ECCT 2014 Position Papers call for a balanced regulatory system
Taipei, 7 November – The European Chamber of Commerce Taiwan (ECCT) today released its 2014 Position Papers. A copy of the Position Papers was officially handed over to the Taiwan government's Council for Economic Planning and Development (CEPD) at an ECCT Premium Event lunch held today. The theme of this year's papers is "Getting the Balance Right". The papers call on the government to put in a place a regulatory system that balances the interests of all stakeholders to ensure Taiwan's future economic growth and prosperity. Given negative trends such as Taiwan's slowing economic growth, declining EU-Taiwan trade and investment and stagnant competitiveness rankings, urgent action is needed by the government. The papers raise 119 issues (75 unresolved from previous years and 44 new issues) proposed by 22 of its committees that the chamber believes will help Taiwan to achieve the right regulatory balance.
In his presentation at the lunch, ECCT Chairman Giuseppe Izzo, lauded the progress Taiwan has made but noted that there are many areas where no progress has been made in a number of years. There have also been several cases of unbalanced regulations in recent years. "Democracy and freedom of speech are hallmarks of an open and free society to be cherished," he said. "However, there are instances where the government overly panders to whichever group happens to make the most noise. Laws drafted without proper consultation with all stakeholders are very likely to be unbalanced and have unintended consequences. It is the government's difficult job to listen to all sides and to make decisions to create the right environment to attract investment, generate growth and create jobs. Our message to the government is that it is essential to get the balance right in the regulatory system to move Taiwan forward and our position papers offer our recommendations on how to do this."
In his presentation, Izzo outlined some negative economic trends. Taiwan's GDP growth Taiwan's GDP rose by only 1.26% in 2012 and growth in the first three quarters of 2013 have missed the government's forecasts. The WTO has cut its forecast for global trade growth for 2013 to 2.5% and to 4.5% for 2014 while the IMF has cut its global forecasts to 2.9% for 2013 3.6% for 2014. Leading indicators for Taiwan have improved but show the outlook remains challenging given global economic trends.
The trend in EU-Taiwan trade and investment is also negative. "The decline in both EU-Taiwan trade and the level of EU investment in Taiwan should be a cause of concern for the Taiwan government and business," the chairman said. Bilateral EU-Taiwan trade in goods declined by 5.2% in 2012 and Taiwan's exports to the EU in the first six months of 2013 declined 8.3% from the same period a year earlier. Taiwan's underperformance versus other countries is notable. The EU's exports to the rest of the world rose by 8.2% while imports from the rest of the world increased by 4% in 2012. Notable examples in Asia are the EU's bilateral trade with South Korea, which grew by 10.2% while trade with Hong Kong rose by 5.7% in 2012.
Taiwan's Ministry of Economic Affairs' statistics show a declining trend for Taiwan's market share of overall trade with the EU over the past five years, from 1.5% in 2008 to 1.3% last year. As a consequence of declining trade, Taiwan slipped from being the EU's 19th largest trading partner in 2011 to 23rd place in 2012. Based on current trends in 2013, Taiwan will slip further this year.
Europeans remain the largest source of direct foreign investment in Taiwan with accumulated investments of 32.3 billion US dollars. This is well ahead of the United States, Japan and China. However, the level of investment this year has declined from previous years and compared to the United States, Japan and China. Last year Europeans invested US$1.3 billion in Taiwan but investment in the first six months of 2013 was only US$350 million. This is a decline of 49% from the same period last year.
"We believe this slowdown is a clear indication that Taiwan needs to do more to attract investment," the chairman said.
Taiwan is relatively competitive by some measures but behind its regional rivals in others.
Taiwan was ranked 16th among 183 global economies in the World Bank's Doing Business 2014 report, the same position as last year and behind its Asian competitors, Singapore, which was ranked No.1, Hong Kong (No.2), South Korea (7th) and Malaysia (6th). In the survey Taiwan's rankings improved in four areas and declined in six areas.
Taiwan ranks in the top 10 in two categories "Dealing with construction permits" and "Getting Electricity" but the relatively low rankings in other areas indicate that more needs to be done to improve the regulatory environment.
"Given the background of an uncertain global economic outlook, negative trends in EU trade and investment and stagnant competitiveness rankings, we believe there is work to be done," the chairman said.
Izzo then went on to outline the main action points set out in the Overview of the 2014 Position Papers.
2014 Position Paper Overview
To get the balance right, the papers outline action on several fronts. They urge the government to put in place balanced and progressive regulations, adopt international standards, pursue a trade deal with the European Union and work much harder to put Taiwan on a path to sustainable economic growth.
Balanced and progressive regulations
"First, do no harm" is one of the principal precepts of medical ethics. Applying it to regulatory systems would pre-empt excessive and inappropriate regulations. Taiwan needs regulations that both protect consumers and encourage businesses to invest by making it easier to conduct business.
Fair and practical consumer protection laws: The ECCT strongly supports the government's initiative to put in place laws that protect the health, safety and rights of consumers that also reflect the realities of the technological advances and convenience of modern commerce. However, proposed amendments to Taiwan's Consumer Protection Act are too broad and vague and could result in unintended practical problems for consumers and business that would ultimately harm consumer interests. For example, it is not practical to have the same refund clauses for perishable food as for electronic goods. Meanwhile clear rules are needed to distinguish advertisements from contracts.
Fair and practical labour laws: The ECCT recognises the need to provide safeguards to workers or employees from danger on the job. However, the Occupational Safety and Health Act, already passed by the Legislature, contains vague clauses that open the way to misinterpretation and misuse. For example, it is impractical for employers to provide the same level of protection to employees who work from home or agents who work in multiple locations that are not directly controlled by employers.
If the government wants to attract the best and brightest to live and work in Taiwan, it needs to create the right conditions. Much progress has been made in recent years but more could be done. Taiwan's Labour Standards Law and Collective Bargaining Law contain provisions that severely restrict the flexibility of employers to manage their human resources needs. The ECCT Human Resources committee's position paper offers specific recommendations on how to amend rules to increase flexibility.
Policies that promote innovation: The best regulations are not only fair and balanced but are also designed to allow for technological advances and innovation. This implies taking a neutral stance on the technology itself rather than devoting valuable resources to promoting any particular technology. As long as the regulatory environment is fair, the best technology will win in the market place. There are several examples of regulations that are stifling progress including:
Sensible use of radio spectrum: Some advanced automotive safety devices cannot be imported into or used in Taiwan because the authorities have only opened a limited range of frequencies for short-range radar devices. Harmonising the use of spectrum with European Union and international practices would remove this impediment and open the way to significantly increase road safety in Taiwan.
Pharmaceutical innovation: Providing affordable healthcare is a challenge for governments the world over. While it reasonable to ask all stakeholders to contribute to cost-cutting efforts, it is not reasonable to ask multinational pharmaceutical and medical device firms to bear the entire burden without also tightening up on administrative waste and abuse in other parts of the healthcare system. The burden needs to be shared by all stakeholders in the healthcare system including the healthcare administration, medical personnel, hospitals, corporations and patients.
Rules for importing advanced equipment: To produce cutting edge products and provide the most advanced services often requires equipment and machinery to be imported into Taiwan. However, there are instances of rules and procedures that make the process of importing advanced equipment difficult and time-consuming. Examples include electrical engineering, renewable energy and telecommunications equipment. This could be avoided by recognizing and adopting international standards and practices.
The most sensible and practical way to achieve a balanced regulatory environment is by aligning local standards with international standards. Adopting international standards is not only in the interests of multinational firms. They also benefit Taiwanese firms who are competing in the global market place or have ambitions to do so.
Decisive action to harmonise Taiwan's regulatory environment with international standards would go a long way towards improving Taiwan's competitiveness and attractiveness as an investment destination. Taiwan has numerous examples of standards that deviate from international standards and best practices.
PRC import ban
The ECCT supports the move towards greater cross-Strait business normalisation but the benefits of the opening up are being countered by the import ban or restrictions on the importation of 2,121 products manufactured in China. While the number of items on the list has fallen gradually over the past few years, including two of the items on the chamber's 2013 overall top 10 list, many of the items regarded as priority items manufactured by European companies in China remain banned or restricted.
The ban fosters protectionism, hurts Taiwan's own industry and consumers and works against the promotion of Taiwan as a regional hub. The ban on certain types of electrical engineering equipment, clothing and household goods, among other items, forces ECCT member companies to source these products from alternative, more expensive production locations. This leads to higher prices for Taiwanese consumers and spurs inflation. Lifting the ban and other restrictions would benefit businesses and consumers in Taiwan and make Taiwan more attractive to international investors.
The import ban affects ECCT members of the Electrical Engineering and Equipment, Retail & Distribution and Healthcare Enhancement committees. These committees all have priority lists of items affecting their competitiveness.
An EU-Taiwan TEM
Taiwan has made progress in its trade relations by signing a trade deal with New Zealand while a deal with Singapore is pending. In addition Taiwan has advanced cross-Strait business normalisation by signing 19 agreements with mainland China including the Economic Cooperation Framework Agreement and a services agreement. The ECCT also welcomes the government's plans to set up Free Economic Pilot Zones (FEPZs) as a testing ground for greater trade liberalisation in Taiwan. These are welcome steps but the government needs to keep up momentum and pursue deals that will boost trade with its larger trading partners.
This is especially urgent given the number of global bilateral trade deals in recent years.
In particular, Taiwan's rival South Korea's bilateral trade with the EU rose by 10.2% in 2012 from a year earlier following its FTA with the EU. Taiwan's trade with the EU, in contrast, fell 5.2 % in 2012.
In 2012, the ECCT published a follow-up to its original 2008 study on the potential impact of a free trade deal (which the ECCT calls Trade Enhancement Measures or TEM) between the EU and Taiwan. The report concludes that the potential benefits from EU-Taiwan trade enhancement measures are much stronger now than they were in 2008, when the benefits were first assessed.
The ECCT has long supported a trade deal between the EU and Taiwan because it is good for economic growth and for creating jobs in both Taiwan and Europe. The study clearly shows that there are now even greater opportunities for both sides to benefit from such a deal.
Sustainability: Balancing environmental and economic concerns
Policies that promote sustainability are good for the environment and business. The government has announced its intention to reduce Taiwan's carbon emissions to 2005 levels by the year 2020 and to 2000 levels by 2025. These are laudable goals but unless action is taken, under a business as usual scenario by some estimates, Taiwan's CO2 emissions could rise to over 500 million tonnes by 2025, more than double the CO2 emissions of 215 million tonnes in the year 2000. To meet the government's goal, action is needed on a number of fronts.
Balanced energy policy and planning: Taiwan needs a comprehensive energy master plan. The ECCT is sympathetic to the sensitivities surrounding nuclear energy. However, the delays, flip-flopping and lack of direction in Taiwan's overall energy policy and planning is alarming. There is an urgent need for public consensus on Taiwan's energy future, which takes into consideration public safety, energy security and affordability. Business needs to know that the lights will stay on so that they can make multi-year plans with confidence. Setting aside the issue of the controversial fourth nuclear power plant, the government has already committed to phasing out the existing first, second and third nuclear power plants. However, no plans have been shared regarding the building of new power plants to replace the ones that will be decommissioned. It takes years to design, build and bring power plants online. Plans need to be put in place, shared with relevant stakeholders and implemented according to a specified timetable to provide certainty to the business community and households that Taiwan will not face power shortages, blackouts or brownouts in the future.
Improving energy efficiency is the low-hanging fruit in the fight towards reducing carbon emissions. Technologies are already available to achieve significant reductions in emissions by the industrial and transportation sectors and in buildings (government, residential and commercial) but the government needs to take meaningful action to scale up their implementation.
Renewable energy: Taiwan has also taken very little action to increase the use of renewable energy. The government's targets for installing renewable energy lack ambition and are far below potential. The European Union aims to get 20% of its energy from renewable sources by 2020 and targets for some individual countries are much higher. For example Sweden has a target of 49%, Finland 38% and Denmark 30% by 2020 while Germany plans to phase out nuclear power by 2022 and produce at least 50% of its electricity from renewables by 2030. In contrast, the Taiwan government's target for total renewable energy is just 8% of total energy generating capacity by 2025.
Feed-in tariffs for onshore wind are too low to attract investors. Rates are less than half of European levels on average (and as low as a quarter in some European countries) and even 20% lower than China's feed-in tariffs. Moreover, the variable tariffs offered to Taiwan's independent coal-fired power plants are usually about the same but sometimes even higher than the fixed tariff for onshore wind energy. Besides the uneconomical feed-in tariffs, renewable energy companies face cumbersome regulations and excessive lead times. Besides wind energy, there is significant potential for solar energy. Taiwan is a major producer of photo-voltaic (solar) panels but very few of them are installed in Taiwan despite relatively high feed-in tariffs for solar energy.
All these factors together, throw into question the government's commitment to renewable energy. This could be addressed by drafting an ambitious roadmap for renewable energy installations with clear annual targets, speeding up the application processes for renewable energy projects and putting in place a system for reporting on and monitoring the performance of renewable energy installations.
The ECCT's Low Carbon Initiative (LCI) was created to demonstrate what leading multinational firms are doing to address sustainability challenges and help to promote low carbon solutions in Taiwan. Much more progress towards achieving sustainability goals could be achieved if the government and Taiwanese firms partnered with their European counterparts in all areas related to sustainability.
Taiwan remains a dynamic player in the global economy, has good transport and communications infrastructure, a relatively consistent legal system, a highly skilled and stable workforce and a functioning universal healthcare system. Compared to some of its regional competitors, Taiwan's quality of life is also good in terms of air quality, public transport and traffic and a wide variety of entertainment and leisure activities. For these reasons, Taiwan remains a good place to live and do business.
However, Taiwan faces fierce competition from its regional competitors. For this reason, the government has to work hard to make every aspect of living and doing business in Taiwan better than its regional rivals. Creating a regulatory system that balances the need for protecting the health, safety and welfare of citizens with the need for investment, economic growth and creating jobs should be the government's priority. Taking action to create the right balance would help Taiwan to reach its full potential.
European companies have demonstrated their commitment to Taiwan through years of building their local operations, generating economic growth and jobs in line with the highest international standards for corporate governance and sustainability. The chamber's members believe that if its recommendations are adopted, it would help to create the right balance for Taiwan, make a positive contribution to the growth of the economy and help the government to address many of Taiwan's long-term challenges. The ECCT is ready and willing to help the government to get the balance right.
Open Door Mission to Brussels
Besides presenting the position papers to the Taiwan government, the ECCT will also use the papers as the basis for briefing the European Commission, the European Parliament and the European Council. To this end, an ECCT delegation comprising board directors, committee chairs and staff will visit Brussels in mid-December for its annual "Open Door Mission", a series of meetings aimed at providing European officials with a comprehensive update on the current political, investment and regulatory environment in Taiwan.
About the ECCT
With over US$32 billion in direct foreign investments, European business remains the largest group of foreign investors in Taiwan. The European Chamber of Commerce Taiwan is the only foreign nationwide business chamber in Taiwan and the principle organisation promoting European business interests in Taiwan. The chamber represents around 800 members from 400 companies and organisations. Through a network of 29 industry and support committees, the ECCT has been successful in addressing specific concerns and providing concrete recommendations to all levels of government to facilitate improving the business environment. The ECCT's annual position papers comprise issues identified by its committees as hindering the further development of their respective industries and provide recommendations to the government of Taiwan for improvement of the business environment on general issues as well as industry-specific problems. They also serve to keep the European Commission, the European Parliament as well as the governments of individual European Union member states informed about Taiwan's business environment.