome and complicated, and difficult to enforce. They may cause higher costs that will get passed on to consumers, and may constitute “technical barriers to trade” in violation of Taiwan’s trade commitments.
  • Such rules impact the pharmaceutical, medical device, cosmetics, food, and retail industries, among other business sectors.

The core question: Transparency

  • Inadequate transparency in the regulatory process, especially during the rules-making stage, is the root cause of many of the defects that arise in Taiwan’s regulatory system. Heightened transparency is in the best interest of both the regulator and the regulated.
  • Sometimes important policy changes are not communicated to the public in writing, leaving stakeholders in the dark. The period available for public comment when policy changes are announced is too short, and respondents generally receive no feedback, while public hearings often provide little chance for the legitimate airing of concerns.
  • Stakeholders should be given sufficient notification of prospective changes to enable them to submit comments, and for government officials to engage in further research and discussion. Under current conditions, a new rule is often already in force before the difficulties in actually enforcing it become apparent.
  • With sufficient discussion, potential problems in proposed new regulations – including any variance from standard international practice – can be discovered and dealt with early in the process.
  • Taiwan could benefit from studying the ways in which transparency is fostered in the United States through the Administrative Procedures Act (APA) and related laws and regulations.
  • Transparency appears as a chapter in all free trade agreements (FTAs) recently negotiated by the United States, and enhancement of Taiwan’s capability in this area needs to be part of its preparation for TPP accession.

Needed institutions

  • The Premier should create a TPP Preparation Task Force to ensure that the individual ministries and agencies follow through properly to carry out reforms.
  • This task force would enable government leaders to pass down clear directives to all government departments and efficiently monitor their progress.
  • The Task Force would also oversee public education and communication to build a sense of national mission behind the goal of Taiwan’s accession to TPP.
  • As TPP membership for Taiwan will inevitably produce both winners and losers in the domestic economy, the government will need to make the case to the people of Taiwan that the country has much to gain by participating in the pact, and much to lose from exclusion.
  • The Task Force should highlight the disadvantages Taiwan faces from being blocked from becoming party to important bilateral and multilateral FTAs.
  • TPP is also an opportunity to rebalance Taiwan’s trade and investment, reducing the heavy dependence on the China market.
  • AmCham would encourage the domestic business community to create a channel through which it could speak out regularly in favor of TPP membership for Taiwan and its prospective benefit for economic growth and employment.

Additional concerns

  • Economic development will also be stifled if sufficient supplies of electrical power and water cannot be assured, as well as the necessary quantity and quality of manpower.
  • Resource-poor Taiwan has no ideal options for securing a stable energy supply, and the only solution for Taiwan’s energy situation appears to be adopting further energy-conservation measures while continuing to rely on a broad mix of power-generation technologies – including the extension of the lifecycle of the existing nuclear facilities.
  • Taiwan faces immense challenges in maintaining a consistently sufficient water supply, and tackling the problem includes pricing-policy adjustments, increased recycling, and use of IT technology to curb leakage.
  • AmCham commends the government for taking steps to liberalize regulations to enable more foreign talent to reside and be employed in Taiwan. Their presence will upgrade the capability of their domestic co-workers by helping them gain a more international mindset and adapt to the requirements of the global workplace.
  • Vital questions impacting Taiwan’s future cannot wait. We urge both the ruling and opposition parties to ensure that the coming year is one of solid achievement for the sake of the people of Taiwan.

Messages to Washington

Suggestion 1. Maintain a strict annual schedule for TIFA Council meetings.

High-level TIFA Council meetings under the U.S.-Taiwan Trade and Investment Framework Agreement are normally held on a regular basis once each year to discuss outstanding economic issues between the two sides. Because of the concerted staff work that goes into preparation of these meetings, they provide an effective platform for tackling areas of concern that might otherwise be neglected. Yet due to U.S. displeasure with Taiwan’s restrictions on the import of American beef, starting in mid-2007 five and a half years elapsed without such negotiations taking place. As AmCham Taipei argued repeatedly during that period, the suspension of talks over a single issue is blatantly unfair to U.S. businesses in other sectors, depriving them of the most effective opportunity for their issues to be raised by the Office of the U.S. Trade Representative (USTR). The hiatus was more of a penalty to American companies than to the Taiwan authorities.

When bilateral TIFA Council meetings finally resumed in Taipei in March 2013, AmCham members breathed a collective sigh of relief. When another round was held in early April 2014 in Washington, D.C., it appeared that the meetings were now solidly back on an annual schedule. But no TIFA Council session has been scheduled so far this year, and the Chamber has grown concerned about the delay. Is the postponement due merely to the heavy workload and personnel turnover at USTR? Or does it reflect renewed American discontent over an agricultural trade issue – this time pork instead of beef? If the former, we believe sufficient money and personnel need to be made available at USTR, and at the State and Commerce Departments, for critical trade talks to continue unimpeded every year.  If the latter, we believe the approach is misguided, as there is more to be accomplished by sitting down at the negotiation table than by refraining even from talking.

Whatever the reason for the current delay, we fervently hope that the TIFA process will be resumed within the next several months, and that in future the talks will adhere to an uninterrupted schedule, regardless of circumstances, to ensure that lines of communication remain open.

Suggestion 2. Support Taiwan’s bid for second-round TPP membership.

The Overview section in this volume sets out in detail the reasons why eventual entry into the Trans-Pacific Partnership is a matter of great importance for Taiwan. TPP participation by Taiwan is also very much in the national interest of the United States. Taiwan is America’s tenth largest trading partner, with annual two-way trade of US$63 billion in 2014 – more than the volume of U.S. commerce with India. In addition, Taiwan is a crucial part of the supply chain for many of leading U.S. companies in the technology sector. Inclusion of an economy with Taiwan’s trading prowess will add to the scope and strength of the new trade pact, and open additional business opportunities for American companies.  Bringing Taiwan into TPP also has its strategic dimensions. As one of the most vibrant democracies in East Asia, Taiwan shares core values with the United States in terms of human rights and basic freedoms. As Deputy Assistant Secretary of State Susan Thornton spelled out in a recent speech at The Brooking Institution, the United States and Taiwan have a long history of close contact and cooperation in a host of different fields. In recent years, however, cross-Strait trade has increased so rapidly that China has become Taiwan’s number-one trading partner, and polls show that a growing proportion of the Taiwan public is concerned about economic over-dependence on China and its future political implications. Participation in TPP would help provide Taiwan with some needed counterbalance.

In her speech, Thornton noted that the U.S. government is working to help Taiwan improve its trade and investment regulations, and that the result “could have a transformative effect on perceptions of Taiwan’s attractiveness for inclusion in further regional trade agreements.” Secretary of State John Kerry also stated recently that the United States welcomes Taiwan’s interest in joining TPP and regards Taiwan as a fundamental element in the Obama administration’s policy of strengthening U.S. involvement in Asia.

AmCham is aware that the United States is only one of 12 countries engaged in the TPP negotiations, and that prospective candidates for second-round admission will need to have unanimous agreement by all 12. But assuming that the Taiwan government does its part in the coming months toward bringing its trade regime in line with international best practices, we hope that the U.S. government will use its considerable influence to help pave the way for Taiwan’s TPP accession.

Because of China, Taiwan’s TPP application is likely to be more sensitive than that of other second-round applicants. The United States should face that complexity head on, not allowing it to delay or block Taiwan’s membership. It is the U.S.’s interest to support Taiwan’s application, both to prevent Taiwan from becoming ever more dependent on China and to allow American companies to deal with Korea and Taiwan on a more equal basis. If the United States does not vigorously support Taiwan’s TPP accession application, there could be grave long-term consequences for both countries.

Suggestion 3. Continue to look for opportunities to enhance the bilateral relationship.  

The recent comments by Secretary Kerry and Deputy Assistant Secretary Thornton are welcome signs that the U.S. government not only appreciates Taiwan’s contribution to regional stability, economic prosperity, and the promotion of democratic values in East Asia, but is open to exploring ways to further enhance the bilateral relationship.

In recent years, AmCham Taipei has backed the idea of concluding a Bilateral Investment Agreement (BIA) between the United States and Taiwan [because of the lack of formal diplomatic relations, the document would not be called a Bilateral Investment Treaty, but in fact would have very much the same content]. Among other benefits, a BIA would be seen as instilling renewed momentum in the bilateral economic relationship, and could serve as a building block toward Taiwan’s entry into TPP. As the 2015 Taiwan White Paper goes to press, however, such good progress seems to be taking place toward completion of the first-round of TPP negotiations, including consideration by Congress of Trade Promotion Authority for the U.S. President, that the steppingstone approach may no longer be needed.

But in case the drive to complete the multilateral TPP falters for any reason, we hope that U.S. officials will again review the idea of negotiating bilateral agreements with Taiwan, whether a BIA or a Transparency Agreement similar to the transparency chapter in KORUS, the U.S. free trade agreement with Korea.

AmCham is delighted that the United States has begun to send high-level officials to Taiwan much more regularly.  When Environmental Protection Agency Administrator Gina McCarthy came to Taipei last year – the first Cabinet-rank official to make the trip in 14 years – it served to reconfirm the strong ties between the United States and Taiwan. It also gave further impetus to the longstanding cooperation between the two sides in the field of environmental protection. As this volume goes to press, Assistant Secretary of State for Economic and Business Affairs Charles Rivkin is due to arrive in Taipei in the latest of such visits. We believe that such occasions are extremely important in focusing attention on sector-specific issues that might otherwise be neglected for long periods of time, as well as on areas of potential further bilateral cooperation. In the security realm, AmCham Taipei looks forward to continued American support to help Taiwan maintain a credible defense posture, in line with the provisions of the Taiwan Relations Act. We expect that decisions on the sale of military equipment to Taiwan will be made purely on their merits, without interference by third parties, in the interest of preserving peace and stability in the region. We also note that maintaining Taiwan’s economic prosperity, which TPP membership will help assure, is a vital factor in ensuring its overall national security.   The coming months will be a time of vigorous political activity in Taiwan, leading up to the presidential and legislative elections to be held next January. The robust democratic political process represented by these elections should be a source of pride not only for the people of Taiwan, but also for the United States, which helped to guide Taiwan in the direction of democracy over many decades. AmCham expects that as a matter of principle, the United States will maintain a posture of complete neutrality during the election campaign and be prepared to work closely with whichever political party emerges victorious.

Suggestion 4. Engage in tax reform to help promote U.S. exports.

AmCham Taipei endorses the following proposals advocated by the Asia-Pacific Council of American Chambers of Commerce (APCAC):

Revise the income-tax system to base tax liability on residence rather than citizenship. The United States has the dubious distinction of being one of only three countries in the world – the others are North Korea and Eritrea – that requires its citizens living abroad to pay income tax, even though they are not utilizing national services. The result is to put Americans and U.S. companies at a competitive disadvantage and deter the employment of U.S. citizens overseas, with a negative impact on the export of American products and services.
Amend the Foreign Account Tax Compliance Act (FATCA) to eliminate burdensome and unnecessary reporting requirements, for example on categories of non-U.S. accounts that are routinely held by compliant, middle-income Americans working in the Asia-Pacific region. Retail banking and securities accounts held in the country where the taxpayer is resident should be exempt from reporting requirements under FATCA and the Foreign Bank Account Report (FBAR).
U.S. exports cannot be effectively promoted without American businesspeople on the scene in international markets. Their presence abroad should not be discouraged by taxation or other policies.

Overview – TPP: The Time is Now

Coming Down to the Wire

Over the past several years, the Ma Ying-jeou administration has frequently highlighted the critical importance for Taiwan of gaining admission into the emerging Trans-Pacific Partnership (TPP) trade grouping. The government has recognized that the alternative is to risk seeing the Taiwan economy become increasingly marginalized in the regional and global arena, a drastic outcome for a country as heavily trade-dependent as Taiwan. The opposition Democratic Progressive Party (DPP) has also expressed its strong support for TPP membership, making this objective one of the rare policy proposals to receive unequivocal bipartisan backing.

Until lately, the idea of Taiwan’s joining TPP could be viewed as a rather abstract proposition. As lengthy negotiations dragged on among the 12 initial participants (the United States, Canada, Mexico, Peru, Chile, Australia, New Zealand, Japan, Singapore, Malaysia, Vietnam, and Brunei), it was unclear just when – or even whether – the process would be completed, at which point TPP could start considering second-stage expansion to include such additional members as Taiwan.

Quite recently, however, TPP has appeared to be rapidly drawing closer to becoming a reality. The negotiating parties have reportedly made substantial progress, and as of this writing the U.S. Congress is moving toward passage of Trade Promotion Authority (TPA), the “fast-track” provision considered essential for trade legislation to be enacted in the United States. Once TPA is in place, bringing the end game in sight, the other negotiating countries are expected to be much more willing to make the compromises necessary to achieve a final agreement.

Under those circumstances, Taiwan now needs to regard promotion of its candidacy for second-round TPP consideration with an increased sense of urgency, taking decisive action to establish its credibility as a dedicated proponent of trade liberalization and confirmed adherent to international norms and standards. Even a few months ago, some might have reasonably argued that there was no acute time pressure for Taiwan to carry out serious regulatory reform in order to burnish its TPP credentials. At this point, however, Taiwan no longer has the luxury of merely watching and waiting. It now seems possible that TPP could come into effect as early as next year.

Taiwan can hardly assume that it will be assured of TPP membership simply because of its role as a major trading economy, with two-way trade in 2014 of nearly US$588 billion. According to the most recent available (2013) World Trade Organization (WTO) data, Taiwan stood in 12th place among the world’s import markets and ranked 14th in value of exports. Clearly Taiwan’s absence would be TPP’s loss. But it would be dangerous to be complacent when the stakes are so high. Although some of the current TPP negotiating countries, such as Vietnam, are less economically advanced than Taiwan, they have shown a stronger determination to embrace significant reform measures, and the same could prove true of potential rivals for second-stage entry. Nor should Taiwan expect that the United States would feel obliged to “sponsor” Taiwan’s TPP membership due to the longstanding friendly relationship between them or because of strategic American concerns about peace and security in East Asia. American officials have repeatedly cautioned that no invitation will be extended to Taiwan (or any other economy) to join an expanded TPP. Instead, aspiring members will need to file an application and convince the original 12 TPP countries of their qualifications and their commitment to the principles underlying a high-standard free trade agreement. The decision on acceptance of second-round entrants will be made by consensus by the existing members, in effect giving any one of them veto power.

As a result, as part of the ticket of admission to the multilateral agreement, Taiwan will undoubtedly have to first resolve major outstanding trade disputes with the United States as well as the other 11 parties. These items will inevitably include various politically sensitive agricultural issues. It will be difficult for Taiwan to defend certain existing policies unless it can demonstrate that its rulings on market access are based on scientific evidence rather than motivated purely by protectionism or political calculations.

In the past, AmCham has championed a bilateral investment agreement (BIA) with the United States as a first steppingstone for Taiwan on its way to TPP membership. As TPP negotiations progress, however, Taiwan may need to reevaluate whether such a step-at-a-time approach remains feasible. The Office of the U.S. Trade Representative (USTR) appears fully occupied with the negotiations for both TPP and its European counterpart, TTIP. Unless that changes, Taiwan will probably need to prepare to make one big leap to TPP, without intermediate steps along the way.

Adhering to Accepted Practices

AmCham Taipei’s member companies generally regard Taiwan as an excellent place for doing business. Each year for the past five years, the Chamber’s Business Climate Survey has given Taiwan high marks for having an industrious and well-educated workforce, solid intellectual property rights protection, and an extremely comfortable living environment, among other advantages. AmCham believes that Taiwan should be included in TPP and enthusiastically supports its plan to seek admission.

But at the same time, AmCham’s Business Climate Survey and the Taiwan White Paper exercises both also point up nagging deficiencies in current regulatory procedures. Correcting those shortcomings would enhance Taiwan’s qualifications and build political momentum for accession to TPP, but even more importantly would help strengthen the business climate for the benefit of both foreign and domestic companies, stimulating economic growth and spurring the creation of more and better-paying employment opportunities.

One of the most frustrating aspects of operating in Taiwan is the penchant of civil servants and lawmakers here to devise unique-to-Taiwan rules and regulations. For multinational corporations, in particular, such deviation from standard global practices can impose a heavy burden. It may mean having to adopt new packaging, alter the composition of products, or follow an entirely different compliance system – all for a mid-sized market of 23 million people. What might well be acceptable when faced with a population of the size of the United States, China, or the European Union, becomes uneconomical when marketing on a far smaller scale. For local companies, the extra regulatory obligations may raise production costs, reducing the competitiveness of Taiwan’s exports.

The government officials proposing unique – and frequently ultra-strict – regulations are usually well-intentioned. In some cases, as a result of political limitations on Taiwan’s involvement in international organizations, they are simply insufficiently unaware of practices in other countries. In other cases, they consider it their duty to provide the Taiwan public with the very best protection in the world. But often there are sound reasons why the measures they wish to impose have not been widely adopted around the world. The provisions may be so cumbersome and complicated, for example, that they are in fact difficult to enforce. Because of their complexity, in addition, companies may be able to comply with them only with great effort and expense – generating costs that wind up having to be passed on to the consumer. And at times, such departures from international practices risk constituting “technical barriers to trade” in violation of Taiwan’s commitments as a member of the WTO and undermining its reputation in the trading community.

Readers who examine the position papers elsewhere in this volume from AmCham’s specialized committees will find numerous references to such existing or proposed Taiwan-unique provisions and their negative impact on the business climate. Following are just some of the examples:

  • The National Health Insurance Administration’s policy of setting a ceiling on the amount patients may be charged under the “balance billing” system of partial self-pay for certain types of medical devices – an approach that risks discriminating against products of superior clinical efficacy.
  • Failure to recognize chiropractic as a legitimate healthcare profession, despite the growing need in this aging society for such specialized care.
  • The required use on product labels of a square plastics-recycling symbol, whereas a triangular symbol is generally used internationally.
  • Excessive impediments to e-commerce for financial services. These include tight restrictions on the kinds of technology that may be employed in electronic banking systems, as well as on the types of products and amount of coverage available through online insurance transactions.
  • Unusually stringent rules on securities borrowing and lending that hinder operations in the asset management industry.
  • Proposed “Meal Replacement Formula Food” standards that would make it virtually impossible for imported meal-replacement products to be sold in this market.
  • A proposed “corrective advertising” provision that would empower the Taiwan Food and Drug Administration (TFDA) to order the removal from the shelves of products whose advertising claims are deemed to be “seriously exaggerating or untrue,” without limitation to safety or health-related content and without providing the accused with recourse to due process through the courts.

At the beginning of 2014, with an eye to Taiwan’s eventual TPP candidacy, President Ma called on the National Development Council to coordinate a survey in which each government agency was instructed to identify any regulations or practices under its jurisdiction that were contrary to international norms. AmCham was informed that this “gap analysis” was completed in the middle of last year, with the relevant government offices then asked to follow up with proposals on how to rectify the situation. Although the list has not been made public, we would hope that it includes many of the issues cited above and elsewhere in the Taiwan White Paper.

One way for Taiwan to demonstrate its seriousness about TPP entry would be to start tackling these areas in which Taiwan is not in conformity with accepted global practice. Of course, the entire list cannot be resolved at once, but making a concerted start would favorably impress Taiwan’s trading partners. It would also help ensure a successful meeting when the next TIFA Council session is held, hopefully later this year, under the bilateral Trade and Investment Framework Agreement.

The Core Question: Transparency

Aside from allusions to the difficulties posed by Taiwan-unique regulations, the committee position papers in the Taiwan White Paper each year often point to problems related to the lack of sufficient transparency in the regulatory process, especially during the rules-making stage. Sometimes important policy changes are not communicated to the public in writing, leaving stakeholders in the dark. Even when notice of pending changes is given, the period available for public comment may be so short as to be meaningless, and the respondents generally receive no feedback to confirm that their comments have at least been heard, if not acted upon. Public hearings are often pro forma exercises without genuine opportunity for all affected parties to express their concerns. And some government agencies delegate a portion of the rule-making authority to non-governmental institutions such as industry associations, which may sometimes show partiality to certain business interests over others.

The inadequate transparency is the root cause of many of the defects that arise in Taiwan’s regulatory system. With enough notice of prospective changes in the rules to enable stakeholders to give the issue full consideration and submit thoughtful comments, as well as for government officials to study their responses and engage in further research and discussion, potential problems in proposed new regulations – including any variance from standard international practice – can be discovered and dealt with early. Under current conditions, a new rule is often already in force before the difficulties in actually enforcing it become apparent, including the added time and expense that the new procedure may entail for both business and the bureaucracy. From that perspective, heightened transparency is in the best interest of both the regulator and the regulated.

Among the procedures cited in this year’s White Paper as potentially benefiting from increased transparency are the reimbursement pricing mechanism for both pharmaceuticals and medical devices (particularly the role of the Experts Meeting), and the setting of food safety and labeling requirements by the TFDA. In these cases, the affected industries have too little opportunity to express their concerns before final decisions are made.

As reference for the Taiwan government in building a more robust and effective regulatory system, AmCham suggests that it examine the ways in which transparency is fostered in the United States through the Administrative Procedures Act (APA) and related laws and regulations. For example, the APA ensures that prospective new rules and regulations from all central government agencies are disclosed to the public by being published in the daily Federal Register, which is accessible online. Interested parties then have a full 60 days to submit any comments, and regulators’ responses to key comments are also published.

Although Taiwan already has a somewhat similar law in force, that statute does not set such precise guidelines as does the U.S. APA, nor is it so clearly grounded on the principle of the public’s right to know. To help acquaint Taiwan officials with the benefits of the American system and how it works in practice, the U.S Department of Commerce has several times dispatched a specialist in this field to offer workshops in Taipei.

As an outline of general principles, transparency appears as a chapter in all free trade agreements (FTAs) recently negotiated by the United States, and is also believed to be contained within the forthcoming TPP agreement. Given the central importance of transparency in a modern regulatory system and its prominence in international trade pacts, enhancement of Taiwan’s capability in this area needs to be part of its preparation for TPP accession. Taiwan could even consider approaching the United States about entering into a separate bilateral Transparency Agreement.

Needed Institutions

Even if top levels of the Taiwan government are aware of the need to bring regulations in line with global practices and to heighten transparency, overseeing the practical implementation of those objectives throughout the bureaucracy will not be an easy task. Resistance to change from “the way we’ve always done it” is certain to be widespread. An institutional mechanism will need to be put in place at a high enough level to prod the individual ministries and agencies, ensuring that they follow through properly to carry out reforms.

The Office of Trade Negotiations is an effective organization, but it is a subsidiary body under the Ministry of Economic Affairs and therefore in no position to give orders to other ministries. The Executive Yuan’s National Development Council enjoys a higher rank and considerable influence, but its duties are more related to research, analysis, and coordination than to policy execution. Our recommendation is that the Premier create a TPP Preparation Task Force operating under his direct authority. Establishing such a unit would bring several benefits. It would enable government leaders to pass down clear directives to all government departments on the actions they are expected to take, and then to more efficiently monitor their progress in fulfilling those goals. At the same time, it would send a clear message to the international trading community about Taiwan’s strong determination to ready itself for TPP membership.

Yet another role of the Task Force would be overseeing public education and communication, hopefully building a sense of national mission behind the goal of Taiwan’s accession to TPP and removing it from the realm of partisan politics. The administration’s inability so far to gain passage of the Cross-Strait Trade in Services Agreement and Free Economic Pilot Zone legislation should be a lesson on the need for an effective, proactive campaign of public communication. Granted, details of the final TPP agreement are not yet known because the negotiations are still underway, and membership for Taiwan will inevitably produce both winners and losers among sectors of the domestic economy. But the government will need to make the case to the people of Taiwan that on balance Taiwan has much to gain by participating in the pact, and much to lose in trade and investment opportunities from exclusion. Sectors that will be negatively affected should be told clearly what types of government assistance they can expect to help them adjust to the challenge.

A key part of the Task Force’s message should be the disadvantage Taiwan is already facing because political obstacles have prevented it from becoming party to important bilateral and multilateral FTAs. In comparison, Taiwan’s main trading rival, South Korea, has already entered into FTAs with the United States, European Union, and ASEAN, and is currently in negotiations with China, Canada, and Australia, among others. TPP – which Taiwan should be eligible to join as a member in good standing of the Asia Pacific Economic Cooperation (APEC) forum – represents an opportunity for Taiwan to make up some of the ground already lost to Korea and others.

Further, TPP is an opportunity to rebalance Taiwan’s trade and investment, reducing the heavy dependence on the China market that has developed in recent years. Over-reliance on any single market is always risky, but especially so given the complex cross-Strait political relationship and history of conflict. As was seen from last year’s Sunflower Movement and its aftermath, much of the Taiwan public is extremely uncomfortable with the degree of economic concentration on China and would welcome a corrective. TPP thus carries strategic as well as economic connotations.

In addition to the work of the Task Force, AmCham would encourage the domestic business community to speak out regularly in favor of TPP membership for Taiwan and its prospective benefit for economic growth and employment. Establishment of an organization similar to the U.S. Business Coalition for TPP would help in supporting the government initiatives and in insulating the issue from domestic politics.

Additional Concerns

Important as TPP accession will be, it is not the only factor that will be crucial for ensuring Taiwan’s future prosperity. As AmCham has pointed out repeatedly in past years, economic development will also be stifled if sufficient supplies of electrical power and water cannot be assured, as well as the necessary quantity and quality of manpower.

Already government officials have been warning of possible pending shortages of electricity, but resource-poor Taiwan has no ideal options for securing a stable energy supply. The Ma administration has suspended construction of the controversial fourth nuclear power plant in light of the lack of public confidence in the safety of this project. Coal-fired plants are faced with staunch opposition from environmentalists, while the use of LNG for power generation, though cleaner, is quite expensive, with consequences for the competitiveness of Taiwan industry. Renewable energy sources, especially wind and solar, should certainly be encouraged, but practically speaking they will be unable to meet more than a fraction of Taiwan’s needs. The only solution appears to be adopting further energy-conservation measures while continuing to rely on a broad mix of power-generation technologies – including the extension of the lifecycle of the existing nuclear facilities, a common practice in other countries, as their current operating licenses expire beginning in 2018. In addition, the government will need to find a way to overcome “not in my backyard” sentiments in local communities in order to proceed with building additional generating capacity to avoid future blackouts.

This year’s severe drought raised awareness of the immense challenge Taiwan also faces in maintaining a consistently sufficient water supply. The Infrastructure Committee paper in this volume provides a series of suggestions on how to tackle the problem, including pricing-policy adjustments, increased recycling, and use of IT technology to curb leakage.

With regard to human resources issues, AmCham commends the government for taking steps to liberalize regulations to enable more foreign talent – both white-collar professionals and skilled blue-collar workers – to reside and be employed in Taiwan. Their presence will have more than a numerical significance. It will also upgrade the capability of their domestic co-workers by helping them gain a more international mindset and adapt to the requirements of the global workplace. We urge the authorities to accelerate the liberalization process.

Whether regarding TPP readiness, power and water resources, or personnel policy, the government will have some hard decisions to make in the months ahead – during a period in which politics will be commanding increased attention in the lead-up to next year’s presidential and legislative elections. A long four-month transition will then take place before the next president is inaugurated, and the new administration – no matter which political party it belongs to – will need months beyond that to get up to speed.

Vital questions impacting Taiwan’s future cannot wait. AmCham may be looked upon as a “foreign” organization, but our member companies are deeply rooted in Taiwan and the majority of our individual members are in fact ROC citizens. We urge both the ruling and opposition parties to ensure that the coming year is one of solid achievement for the sake of the long-term well-being of the people of Taiwan.

 

 

 

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