Taiwan Busiess Topics 2013 September Issue by AmCham Taipei

CU S

A Fo Rep DU od or ST Ind t on RY ustr the y

THE AMERICAN CHAMBER OF COMMERCE IN TAIPEI

Taiwan Business

Topics

Competing with Korea 與南韓競爭

TAIWAN BUSINESS TOPICS September 2013 | Vol. 43 | Issue 9 中華郵政北台字第號執照登記為雜誌交寄 5000 9_2013_Cover.indd 1

NT$150

September 2013 | Vol. 43 | Issue 9 www.amcham.com.tw

2013/9/1 8:49:19 PM

CONTENTS NEWS AND VIEWS

6 Editorial

A Promising Initiative

S Ep TEmb Er 2 0 13 vOlum E 43, NumbE r 9 一○二年九月號

自經區計畫大有可為

7 Taiwan Briefs Publisher

By Jane Rickards

發行人

Andrea Wu

11 Issues

吳王小珍

Editor-in-Chief

總編輯

Don Shapiro

Zeroing in on Trade Obstacles; An Association for Advanced Medical Technology; Taiwan Spurs APEC Proposal

沙蕩美術主任 /

Art Director/ Production Coordinator

後製統籌

Katia Chen

陳國梅

Contributing Writer

聚焦貿易障礙；協力促進台灣先進醫療科技；台灣帶動APEC倡議

採訪編輯

Jane Rickards

李可珍

Manager, Publications Sales & Marketing 廣告行銷經理

Irene Tsao

曹玉佳

Translation

翻譯

Yichun Chen, Frank Lin 陳宜君, 林怡平

American Chamber of Commerce in Taipei 129 MinSheng East Road, Section 3, 7F, Suite 706, Taipei 10596, Taiwan P.O. Box 17-277, Taipei, 10419 Taiwan Tel: 2718-8226 Fax: 2718-8182 e-mail: amcham@amcham.com.tw website: http://www.amcham.com.tw 名稱：台北市美國商會工商雜誌發行所：台北市美國商會臺北市10596民生東路三段129號七樓706室電話：2718-8226 傳真：2718-8182 Taiwan Business TOPICS is a publication of the American Chamber of Commerce in Taipei, ROC. Contents are independent of and do not necessarily reflect the views of the Officers, Board of Governors, Supervisors or members. © Copyright 2013 by the American Chamber of Commerce in Taipei, ROC. All rights reserved. Permission to reprint original material must be requested in writing from AmCham. Production done in-house, Printing by Farn Mei Printing Co., Ltd. 登記字號：台誌第一零九六九號印刷所：帆美印刷股份有限公司經銷商：台灣英文雜誌社台北市108台北市萬華區長沙街二段66號發行日期：中華民國一○二年九月中華郵政北台字第5000號執照登記為雜誌交寄 ISSN 1818-1961

Chairman/ Alan T. Eusden Vice Chairmen/ Bill Wiseman / William J. Farrell Treasurer: Sean Chao Secretary: Edgard Olaizola

COVER SECTION

15 Competing with Korea

與南韓競爭 By Daniel Severson

2012-2013 Governors: Richard Chang, Sean Chao, Michael Chu, Louis Ruggiere, Revital Golan, David Pacey, Lee Wood, Ken Wu.

27 The Competitiveness Conundrum

Taiwan performs well in international surveys, but the significance of those results is subject to question.

2012 Supervisors: Susan Chang, Cosmas Lu, Gordon Stewart, Carl Wegner, Julie Yang.

20 Taiwan and Korea Play the FTA Game 24 Capturing Innovation through Patents

BEHIND THE NEWS

2013-2014 Governors: Alan T. Eusden, Thomas Fann, William Farrell, Edgard Olaizola, Stephen Tan, Fupei Wang, Bill Wiseman.

COMMITTEES: Agro-Chemical/ Melody Wang; Asset Management/ Christine Jih; Banking/ Victor Kuan; Capital Markets/ Jane Hwang, C.P. Liu, Shirley Tsai; Chemical Manufacturers/ Luke Du, John Tsai; CSR/ Lume Liao, Fupei Wang; Customs & International Trade/ Stephen Tan; Education & Training/ Robert Lin, William Zyzo; Greater China Business/ Helen Chou; Human Resources/ Richard Lin, Seraphim Mar; Infrastructure/ L.C. Chen, Paul Lee; Insurance/ Dan Ting, Lee Wood; Intellectual Property & Licensing/ Jason Chen, Peter Dernbach, Jeffrey Harris, Scott Meikle; Manufacturing/ Thomas Fan, Hans Huang; Marketing & Distribution/ Wei Hsiang, Gordon Stewart; Medical Devices/ Susan Chang, Tse-Mau Ng, Dan Silver; Pharmaceutical/ David Lin, Edgard Olaizola, Jun Hong Park; Private Equity/ William Bryson; Public Health/ Jeffrey Chen, Dennis Lin; Real Estate/ Tony Chao; Retail/ Prudence Jang, Douglas Klein, Ajit Nayak; Sustainable Development/ Kenny Jeng, Kernel Wang; Tax/ Cheli Liaw, Jenny Lin, Josephine Peng; Technology/ Revital Golan, Jeanne Wang; Telecommunications & Media/ Thomas Ee, Joanne Tsai, Ken Wu; Transportation/ Michael Chu; Travel & Tourism/ Anita Chen, Pauline Leung, David Pacey.

the two economies and what can Taiwan learn from Korea to help narrow the gap?

By Lev Nachman and Don Shapiro

TAIWAN BuSINESS

30 How to Be More Employable

The AmCham Internship Program gives member companies a chance to offer guidance to local college students. By Lev Nachman

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s ept em b er 2 0 1 3 • Volu m e 4 3 n u m be r 9

forefront of the drive to improve the climate here for intellectual property rights (IPR) protection. By Don Shapiro

INDuSTrY

CuS

Variety, Taste, and Safety 32 Reflections of a Counterfeit-fighter

Since first arriving in Taiwan in 1981, Jeffrey R. Harris has been at the

By Philip Liu

41 Incidents Raise Food-safety Awareness in Taiwan By Philip Liu

A Report on the Food Industry

LAW

40 Welcome Tourists

38 For Local Companies, the Watchwords are Diversification and Sophistication

42 Pros and Cons By Don Shapiro

45 Showcasing American Food Products in Taiwan By Lev Nachman

AMCHAM EVENTS

47 2013 AmCham CSR Forum

By Philip Liu

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advertorial

60thMacau Grand Prix the Best Race in the World

ecognized as the most internationally prestigious event on the local calendar, the renowned Macau Grand Prix – now edging into its sixth decade – pits the best motorcycle, WTCC and Formula 3 racers in the world against one another and the clock in dedicated competitions along the narrow, twisting Guia street circuit of Macau city. To celebrate the 60th running of this legendary event, this year’s Macau Grand Prix will be held over two weekends, with a total of six days of extraordinary racing: November 9th and 10th, and from November 14th to 17th. The program is unprecedented in its depth of talent and diversity, with an impressive combination of exciting young talent, established stars, and the world’s most famous names in automotive excellence. The weekend of November 9th and 10th will see six races on the Guia street circuit in a program that includes something for every racing fan. The second weekend, running from November 14th through to 17th, will include the three prestigious headline races: The Formula 3 Macau Grand Prix (the official FIA Formula 3 Intercontinental Cup and the race every aspiring future Formula 1 driver wants to win); the final rounds of the 2013 FIA World Touring Car Championship; and the 47th running of the unique and celebrated Macau Motorcycle Grand Prix.

Once in a Lifetime

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Some events come around just once in a lifetime, and the 60th Macau Grand Prix Diamond Jubilee Festival is one such celebration. Throughout its almost 60-year history, the Macau Grand Prix has witnessed many remarkable achievements, all of which have contributed to its reputation as a unique jewel in the crown of motorsports. It all began in 1954 when a group of Macau friends decided to hold a fun motoring “treasure hunt.” While

2013/8/30 2:40:23 PM

advertorial

seeking advice on how best to go about organizing what was originally envisaged as an informal event, they were told that they had made a mistake. What they had planned was not a treasure hunt but a Grand Prix. The Macau Grand Prix was born. The Macau Grand Prix flourished, but during the early years it was very much a race meeting for amateur enthusiasts. In 1966, all that changed with the appearance of Belgian racing driver Mauro Bianchi, a works driver for the Renault team in Europe. The 1982 Grand Prix was the last to be run under Formula Atlantic regulations, with the 30th running of the event marking the start of a truly golden era. Another string was added to the event’s impressive bow in 2005 with the inclusion of the Macau Grand Prix on the FIA World Touring Care Championship calendar. Each year since, Macau’s Guia Race has constituted the final rounds of the championship.

fOrmuLa 3 macau Grand Prix – t he BirthPLace Of chamPiOns From the moment the great Ayrton Senna crossed the finish line to win the first Formula 3 Macau Grand Prix in 1983, the race has seen no fewer than eight drivers who were to become Formula 1 World Champions: Senna, Damon Hill, Mika Hakkinen, Michael Schumacher, Jacques Villeneuve, Jenson Button, Lewis Hamilton, and Sebastian Vettel.

A total of 16 of this year’s registered Formula 1 drivers have competed previously at Macau, and the Macau Grand Prix history books are filled with big names. From the earliest days, when Senna did battle with the likes of Gerhard Berger, Bob Earl, Martin Brundle, Tiff Needell, David Hunt, and Vern Schuppan, the November spectacular has been a magnet for talent. With its unique street circuit, which requires exceptional intelligence, skill, and courage to conquer, Macau is now firmly established as the place to get noticed in world motorsports. The Formula 3 Macau Grand Prix provides a precious opportunity to see the best young drivers in the world compete against one another on the most challenging racetrack on earth. This happens only once each year. And it happens at Macau.

macau Grand Prix m useum Opened in 1993, to mark the 40th running of the event, the Macau Grand Prix Museum is home to a fascinating collection of cars, motorcycles, memorabilia, and displays chronicling its six-decade history. Greeting visitors is the stunning Triumph TR2, which won the first-ever Grand Prix in 1954. A Ford Model T and an elegant Austin Princess recall the glamour of a bygone age. Another section is dedicated to Michael Schumacher, with his 1990 race-winning Reynard Spiess VW903 a popular exhibit. Winning F3 cars driven by David Coulthard, Andre Couto, Takuma Sato, and Rickard Rydell are also on show. The Macau Grand Prix Museum is open from 10am to 9pm every day except Tuesdays, and is located at the Tourism Activities Center.

For more details and free brochures, visit MGTO at 10F-C, 167 DunHua North Rd., Taipei 105, or visit the official MGTO website at www.macautourism.gov.mo.

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A Promising Initiative

t a time when the Taiwan economy has been losing steam, with both consumption and investment activity continuing to be sluggish, government policymakers have been prevented by budgetary and debt-ceiling constraints from undertaking large-scale public spending to try to stimulate the economy. Encouragingly, however, officials have sought to devise some imaginative new approaches in an effort to generate greater economic vitality. The major example is the government’s plan to create Free Economic Pilot Zones (FEPZs). Details of the plan have been released only spottily, and many people have been unclear about just how the zones would work – and how they would differ from existing Export Processing Zones and Science Parks. Recently Minister Kuan Chung-ming of the Council for Economic Planning and Development (CEPD) gave a presentation at an AmCham Taipei luncheon, and while it was evident that many questions and challenges remain, most in the audience were convinced of the enormous value of the project if it can be carried off successfully. The strategy behind the plan is to introduce substantial deregulation – freeing companies from heavy government restrictions that impede business – but in a staged way that is likely to meet less political and bureaucratic resistance. The liberalization, facilitating the flow of goods, people, and money, at first would apply only to certain qualifying enterprises, but if the outcome is sufficiently effective, the new system would eventually be extended to cover all business in Taiwan. Some of the FEPZs, mainly around the island’s ports and the Taoyuan International Airport, would be physically defined areas – although companies with a base inside the physical zone could

also operate factories elsewhere that would enjoy the same benefits. In the case of service industries, there would also be “virtual zones.” The companies could be located anywhere, but after going through an approval process they would be deemed FEPZ enterprises. Under the CEPD’s proposal, for example, wealth and asset management that receive a certain “grade” would be allowed to develop and market financial products beyond those currently approved by the Financial Supervisory Commission. Various aspects of the plan would resolve some of the major problems cited by multinational companies and often reflected in AmCham’s Taiwan White Paper. One is the obstacle that the high personal income tax rate (a top bracket of 40%) poses for recruiting high-caliber international talent to work in Taiwan. If enabling legislation is passed, only half the income of foreign professionals hired by FEPZ companies would be taxable for the first three years. FEPZ enterprises would also have an easier time employing mainland Chinese professionals, who would be eligible for three-year multiple-entry visas, and they could enjoy greater tax benefits for substantial R&D expenditures and for upgrading to become a regional headquarters. The FEPZ plan presents an attractive vision for recharging the lagging economic momentum and propelling Taiwan into a new era of administrative efficiency and business innovation. But numerous hurdles, including the achievement of further interagency consensus and legislative endorsement, will have to be surmounted before the plan can achieve its potential. An aggressive marketing program to promote the zones to the public and the business community will also be needed. Small steps and a slow pace will not build the necessary momentum.

自經區計畫大有可為

台

灣經濟有氣無力，消費與投資活動都仍然溫吞，此時

服務業而言，也會有所謂「虛擬示範區」，企業可以設在任何

政府決策官員卻綁手綁腳，受制於預算與舉債上限的

地方，但經過核准程序之後，就會被視為自由經濟示範區的企

朿縛，無法藉由大規模增加公共支出設法振興經濟。

業。舉例來說，依據經建會的提案，財富與資產管理業者若獲

不過，令人鼓舞的是，有些官員仍力圖規劃一些富想像力的新

得特定「評等」，就將獲准開發與行銷超越目前由金融管理委

作法，努力激發更大經濟活力。

員會核准範圍的金融產品。

政府計畫設立自由經濟示範區（FEPZs）是個重要範例。

自由經濟示範區計畫內的諸多內容將有助於解決跨國企業與

目前尚無這項計畫之詳細內容，大家都還不清楚這些示範區

美國商會台灣白皮書所一再提出之各項問題。其中之一是個人

要如何運作，與現有的加工出口區和科學園區又有何不同。

所得稅率太高（最高級距的稅率達40%），造成延攬高層國

經濟建設委員會（CEPD）主任委員管中閔最近出席台北市美

際菁英來台工作的障礙。如果相關特別法獲得通過，外國專業

國商會的午餐會就此提出簡報後，雖然顯見仍有不少問題與

人士受聘自由經濟示範區企業後，前三年的所得只有半數須課

質疑，但大部分聽眾都深信，如果這項計畫能成功執行將會

稅。區內企業要聘雇中國專業人士也將比較容易，他們依法將

很有價值。

可取得三年期的多次入境簽證。這些企業若大手筆進行研究發

這項計畫意在推動大舉解除管制，讓企業擺脫政府妨礙它們做生意的重重限制，但將採取分階段漸進作法，以減少政治與

展，或是將區內據點升格為區域總部，還可以享有更多稅務優惠。

官僚阻力。這項自由化措施將促進商品、人員和資金的流動，

自由經濟示範區計畫提出吸引人的願景，著眼於重振停滯不

起初只適用於特定符合資格的企業，但若結果顯示成效夠好，

進的經濟成長力道，推動台灣邁入行政效率與商業創新兼具的

這項新制度終將擴大實施，涵蓋台灣所有企業。

新時代。不過，要讓這項計畫發揮潛力，要先克服多項障礙，

自由經濟示範區主要將設在台灣各處港口與桃園國際機場

包括進一步達成跨部會共識，以及獲得立法部門背書。政府還

周遭，其中有些是實際劃定範圍的地區，但企業只要在示範區

需要有積極的行銷計畫配合，向大眾與商界促銷這種示範區。

內設有據點，也可以在其他地方設立工廠並享有相同權益。就

若是步伐太小，速度太慢，將難創造出所需氣勢。

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— jane ri ckards —

Economic indicators

MACROECONOMICS stiLL in a sLOwDOwn Sluggish global growth, including a slowdown in China as the mainland undergoes structural reforms to its economy, has curbed demand for Taiwanese exports over the past months and caused local forecasting institutions to lower their expectations for this year’s economic performance. The government’s statistics agency, the Directorate General of Budget, Accounting and Statistics, dropped its GDP forecast for this year to 2.31% from an earlier estimate of 2.4% in May. DGBAS notes that slower-thanexpected growth in emerging markets in the second half will have an impact on export-dependent Taiwan. The agency also projects 3.37% GDP growth for 2014. DGBAS statistics-division director Tsai Hung-kun told the media that even if global growth significantly improves next year, tougher competition in the export sector will probably keep Taiwan from achieving growth of over 4%. Two major Taiwanese economic research institutes also lowered their forecasts for Taiwan’s growth this year. The private Taiwan Institaiwan stock ExchangE indEx & valuE

THE RED LINE SHOWS CHANGES IN TURNOVER AND THE SHADED AREA CHANGES IN THE TAIEX INDEX.

8500

135

8250

120

8000

105

7750

7500

7250

7000

6750

6500

6250

August Data source: twse

unit: nt$ billion

Unit: US$ billion Current Account Balance (2013 Q2) Foreign Trade Balance (July) Foreign Trade Balance (Jan-July) New Export Orders (July) Foreign Exchange Reserves (end July)

13.80 3.21 17.76 36.1 409

Unemployment (July) Discount Rate (August) Economic Growth Rate 2013 (Q2)p Annual Change in Industrial Output (July)p Annual Change in Industrial Output (Jan-July)p Annual Change in Consumer Price Index (July) Annual Change in Consumer Price Index (Jan-July note: p=preliminary

tute of Economic Research (TIER) now foresees 2.52% growth in 2013 (down from its earlier forecast of 3.71%), noting that while the amount of private investment will be better than originally expected, weak private consumption will be a drag on growth. A TIER statement said private consumption is likely to show low 0.97% growth this year due to what the public sees as Taiwan’s uncertain economic prospects, exacerbated by stagnating salary levels, high property prices, and perceptions of “policy dithering” on the part of the government. In a bright spot, private investment this year is likely to grow by 5.83%, spurred by purchases of new equipment in the semiconductor sector. Public sector investments will also increase, TIER predicts, buoyed by government policies such as the project to implement new Free Economic Pilot Zones. Overall, fixed capital formation is expected to show growth of 4.09%. TIER also reported that the manufacturers it polls are slightly more optimistic about the second half of this year compared with earlier surveys, suggesting a rebound could occur in the second half of this year. Meanwhile, the semi-official Chung-hua Institution for Economic

4.25% 1.875% 2.49% 2.07% 0.56% 0.08% 1.13%

Year Earlier 10.90 0.98 12.4 35.9 391 4.31% 1.875% 0.12% -0.04% 2.46%

sources: moea, DGbas, cbc, boFt

Research (CIER) cut its earlier GDP forecast for this year of 3.63% to 2.28%. The think tank said Taiwan’s growth rate was as low as 1.98% in the first six months, but also pointed to a strong resurgence in private investment – up by 4.97% year-onyear – as a main economic driver for this year. Exports in July expanded 1.6% to US$25.30 billion, the Ministry of Finance said. But imports, an indicator of economic performance in the next few months as they often involve equipment and raw materials, fell 7.6% year-on-year to stand at US$22.09 billion. The trade balance was still favorable at US$3.21 billion. Exports to China/Hong Kong, nearly 40% of Taiwan’s total, showed the biggest drop, contracting 0.9% yearon-year in July. Export orders, a sign of shipments to come in the next few months, also contracted by 3.5% in June to hit US$35.1 billion. Further, the industrial production index fell by 0.43% in June, the fifth month in a year it has shown a drop. One area that economic policymakers do not need to be concerned about at this time seems to be inflation. The forecasting institutes all expect growth in the consumer price index of under

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2% this year, while the government is putting the figure at a mere 1.07%.

DOMESTIC OVer 100,000 PrOtest COnsCriPt’s DeatH Roaring “we want the truth,” over 100,000 Taiwanese protesters converged on Taiwan’s Presidential Office in early August. Their fury was directed at the death of a young conscript, Hung Chung-chiu, 24, a graduate of prestigious National Cheng Kung University. Hung died of heat stroke in early July after being placed in confinement for almost a week and forced to perform a harsh calisthenics regime in sweltering heat as a punishment for bringing a camera-equipped cellphone on base, considered a security risk. But it was the inability of the military to provide answers afterwards, such as its failure to explain why surveillance camera footage of Hung’s strenuous exercise regime was missing, that caused widespread outrage. Military prosecutors at the end of July indicted 18 military personnel in connection with Hung’s death.

A sergeant was charged with abuse and faces life imprisonment for forcing Hung to perform “cruel” physical exercises. Other officers were charged with meting out an illegal punishment, as Hung’s cellphone offense merely required a reprimand, not imprisonment in the stockade. The highest ranking officers to be prosecuted were Major General Shen Wei-chih, commander of the brigade in which Hung was serving, and the deputy commander Colonel Ho Chiang-chun. The indictments failed to satisfy the protesters, who criticized the slowness and lack of transparency of the military’s investigation.

CiViLian COUrts tO trY MiLitarY CriMinaL Cases A f e w d a y s l a t e r, t h e L e g i s l a tive Yuan responded to a key protest demand and amended laws to transfer jurisdiction of most criminal cases involving military personnel in peacetime from military to civilian courts. The demand reflected a general public suspicion of the military justice system, a legacy of the martial law period, which ended in 1987, when political dissidents were tried on sedition charges by military courts. The

Executive Yuan also agreed to establish a commission to investigate miscarriages of justice in the military. The Hung Chung-chiu incident came at a particularly bad time for Taiwan’s military, which has aimed to complete a transition to an all-volunteer force by 2015. Even before Hung’s death, the military was struggling to find enough recruits. Given the cross-Strait détente that has accelerated since Ma Ying-jeou became president, the threat from China seems to be diminishing and young Taiwanese men now tend to view military service as a nuisance that delays the start of their careers.

in ten DaYs, tHree Defense Ministers Adding to the turmoil, Taiwan saw three defense ministers within 10 days. Kao Hua-chu resigned as minister at the end of July to take responsibility for Hung Chung-chiu’s death. He was then replaced by Deputy Minister Andrew Yang, a widely respected scholar with close ties to U.S. think tanks. Yang resigned after six days on the job over plagiarism charges, telling a press conference that he accepted full responsibility for an article, prepared by a ghostwriter but appearing under his name in a 2007 book on China’s People’s Liberation Army, that contained material lifted from another source. Yang was immediately replaced with a career air force officer, General Yen Ming, amid persistent local media reports of infighting in the ministry.

rabies fOUnD in taiwan

DEMANDING JUSTICE — Demonstrators calling for a full investigation of the death of serviceman Hung Chung-chiu took to the streets outside the Presidential photo : ap Office Building. 8

Taiwan in mid-July experienced its first rabies outbreak in more than 50 years when a Formosan ferret-badger in southern Taiwan was confirmed as rabid. As of mid-August, a total of 78 cases had been confirmed. With the exception of one Asian house shrew, all of the cases involved ferret-badgers and no humans or dogs were

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I f Ta i w a n w e r e t o b e c o m e completely nuclear-free – that is, if construction of the fourth nuclear power plant, located in New Taipei City, is halted and Taiwan’s three existing nuclear plants are decommissioned within the next decade as scheduled – real GDP would contract by NT$94 billion (over US$3 billion) and 19,464 jobs would be lost, according to a report released in August by the Council for Economic Planning and Development. The effect on GDP and employment would be due to a rise in electricity prices and

taiwan's JanuarY to august tradE FigurEs (YEar on YEar comParison)

25.79 11.1

18.53 31.2

18.44 33.45

2012

2013

2012

2013

2012

2013

2012

2013

2012

2013

Imports

2012

2013

Europe 16.83 15.82

U.S.

TOTAL

157.98 175.74

28.1

ASEAN

159.39 171.81

Japan

10.54

HK/China

16.5 16.99

nUCLear COntrOVersY erUPts in LeGisLatUre aGain

15.1 18.7

infected. But health officials are still struggling to contain the spread of the disease. The government in early August ordered 820,000 animal vaccines to boost supplies to the existing 1.13 million in stock. Health workers throughout Taiwan have also been vaccinating pet animals to contain the outbreak, with priority to those living near forested areas. Rabies, a viral disease, can spread t h r o u g h o n e s p e c i e s t o a n o t h e r, usually through bites. The disease is fatal if untreated.

14.39 38.39

14.17 18.9

37.1

Exports

the impact that would have on domestic industries, the report said. Nuclear power has become a more contentious issue in Taiwan since the Fukushima nuclear disaster in Japan in 2011. Despite government warnings of the economic damage that a halt to nuclear power would bring, many Taiwanese still believe nuclear power generation is an unacceptable safety risk for earthquake-prone Taiwan. Opposition Democratic Progressive Party (DPP) lawmak-

RABIES SCARE — A veterinarian prepares to give a pet dog a vaccination as the owner winces in anticipation.

Unit: US$BN Source: BOFT

ers, who oppose further construction of the fourth nuclear power plant, brawled with Kuomintang (KMT) lawmakers in early August and moved to occupy the legislative speaker’s podium in a bid to stave off a vote authorizing a referendum on the plant, as the DPP thinks the wording of the referendum bill would lead to an outcome favorable to construction of the plant. The bill is expected to pass eventually as the KMT has a substantial legislative majority. But after the massive street protest over the regarding the Hung Chungchiu case, the bill was put on hold as lawmakers used the supplementary legislative session to instead focus on amendments to military laws. In related news, the Control Yuan reported in mid-August that the first nuclear power plant, located in Shihmen, may have been leaking radioactive water for three years. A spokesman for the state-owned Taiwan Power Co. told Reuters that the water had been collected in a reservoir next to storage pools used for spent nuclear rods and had been recycled back into the storage pools, posing no threat to the environment.

photo : cna

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senatOr MenenDeZ affirMs sUPPOrt fOr taiwan

ties restOreD witH tHe PHiLiPPines Taiwan ended a series of harsh sanctions against the Philippines in early August after accepting an apology from Manila for the fatal shooting of a Taiwanese fisherman in May by the Philippine coast guard. Amadeo R. Perez, chairman of the Manila Economic and Cultural Office, the de facto Philippine representative office in Taiwan, offered an apology on behalf

to Haiti, Saint Kitts and Nevis, Saint Lucia, and Saint Vincent and the Grenadines.

I N T E R N AT I O N A L

During a stop in Taiwan as part of a four-nation tour of the region, Senator Robert Menendez (D-NJ), chairman of the Senate Foreign Relations Committee, made his major public appearance at an AmCham Taipei luncheon meeting where he voiced support for further strengthening the U.S.-Taiwan relationship. Menendez, who is also co-chair of the Senate Taiwan Caucus, said he had told U.S. Trade Representative Mike Froman that he strongly backs the idea of starting discussions between the two economies on a bilateral investment agreement. The senator said he also supports Taiwan’s future accession to the Trans-Pacific Partnership, the trade bloc currently being negotiated by the United States and 11 other economies, “provided that Taiwan is willing to support a high-standard, comprehensive agreement that addresses many issues, including labor and environment, currency manipulation, and intellectual property rights as critical elements of it.” Menendez was the highest ranking senator to visit Taiwan in many years. His counterpart in the House of Representatives, Chairman Ed Royce (R-CA) of the Foreign Affairs Committee, led a delegation that met with AmCham Taipei this January.

BUSINESS new fsC HeaD naMeD in Cabinet resHUffLe

Foreign Relations Committee Chairman Robert Menendez has been one of Taiwan’s staunchest supporters in the Senate. photo : amcham

of President Benigno S. Aquino III for the killing of 65-year-old fisherman Hung Shih-cheng. The Ministry of Foreign Affairs said the Philippines had also met other Taiwanese pre-conditions for restoring ties. A compensation agreement was reached between Philippines and the fisherman’s family, while Philippines investigators recommended homicide charges against eight Philippine coast guard members for Hung Shih-cheng’s death. The 11 sanctions imposed for three months included the recalling of Taiwan’s de facto ambassador and the suspension of hiring Filipino laborers to work in Taiwan.

Ma Visits fiVe Caribbean aLLies President Ma in mid-August left for a tour of five diplomatic allies in the Caribbean and Latin America. He stopped over in New York, spending three days in the city, where he breakfasted with New York mayor Michael Bloomberg, met with leading members of the U.S. Congress, and visited his alma mater, the New York University School of Law. Afterwards, he flew

The replacement of defense minister Kao Hua-chu with Andrew Yang was part of a minor Cabinet reshuffle. Another significant change was the appointment of Deputy Finance Minister Tseng Ming-chung to take over as Chairman of the Financial Supervisory Commission. He replaces Chen Yuh-chang, who had led the FSC since 2010. Chen was widely viewed by industry analysts and executives as too conservative, resistant to reforms needed to promote the financial sector’s development. New ministers were also appointed to lead the Overseas Community Affairs Council, Council of Indigenous Peoples, and the Public Construction Commission.

PeGatrOn aCCUseD Of LabOr abUses A China-based labor rights group in late July accused Pegatron Corp., a Taiwanese company that assembles iPhones for Apple Inc, of abuses including withholding workers’ pay and excessive working hours, the Associated Press reported. China Labor Watch said it found violations of the law and of Apple’s pledges to maintain reasonable working conditions at two Pegatron factories in Shanghai and Suzhou that employ a total of 70,000 people. China Labor Watch said that the majority of Pegatron production employees worked 66 to 69 hours a week, far above China’s legal limit of 49 hours, and that pregnant women sometimes were required to work 11 hour days, more than the eight-hour legal limit. Both Apple and Pegatron have promised to investigate.

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Zeroing in on Trade Obstacles One of the two working groups set up under TIFA will focus on technical barriers to trade.

echnical barriers to trade – TBTs for short – are one of two subjects (the other is investment-related issues) currently receiving particular attention as part of the U.S.-Taiwan trade negotiations known as the Trade and Investment Framework Agreement (TIFA) process. When the high-level TIFA Council met this past March, the two sides agreed to set up specialized working groups on each of those topics. The first meetings, probably in the form of digital video conferences, are expected to take place in the coming few weeks. A type of non-tariff trade barrier, TBTs are technical regulations and standards – including packaging, labeling, and testing and certification requirements – that diverge from normal international practice and therefore discourage the importation of certain products from abroad. The suspected motivation for the TBT may be the protection of domestic industry rather than the pursuit of legitimate public-policy objectives such as promoting health and safety. Many of the industry issues that AmCham Taipei’s various committees raise in the annual Taiwan White Paper could be considered TBTs, and may turn up on the agenda of the TIFA working groups. Some examples: Commodity labeling. Taiwan has been requiring that all goods sold by multipack – a frequently cited case is men’s socks – be labeled individually. The process of removing the items from the multipack, attaching the labels, and repackaging is costly and time-consuming – with no clear benefit to the consumer. Testing and certification. Various products such as medical devices and numerous types of auto parts are disadvantaged by Taiwan’s insistence that testing and certification be done by domestic laboratories, even when items made by leading multinational companies have already obtained certification from well-respected labs in the United States or Europe. This requirement adds to the expense of importation and often delays the launch of new products into the Taiwan market by many months. Medicated cosmetics. Unlike the United States, European Union, and most other countries around the world, Taiwan places medicated cosmetics in a high-risk category requiring pre-market approval before the product can be sold here. In those other markets, medicated cosmetics are regarded as low risk and are regulated only through post-market surveillance. Chemical registration. Taiwan is planning to implement a new chemical registration and management system. Earlier this year, the American Chemistry Council, the industry association representing the leading U.S. chemical companies, prepared a seven-page document pointing out many potential pitfalls with the proposed system. One is the possible threat to companies’ ability to protect confidential business information if they are required to divulge all the components

聚焦貿易障礙根據台美貿易暨投資架構協定所設立的兩個工作小組，其中之一將把焦點放在技術性貿易障礙。

在

稱為貿易暨投資架構協定（T I F A）運作過程的美台貿易談判中，技術性貿易障礙（簡稱T B T）是目前特別受關注的兩大主題之一（另一項是投資相關議題）。高層TIFA會議在今年三月召開時，雙方同意針對這些主題分別設立專門的工作小組。初期會議可能以數位視訊會議方式進行，預料未來數週內就會登場。屬於非關稅貿易障礙的TBT，其實是不同於正常國際慣例的技術法規和標準（包括包裝、標示、檢測與認證等規定），因此可阻止某些海外產品進口。實施TBT的動機有可能是保護國內產業，而非尋求促進衛生與安全之類的合法公共政策目標。台北市美國商會各委員會在年度《台灣白皮書》中提出的種種產業議題，有許多可被視為TBT，而且可能成為TIFA工作小組的處理事項。茲舉數例如下：商品標示：台灣一直要求以組合包販售的所有商品（經常被舉例的就是男襪）必須個別標示。將物品從組合包中拿出來，貼上標示，再重新包裝，不但成本高，也相當耗時，對消費者並無明顯好處。檢測與認證：由於台灣堅持檢測與認證需由國內實驗室執行，使醫療器材和多種汽車零件等各類產品處於不利地位，即使產品是由主要跨國公司製造，且早已獲得歐美聲望卓著的實驗室認證也一樣。這項規定不但增加進口費用，也經常造成新產品在台灣上市時間耽擱多月。含藥化妝品：不同於美國、歐盟和世界其它多數國家，台灣將含藥化妝品歸類於上市前需先獲准才能在本地販售的高風險類產品。在其它市場，含藥化妝品被視為低風險，僅透過上市後的監督機制規範。化學品登記：台灣正計畫實施新的化學品登記和管理制度。今年稍早，代表美國主要化工業者的產業組織——美國化工協會（American Chemistry Council）提出一份七頁的文件，羅列新系統的許多潛在困難。其中一項就是如果要求業者在標示中公開產品所有成分，可能會影響他們保護商業機密的能力。該協會也質疑，若要實施可能極為複雜的新

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Issues of the product in the labeling. The Council also questioned whether enough transition time is being allowed for the implementation of what would be an extremely complex system. “In these cases, and others, we hope that the TBT Working Group under TIFA can provide an effective channel of communication to tackle the problems and lead to a smoother flow of trade,” says AmCham President Andrea Wu. “If that happens, the Working Group will have made a substantial contribution to promoting harmonious bilateral economic relations.” —– By Don Shapiro

制，是否會有足夠的過渡期。本商會執行長吳王小珍表示：「在前述與其它例子中，本商會希望，根據TIFA所設的技術性貿易障礙工作小組能提供有效的溝通管道解決問題，進而帶來更流暢的貿易流量。」「若能實現，工作小組對於促進台美雙邊的和諧經濟關係將貢獻良多。」

— 撰文／沙蕩

An Association for Advanced Medical Technology TAMTA will work with the government to resolve regulatory issues and also hopes to promote an industry code of ethics.

n an important milestone in the development of the medical-device market in Taiwan, 18 prominent international suppliers of medical equipment – all active members of AmCham Taipei’s Medical Device Committee – on August 1 inaugurated the Taiwan Advanced Medical Technology Association (TAMTA) to promote the interests of the industry. The new group is preparing to sign a memorandum of understanding with the Washington, D.C.-based Advanced Medical Technology Association, better known as AdvaMed, to establish an affiliation between the two organizations for cooperation and information sharing. “AmCham was pleased to be able to help in the formation of TAMTA,” says Chamber President Andrea Wu. “We envision TAMTA and AmCham as working closely together in future for mutual support, much the way our Pharmaceutical Committee partners with the International Research-based Pharmaceutical Association (IRPMA).” In particular, AmCham will be able to help with high-level policy discussions with the Taiwan and U.S. governments, especially for follow-up on issues raised in the annual Taiwan White Paper, she notes. Among TAMTA’s first acts was to organize four working groups, covering International and Government Affairs, Regulatory Affairs, Reimbursement Issues, and Education and Compliance. International suppliers to the Taiwan healthcare system have been concerned about the length of time necessary to obtain product approvals in Taiwan, especially considering the short life cycle of many medical devices due to rapid advances in technology. They have also been concerned that stringent cost-control efforts by the National Health Insurance system have led to such low reimbursement prices for medical devices that leading foreign manufacturers are giving this market lower priority for the launch of some innovative new products. TAMTA’s newly elected chairman, James Hsiao, the country head 12

協力促進台灣先進醫療科技台灣先進醫療科技發展協會將與政府合作，解決法規方面的問題，也希望推動建立業界的道德規範

台

灣先進醫療科技發展協會（T A M T A）於8 月1日成立，宗旨是增進醫療器材業的權益，為台灣醫療器材市場的發展樹立了重要里程碑。發起成立這個協會的有18家國際知名的醫療器材供應業者，它們全都是台北市美國商會醫療器材委員會的活躍成員。這個新成立的團體準備與設在華盛頓特區的美國先進醫療技術協會（AdvaMed）簽署諒解備忘錄，讓兩個組織建立聯繫，彼此合作並分享資訊。台北市美國商會執行長吳王小珍女士表示：「美國商會很高興能協助成立台灣先進醫療科技發展協會。放眼未來，我們相信這個協會與美國商會將密切合作，相互支持，正如本會製藥委員會與開發性製藥研究協會（IRPMA）的拍檔關係。」她指出，對於與台灣和美國政府的高層政策討論，美國商會尤其能夠提供協助，特別是跟進追蹤本會年度台灣白皮書中所提及的議題。台灣先進醫療科技發展協會成立後，首先設立四個工作小組，負責的主題分別是國際與政府事務、法規事務、支付問題以及教育與遵醫問題。供應醫療器材給台灣醫療體系的國際業者，一向很關心產品在台灣取得許可所需時間的長短，因為科技進展日新月異，許多醫療器材的生命週期非常短。它們也感到憂心的是，全民健康保險制度致力嚴格控制成本，導致醫療器材的給付價格過低，這已促使主

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Issues for Medtronic (Taiwan), says the association hopes to “work with the Taiwan government closely to speed up the process of regulatory approvals and reimbursement by improving the clarity of processes and the definition of key requirements.” Those objectives are in line with TAMTA’s mission statement, which holds that the association is “devoted to the advancement and promotion of the Advanced Medical Technology industry, to innovation in the interests of patients and healthcare professionals, to commitment to an agreed set of ethical business practices, and to the continual advancement of healthcare in the public interest in Taiwan.” The dedication to promoting ethical business practices comes at a time when the medical device industry, the Asia-Pacific Economic Cooperation forum (APEC), and the Taiwan government are all looking to foster effective codes of ethical conduct for the industry to follow. AdvaMed led the way in devising such a voluntary industry code in the United States about a decade ago, designed to set clear standards that would eliminate potential impropriety – such as hosting physicians at luxurious vacation resorts with lavish entertainment under the guise of holding training conferences. The U.S. model has been considered highly successfully, and AdvaMed is now actively helping to promote similar systems in other parts of the world. Under an APEC initiative, representatives from many countries in the region will be meeting this month in Indonesia to exchange ideas for the content of national codes. TAMTA hopes to cooperate with the Taiwan authorities as they draft a code for this market. Referring to the U.S. experience, in which AdvaMed worked closely with the U.S. Department of Justice in preparing the code, TAMTA stresses that strong industry participation in the process would help assure the appropriateness and effectiveness of the final code. It also notes that public-private cooperation is an integral part of the APEC philosophy.

要外國廠商在推出創新的新產品時，降低了提供台灣市場的優先順位。台灣先進醫療科技發展協會剛選出美敦力醫療產品公司台灣區總總經理蕭經世為理事長，他表示，協會希望「與台灣政府密切合作，加速主管機關核准與給付的程序，方法包括讓程序更為清楚透明，以及釐清主要規定」。這些目標符合這個協會所宣示的任務，也就是「致力於促進與提升先進醫療科技事業，推動有利病患與醫療專業人員的創新，承諾奉行議定的道德商業行為，以及持續增進符合台灣公眾利益的醫療服務。」致力推動道德商業行為此正其時，因為醫療科技業、亞太經濟合作會議（APEC）和台灣政府有志一同，都期望催生有效的道德行為規範，以供業界遵行。大約十年前，美國先進醫療技術協會就領先開路，策劃此種業者自願遵守的規範，目的是要訂定明確的準則，剷除可能出現的不當作法，例如以舉行訓練會議為名，在豪華度假勝地作東，大手筆款待醫師享樂。美國這種模式獲公認為極為成功，先進醫療技術協會如今積極協助在世界其他地方推廣類似制度。根據亞太經合會的一項倡議，這個地區許多國家的代表本月將在印尼集會，就各國規範的內容交換意見。台灣先進醫療科技發展協會希望與台灣當局合作，為本地市場擬訂這項規範，因為根據美國的經驗，先進醫療技術協會在草擬美國的規範時，曾與美國司法部密切合作。協會也強調，業界在過程中大力參與，將有助確保最後定稿的規範內容妥當而有效。協會同時指出，亞太經合會的理念一向著重公私部門間的合作。 — 撰文／沙蕩

—– By Don Shapiro

Taiwan Spurs APEC Proposal A five-year plan aims to reduce the amount of loss in the food supply chain.

n June, the Asia-Pacific Economic Cooperation (APEC) forum approved a proposal by Taiwan to help slash food loss. Entitled “Strengthening Public-Private Partnership to Reduce Food Losses in the Supply Chain,” the five-year plan aims to reduce postharvest losses at all stages of the food supply chain in the APEC region. Food security has emerged as a major problem in recent years. Limited arable land and water resources as well as the increased frequency of natural disasters due to climate change have conspired to raise food prices and make them more volatile. By 2050, when the world’s population is projected to be 9.3 billion, it is estimated that 60% more food will be needed than is available today. At the same time, the United Nations’ Food and Agriculture Organization

台灣帶動APEC倡議減少食物鏈損失數量五年計畫

亞

太經濟合作會議（APEC）在六月間的論壇批准台灣所提協助減少糧食損失的方案。這項五年計畫的主題是「強化公私夥伴關係以降低供應鏈之糧食損失」，目的是減少APEC 地區農作物收成後的損失，包括糧食供應鏈所有階段的損失。近年糧食安全已竄起成為重大問題，由於可耕地和水資源都有限，加以氣候變遷導致天然災害漸

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Issues

(FAO) calculates that of all calories produced for human consumption, one in four is lost or wasted every year. Recognizing an opportunity, Minister Chen Bao-ji of Taiwan’s Council of Agriculture proposed the food loss initiative at the 2012 APEC Meeting on Food Security in Kazan, Russia. This June, the project secured about half a million U.S. dollars in APEC funding, and 13 economies signed on as co-sponsors. The initiative demonstrates that Taiwan – or “Chinese Taipei” as it is known within APEC – can lead on issues that international organizations consider priorities. The UN Environment Programme and FAO set the theme for this year’s World Environment Day celebration as “Think. Eat. Save. Reduce Your Foodprint.” As APEC aims to achieve food security for its member economies by 2020, Taiwan’s initiative also fits directly within that goal. The plan aims to create a methodology for assessing the scale and causes of food loss at different stages within the supply chain – from harvesting and transportation to packaging and consumption. It will develop a dataset – to include key issues and the attempted solutions – as a lasting resource for APEC, and will also assemble a toolkit to synthesize best practices. To create these resources, the project will unfold in three stages. On August 5-7, Taipei hosted an initial seminar on post-harvest loss among food crops (rice, wheat, cassava, and maize). Over 130 delegates from 18 member economies attended. During the project’s second stage, member economies will meet to analyze waste, share best practices, and build capacity in reducing losses among vegetables and fruit (scheduled for 2014), livestock and fisheries (2015), and restaurants and supermarkets (2016). In order to share best practices most effectively, the seminars will rotate among APEC member economies. In 2017, the project will reconvene for a final high-policy dialogue in Taipei. This third stage will review achievements, issue final recommendations, and draw up an action plan to assist APEC in meeting its 2020 food security goals. Among APEC multi-year projects, Taiwan’s initiative is noteworthy for active private sector participation. Eric Chiou, an associate research fellow in the Chinese Taipei APEC Study Center at the Taiwan Institute for Economic Research, notes that the project will help advanced countries increase their business, while aiding developing countries in acquiring food preservation and other cutting-edge technologies to reduce loss. Minister Chen proposes that Taiwan can lend its knowledge and expertise with rice production to the effort, including its development of drying technologies to significantly decrease rice rotting after typhoons. “Rice is our major food system, so we would like to share our experience with other countries,” he says. Given Taiwan’s international political constraints, Chiou says “APEC is a very important platform for Taiwan to have a voice in the international arena.” This year APEC approved only three multiyear projects, and Chinese Taipei initiated two of them. Besides food loss, the other involves helping women in partner countries to access information and communication technologies to improve their business opportunities and livelihoods. The effort aims to bridge the gender and economic development divide. —– By Daniel Severson

頻，糧食價格節節上升，而且變動無常。世界人口估計將在2050年前增加到93億人，屆時所需糧食將比現在可得數量多出約60%。同時據聯合國糧農組織推估，為供人類食用而生產的糧食，每年有四分之一損失或浪費掉了。 2012年APEC在俄羅斯的喀山就糧食安全問題舉行會議時，台灣農業委員會主委陳保基掌握機會，提出這項有關糧食損失的倡議。今年六月這項計畫獲得APEC提撥約50萬美元經費，也獲得13個經濟體共同贊助。這項倡議顯示台灣，或者A P E C所稱的中華台北，可以在國際組織列為優先事項的議題起帶頭作用。聯合國環境規畫署與糧農組織為今年的世界環境日所定主題是「思前，食後，厲行節約。減少食物足跡。」APEC希望2020年前能確保會員經濟體的糧食安全，而台灣的倡議正好符合目標。這項計畫的目標是提出一套方法，評估在供應鏈中的不同階段，由收成和運輸以至包裝和消費，糧食損失的規模如何和原因何在，它將發展出一個資料集，內容包括主要議題和嘗試解決方案，成為 APEC的永久資源，同時也將彙整出一套工具，用來綜合出最佳作法。為創造這些資源，這項計畫將分成三個階段進行。先於8月5日至7日在台北舉辦首場研討會，探討糧食作物（如米、麥、樹薯和玉米）收成後的損失問題，將有來自18個會員經濟體的超過130位代表出席。進入第二階段後，會員經濟體將再舉行會議，分析浪費原因，分享最好的防止方法，並且建立在各方面減少損失的能力，包括蔬菜和水果（預定2014 年達成）、家畜和漁業（2015年）以及餐廳和超市（2016年）。為了能最有效分享最佳作法，研討會將輪流在APEC會員經濟體舉行。到了2017年，這項計畫將再次在台北召開會議，進行最後的高層政策對話。進入第三階段後也將檢討成果，提出最後建議，並擬定行動方案，協助APEC達成2020年確保糧食安全的目標。在APEC的多年期計畫中，台灣這項倡議所以值得重視，是因為民間也積極參與。台灣經濟研究院中華台北APEC研究中心副研究員邱奕宏指出，這項計畫將有助先進國家增加商機，也將協助開發中國家取得糧食保存和其他先進技術，以減少糧食損失。陳保基主委建議，台灣可以提供在稻米生產方面的知識和技術來協助，包括發展乾燥技術大幅減少颱風後稻米腐爛數量的經驗。他表示：「稻米是我們的主要糧食系統，因此我們願意和其他國家分享自己的經驗。」由於台灣在國際政治上受到重重限制，邱奕宏表示：「APEC是台灣在國際舞台上發聲的重要平台。」今年APEC只批准三項多年期計畫，其中兩項是由中華台北倡議。另外一項是關於協助夥伴國家的婦女取得資訊和通訊技術，以改善她們的商機和生活，目的是縮減性別和經濟發展差距。

— 撰文／孫達智 14

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Cover story

Korea

Competing with Korea 與南韓競爭 BY DANIEL SEVERSON

撰文 / 孫達智

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I COLLABORATION — The signing ceremony for an agreement between Taiwan and Korean organizations to encourage cooperation among the two countries’ SMEs. photo : itri

Taiwan’s closest economic rival is Korea, and businesspeople in each country keep a close eye on developments in the other. In recent years, Korea appears to have surged ahead in many respects, utilizing the financial clout of its huge conglomerates to invest heavily in R&D to gain more advanced technology. Seoul’s inking of free trade agreements with both the United States and the European Union will give its products further advantages in key markets. What accounts for the differences between the two economies and what can Taiwan learn from Korea to help narrow the gap? 台灣競爭最激烈的經濟對手是南韓，兩國的商界人士都密切注意對方的發展。近年南韓顯然利用其龐大財團的金融勢力大量投資研發，獲取更先進的科技，在許多方面突飛猛進。首爾和美國、歐盟都簽署都簽署了自由貿易協定，將使其產品在關鍵市場更具優勢。究竟是什麼原因造成台韓兩個經濟體之間的差異？還有南韓有哪些地方值得台灣借鏡，以縮小彼此的差距呢？

953年韓戰停火協議為南韓帶來和平。就在此前數年，台灣結束日本殖民統治，繼而展開重建，接著又接收來自中國大陸的一百多萬難民。從那時起，台韓就展開經濟競賽。台灣維持領先多年，不過近年南韓似乎猛然超前，讓台灣許多人羨慕不已。在一些主要經濟指標中，台灣的經濟競爭力都落後南韓。在1960到2000年的40年中，台灣每年的國內生產毛額（GDP）成長率為6.4%，優於南韓的5.9%。不過自2000年後，台灣的平均經濟成長降至約3.3%，大幅落後於南韓的4.5%。南韓的人均所得在2005年首度超越台灣，進而在 2007年達到2萬美元，而且預估在2016年之前會突破3萬美元。此外，台灣出口在全球貨運量的占比已經下滑。20年前台韓在全球出口中各占約2.3%。到2011年，台灣的占比下跌至1.5%，南韓則增至3.3%。對台灣來說，這些數據令人不安。南韓的高科技優勢尤其顯著。三星是全球智慧手機產業的龍頭，2013年第2季的市占率為 31.7%，比蘋果的手機銷售量多出一倍以上，而 16

n 1953, the Korean War armistice brought peace to South Korea. Just a few years earlier, Taiwan had begun reconstruction following the end of Japanese colonial occupation and then the absorption of more than a million refugees from the China mainland. From that time forward, the two countries were engaged in an economic race. For many years Taiwan maintained the lead. More recently, however, Korea has appeared to surge ahead, to the envy of many in Taiwan. Across a number of major economic indicators, Taiwan has fallen behind Korea in economic competitiveness. In the four decades from 1960 to 2000, Taiwan’s annual GDP growth rate was 6.4%, higher than Korea’s 5.9%. But after 2000, Taiwan’s average economic growth rate dropped to around 3.3%, significantly lower than Korea’s 4.5% performance. In 2005, Korea’s income per capita surpassed Taiwan’s for the first time, reaching US$20,000 in 2007 and projected to exceed US$30,000 by 2016. As a share of global shipments, in addition, Taiwan’s exports have slipped. Twenty years ago, Taiwan and Korea each accounted for roughly 2.3% of global exports. By 2011, Taiwan’s share dropped to 1.5%, while South Korea’s rose to 3.3%. For Taiwan, these figures are disquieting. Korea’s high-tech ascendancy is particularly striking. Samsung is the global leader in the smart phone industry, with 31.7% market share in the second quarter of 2013, now more

且遠遠超越中國聯想和台灣的宏達電。10年前幾乎沒有消費者會考慮買三星的電視機，現在則可能願意支付較貴價格購買已成為全球領導品牌之一的三星產品。南韓企業已成為生產記憶體晶片和液晶（LCD）面板的世界領袖，而且還挑戰台灣的核心優勢。台灣和南韓都曾是二戰後經濟發展成功的模範生，不過台灣能否將經濟潛能發揮到極致，並確保未來的競爭力，不無疑問。究竟是什麼原因造成台灣經濟沉淪？吸引投資仍是一大問題。根據台灣經濟部投資審議委員會的資料，台灣在2012年爭取到56億美元的外來直接投資（FDI），為4年來最高。不過相較於南韓貿易工業暨能源部去年公布的163 億美元，台灣FDI的流入量仍嫌不足。南韓對投資人較具吸引力，部分可歸因於其經濟近年來成長較為迅速。台灣的經濟環境對外國人來說也不如南韓友善。在世界銀行（World Bank）2012年的經商環境調查中，台灣（整體排名第16）落後南韓（第8名）。台灣在開辦企業容易度方面勝過南韓（16名對24名），卻在

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Korea

than double Apple’s sales, and far ahead of Lenovo and Taiwan’s HTC. Ten years ago, few consumers would have considered buying a Samsung TV. Now they may be willing to pay a premium for what has become one of the world’s leading brands. Korean companies have emerged as world leaders in producing memory chips and LCD flat panels, and are challenging Taiwan’s core strengths. Along with Korea, Taiwan was once the poster-child for post-World War II economic success, but questions surround its ability to maximize its economic potential and ensure future competitiveness. What accounts for Taiwan’s economic doldrums? Attracting investment remains a principal issue. According to the Investment Commission of the Ministry of Economic Affairs, Taiwan pulled in US$5.6 billion in foreign direct investment (FDI) in 2012, the highest amount in four years. Yet Taiwan’s FDI inflows are meager compared to the US$16.3 billion reported for last year by Korea’s Ministry of Trade, Industry, and Energy. Part of Korea’s greater attraction to investors can be traced to its faster economic growth in recent years. The economic environment in Taiwan is also not as friendly to foreigners. In the World Bank’s 2012 survey on the ease of doing

COmpARISON Of NT$ AND WON ExChANgE RATES 40

1600 1400 1200

1000 800

1,063

951

30 25 20

600

400

200

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: IEK, ITRI

NT$

business, Taiwan (with a rank of 16 overall) lags behind Korea (8). While Taiwan outdoes Korea in terms of the ease of starting a business (16 vs. 24), the island fares notably worse in other subcategories, including access to credit (70 vs. 12), enforcing contracts (90 vs. 2), and paying taxes (54 vs. 30). In 2010, Taiwan lowered its corporate tax rate to 17%, the same as Singapore’s and just slightly higher than the rate in Hong Kong (16.5%). Yet while Korea has a higher general corporate tax rate (22%), some observers note that Seoul grants more exceptions in its determination to lure investors.

其它項目顯著落後，包括獲得信貸（70名對12名）、執行契約（90名對第2名），以及繳納稅款（54名對30 名）。台灣在2010年將企業營業所得稅率調降至17%，在亞洲四小龍中僅高於香港（16.5%）。南韓的一般企業稅率較高（22%），不過一些觀察家指出，首爾為了吸引投資者，會提供更多減免措施。在世銀的「跨境貿易」調查項目中，台灣也落後南韓（23名對第3名）。台灣缺乏南韓所擁有的健全自由貿易協定（FTA）網絡（請見補充報導），且持續對大量中國進口商品和投資實施限制措施。台北市美國商會已一再敦促台灣政府，為了吸引投資，應採取具體措施改善經商環境。《2013年台灣白皮書》概述了數項建議，包括重新評估外來投資申請程序、調降個人所得稅，以及放寬引入外國人才的限制。不過問題並不僅止於外來投資。台灣的固定資本形成毛額相當低，意味著未來經濟成長的不確定性。國民生產毛額（GNP）的私人投資比例在2012年約為15%，遠低於南韓的24%。台灣經濟研究院研究二所副所長呂曜志表示：「許多熱錢、閒錢並未投資到實際產業中。」他觀察發現，台灣投資人欠缺誘因和目標。他說：「我們的新興產業面臨問題，不知方向何在。」

Korean Won

On the World Bank’s “trading across borders” subcategory, Taiwan also lags behind Korea (23 vs. 3). Taiwan lacks the robust free trade agreement (FTA) network that Korea enjoys (see the sidebar) and continues to impose restrictions on a large swath of mainland Chinese imports and investment. To attract investment, the American Chamber of Commerce in Taipei has repeatedly urged the Taiwan government to take concrete steps to improve the business environment. The 2013 Taiwan White Paper outlines several proposals, including reevaluating the foreign investment application process, lowering the personal

貨幣和薪資趨勢貨幣趨勢也影響台灣的競爭力。自1997年亞洲金融風暴以來，韓元兌美元匯率已貶值15.5%，新台幣匯率卻是持平（見附圖）。韓元匯率維持貶值，對南韓出口業者有所幫助。另一個重要指標是薪資。台灣的實質薪資十年來停滯不前，在2000至2011年間零成長。反之，南韓薪資在同一期間成長3.8%。台灣工業技術研究院產業經濟與趨勢研究中心發表的一份報告，將台灣薪資縮水主因歸咎於過度倚賴代工模式，以及大學畢業生的技能和職缺無法配合的教育體系瑕疵。中華經濟研究院區域經濟整合中心主任劉大年指出，另一個原因是服務業相對缺乏創新。他表示：「我們並未創造許多高附加價值的工作機會。我們服務業的國際競爭力並不強，卻占GDP的 67%。我們創造工作機會，卻不是備受矚目的那種。」除了一些宏觀經濟指標最近出現分歧的走勢外，產業政策、企業文化和政治約束出現關鍵性的根本差異，也有助於說明台灣相對於南韓所面臨的經濟挑戰。從1950年代初期以來，台韓就採取不同的發展策略。南韓政府支持由家族經營的大型財團（即財閥）。

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Cover story income tax, and easing restrictions on the inflow of foreign talent. The problem extends beyond foreign investment, however. Taiwan’s gross fixed capital formation is low, signaling uncertainty about future economic growth. The ratio of private investment to Gross National Product (GNP) stood at roughly 15% in 2012, far below Korea’s 24%. “There’s a lot of hot money, a lot of idle money not being invested into real sectors,” says economist Tristan Liu of the Taiwan Institute of Economic Research (TIER). He observes that domestic investors lack incentives and targets. “We have problems in emerging industries. We don’t know the directions.”

Currency and salary trends Currency trends are also affecting Taiwan’s competitiveness. Since the Asian Financial Crisis in 1997, the Korean won has depreciated against the U.S. dollar by 15.5%, while the exchange rate for the

New Taiwan Dollar has remained flat (see chart). A lower exchange rate to the U.S. dollar has helped Korea’s exporting companies. Another important indicator is salaries. In Taiwan, real wages have stagnated for a decade, with zero growth from 2000 to 2011. By contrast, wages in Korea rose 3.8% over the same period. A report by the Industrial Economics and Knowledge Center (IEK) at Taiwan’s Industrial Technology Research Institute (ITRI) attributes Taiwan’s languishing wages primarily to an excessive dependence on the contract manufacturing model, as well as flaws in the education system that produce a mismatch between graduates’ skillsets and available job opportunities. Economist Liu Da-Nien from the Chung-hua Institution for Economic Research (CIER) suggests that another cause is the relative lack of innovation in the service sector. “We haven’t created many high value-added jobs,” he says. “Our service industry is not that internationally competitive, but

這些大型企業受益於能夠公開取得資本，得以追求發展規模經濟，並迅速吸收技術，成為半導體、記憶體晶片和LCD面板等產業的領袖。台灣的態度則較為放任，尤其是國營企業自1990年代開始民營化之後。工研院產經中心主任蘇孟宗說：「台灣的作風並不是每個產業挑一家公司。」他指出，相反的，「南韓往往讓產業和個別公司畫上等號」。充分的垂直和水平整合，讓三星等財閥擁有影響市場的能力。他們可將獲利部門的盈餘，再投資於虧損的企業，直到轉虧為盈。此外，南韓企業往往把焦點放在生產資本更密集、附加價值更高的商品，但台灣業者通常是採取較低利潤的彈性生產結構，不會固守於任何特定產品。因為南韓業者直接和消費者接觸，所以也必須發展具國際競爭力的品牌，賺取高利潤。相反的，台灣企業通常堅守代工模式，參與規格設計，重視追求低成本的有效勞力運用。政大國家發展研究所講座教授兼中國大陸研究中心主任王振寰指出，即使是鴻海、台積電等部分台灣企業的規模已發展到相當大，「路徑依賴」導致他們繼續依照原有的委託代工（OEM）模式，繼續生產零組件。以規模經濟為基礎的產業結構也讓財閥能夠大幅投資研發。不過在台灣，中小企業是產業結構的主流，卻經常缺乏從事核心研發的資源。因此政府在1973年成立工研院，利用公共資金協助民間部門研發。工研院透過研究和科技轉移，在支持台灣工業上扮演主要角色，但台灣企業仍難以和南韓財閥的龐大資源匹敵。

it occupies 67% of GDP. We created jobs but not high-profile ones.” Besides recent diverging trends in some macro-economic indicators, key underlying differences in industrial policy, business culture, and political constraints also help illuminate Taiwan’s economic challenges relative to Korea. Since the early 1950s, Taiwan and Korea have adopted different development strategies. In Korea, the government supported large, family-run conglomerates known as chaebols. These megafirms benefited from open access to capital, enabling them to pursue economies of scale and quickly assimilate technologies to become leaders in industries like semiconductors, memory chips, and LCD screens. Taiwan’s approach has been more laissez-faire, particularly after the privatization of state-owned enterprises began in the 1990s. “Taiwan’s style is not to pick one company per industry,” says Stephen Su, director of ITRI’s IEK. By contrast, he notes, “Korea tends to equate indus-

不連貫的產業策略台灣也缺乏南韓所擁有連貫而務實的產業策略。工研院的蘇孟宗指出，每當台灣有新行政院長上任，行政院就會宣布新口號和成套的經濟計畫。他表示：「台灣的問題部分是因為計畫變動頻繁。」即使計畫的內容並非全新，強調的重點卻不同——一項計畫可能還沒完成，就被另一個取代。南韓則設法讓計畫執行較為連貫，因為往往都讓產業計畫完成立法，尤其是政府部門負責達成目標，再向國會回報。即使是名稱、結構或政府相關組織職責出現變動，也一定會指派某單位將計畫執行完畢。蘇孟宗說：「問題不在於政府變換太頻繁——南韓的變動頻率其實高於台灣，也不在於設定適當目標。更確切的說，是在於執行。」「南韓的方式和台灣大為不同。我們一直試圖向台灣政府凸顯這個問題。」為了支持產業計畫，南韓政府也積極資助主要研究機構。平均而言，研究機構的70%預算由政府負責，其餘 30%則來自民間部門。台灣的比例比較接近各半。蘇孟宗還指出，南韓的研究機構和智庫往往會獲得固定總額的政府資金，而且可以自主分配資源，台灣的這些組織卻須透過競爭取得個別計畫的公共資金和合約。他說，從長遠來看，競標過程讓台灣的研究機構「更具競爭力和彈性」，卻有「嚴重的不利影響，例如研究眼光短淺和惡性競爭」。尤其是競標會影響計畫的持續性。如果研究機構贏得特定的計畫，卻在後續競標中失去資助，可能就無法提出相同深度品質的研究。兩地的法規鬆綁步調也不同。台經院的呂曜志指出，

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KOREA SUpERChARgES R&D AS A pERCENTAgE Of gDp K o(%) rea 4.5

try with an individual company.” Being fully integrated vertically and horizontally gives chaebols like Samsung market leverage. They can take money generated from profit-making divisions and reinvest it into losing companies until they start to turn around. In addition, Korean companies have tended to focus on production of more capital-intensive, higher-value-added goods, while Taiwanese firms have generally used flexible production structures that yield lower margins and do not wed them to any particular product. Because the Korean firms engage directly with customers, they have also needed to develop internationally competitive brands that command high profits. Taiwanese companies, by contrast, have generally hewed to a contract-manufacturing model that involves design to specifications and places a premium on lowcost, efficient labor. Wang Jenn-Hwan, a developmental economist at National Chengchi University, notes that even as

4.03

4 3.5

3.06

3 2.5 2 1.5

2.06

2.92

2.5

2.3 2002

2003

2004

2005

2006

Source: IEK, ITRI

2008

2009

2010

Taiwan

some Taiwan companies like Hon Hai (Foxconn) and the Taiwan Semiconductor Manufacturing Co. (TSMC) have grown quite large, “path dependency” has led them to continue producing components under the original equipment manufacturer (OEM) model. An industrial structure based on economies of scale also allowed the chaebols to invest heavily in R&D. In Taiwan, however, small and medium-sized enter-

台灣「各政府機關等待最高領導階層達成共識，進而下達指令的時間相當長」，「如果是南韓，整個過程非常迅速」。台灣政府在重大議題上須努力協調各部會之間的不同利益和優先要務，甚至得完成相當有節制的改革，因此需要長久的時間。數位商界領袖和經濟分析師在接受台北市美國商會《 TOPICS》雜誌訪問時表示，他們觀察到，台灣企業通常較不願冒險。台經院的呂曜志表示：「勇氣，南韓人比我們更有勇氣。」他指出，台灣人「作決定非常謹慎，但是在全球化的時代，時機和速度就是一切，在成功因素中至少占了20%到30%。如果不能成為第一，就會一事無成」。他認為不願冒險已經影響台灣進軍新興產業與自信贏得成功的能力。 LCD面板業的歷史就是例證。林登（Greg Linden）和一組研究人員為1997年柏克萊國際經濟圓桌會議（Berkeley Roundtable on the International Economy）所準備的一份報告中，詳述南韓業者如何為了增加市占率而抱持長遠的眼光，針對生產薄膜電晶體液晶顯示器（TFT-LCD）進行前瞻性的大手筆投資。在此同時，台灣業者主要是依據短期思維行動，在市場出現週期性下滑時延遲擴展計畫，致使他們在下一個需求週期來臨時晚了一步。南韓財閥也以敢於和全球製造業領袖展開模擬競賽而著稱，反之台灣企業較傾向於尋求合作夥伴關係。例如在1990年代的LCD產業，南韓業者最初向日本製造商取得技術授權，不過後來從事大規模的內部開發，以確保未來的夥伴關係是站在較為對等的立足點上。至於動態隨機存取記憶體（DRAM）產業，根據一位

2007

2011

Korea

prises (SMEs) dominate the industrial structure but often lack the resources to engage in core R&D. The government therefore established ITRI in 1973 in order to use public funding to assist the private sector with R&D. While ITRI has played a major role in supporting Taiwanese industry through research and technology transfer, Taiwanese companies have trouble matching the vast resources of Korea’s chaebols.

台灣企業高層表示，三星的成功並非因為其本身的規模，而是將研發列為主要優先要務。台灣對手向外國授權者取得記憶體晶片技術，尋求靠降低成本作為競爭利器，但這個商業模式並不成功。台灣業者或許不如南韓對手積極，但都保持充沛的創業精神，每個人都想自己當老闆。中文諺語「寧為雞首，不為牛後」就清楚表達這種想法。此一因素可能有助於解釋在產業結構大多是由中小企業組成的台灣，產業團結度普遍低落的原因。若台灣業者以創業精神、注重成本控制而著稱，那麼奉獻度和愛國心似乎就成了南韓國民精神的特色。在亞洲金融危機發生後，南韓受到必須接受國際貨幣基金（IMF）貸款的恥辱刺激，展開全面性改革，取得創造自有技術的能力，冒險出擊登上世界舞台。蘇孟宗指出，南韓立法機關在辯論國內議題時可能喜歡唇槍舌戰，但若是能幫助南韓企業獲得更多國際市占率的法規鬆綁，國會議員就會努力不懈朝共同目標邁進。

政治認同與約束政治因素也影響台韓的經濟潛力。政大的王振寰堅稱：「台灣的問題不在於產業。」「問題在於政治和經濟的交叉作用。我們迷失方向。」他指出，南韓人對於開發中國市場的目標非常明確，台灣人卻對於自己和中國大陸的關係感到矛盾。從一方面來看，台灣人希望善加利用中國市場，另一方面卻又害怕被拉入北京的勢力範圍。台灣人民至今仍在辯論這座島嶼是否為中國的一部分或獨立領土。據王振寰指出，此一不確定性是影響

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Cover story Inconsistent industrial strategy Taiwan also lacks the coherent, practical industrial strategy that Korea enjoys. ITRI’s Su relates that every time a new Premier assumes office in Taiwan, the Executive Yuan announces a new slogan and set of economic programs. “Taiwan’s issues are due partially to this frequent change in programs,” he says. Even if the content of the programs is not entirely new, the emphasis is different – and one project may not even have been completed before another one takes its place. Korea has managed to achieve more consistent program execution. Because it tends to write industrial plans into legislation, particular government departments are responsible for meeting targets and reporting back to the National Assembly. Even if the name, structure, or responsibilities of a government-related organization changes, there is always a unit designated to carry the project through to completion. “It’s not about the government changing too often – Korea actually changes more than Taiwan – and it’s not about setting the

right target. Rather, it’s about execution,” says Su. “The approach in Korea is very different from Taiwan. We’ve been trying to highlight this problem to the Taiwan government.” To support industrial planning, the Korean government also aggressively funds the major research institutes. On the average, the state covers 70% of their budgets, while 30% comes from the private sector. In Taiwan, the proportion is closer to 50-50. Su also notes that Korean research institutes and think tanks tend to receive a fixed amount of government funding, allowing them to allocate resources independently, while those organizations’ counterparts in Taiwan must compete for public funding and contracts for individual projects. In the long run, the bidding process makes the Taiwan institutions “more competitive and flexible,” he says, but there are “serious drawbacks, such as short-term research perspectives and vicious competition.” In particular, bidding affects continuity. If research institutes win a particular project but then lose funding in subsequent rounds,

they may not be able to provide the same depth of research. The pace of deregulation also differs. In Taiwan, “the time that different government agencies wait for consensus and direction from the top leadership is quite long,” notes TIER’s Liu. “If you look at Korea, it’s very quick all along the way.” In Taiwan, on big issues the government struggles to reconcile different interests and priorities among ministries, and achieving even quite modest reform therefore takes a long time. In interviews with TOPICS, several business leaders and economic analysts observed that Taiwan companies are generally more risk averse. “Guts. Korean guys have more guts than we do,” says TIER’s Liu. Taiwanese people “make decisions very cautiously, but in an era of globalization, timing and speed are everything. They account for at least 20% to 30% of the success. If you’re not the first one, you’re nothing.” He considers that risk aversion has affected Taiwan’s ability to enter and succeed with confidence in emerging industries. The history of the LCD indus-

TAIWAN AND KOREA pLAY ThE fTA gAmE

hen Taiwan joined the World Trade Organization (WTO) in 2002, it hoped to leverage multilateral opportunities under the WTO framework to further its international competitiveness. But as WTO’s Doha Round of trade talks has come to a virtual standstill, many countries have increasingly turned to bilateral and regional agreements to advance their free-trade agenda. The trend is particularly pronounced in Asia. Between 2001 and January 2013, the number of Free Trade Agreements (FTAs) involving an Asian country jumped from 33 to 109, and another 61 are under discussion. Given Taiwan’s unsettled international political status, this trend complicates Taiwan’s economic prospects. Most other countries have hesitated to proactively negotiate with Taipei lest they irk Beijing. Until this year, Taiwan only managed to sign FTAs with five countries in Central America with which it had formal diplomatic relations. Taken together, these deals accounted for a scant 0.2% of Taiwan’s total foreign trade. When Taipei and Beijing signed the Economic Cooperation Framework Agreement (ECFA) in 2010, one of Taiwan’s objectives was to gain greater latitude to participate in regional economic integration. Since then, apparently with Beijing’s tacit consent, Taiwan has entered into FTA negotiations with two important – albeit 20

relatively small – trade partners. An agreement with New Zealand was signed this July, and negotiations with Singapore are reportedly close to being concluded. But it remains an open question whether Taiwan will be able to add FTAs with larger economies or to join emerging regional blocs such as the Trans-Pacific Partnership (TPP) or Regional Comprehensive Economic Partnership (RCEP). Korea, meanwhile, has steamed ahead. In 2003, the government established an “FTA roadmap,” a long-term strategic approach that it has followed consistently, regardless of changes in ruling party. Korea has inked at least twice as many FTAs as Taiwan – including agreements with major trading partners ASEAN, the European Union (EU), and the United States – and more are in the pipeline. Does Taiwan risk marginalization? Taiwan’s economy is highly dependent on trade, with exports of goods and services accounting for over 70% of GDP. If Taiwan remains locked out of free trade deals, local exporters cannot access overseas markets on terms equal to their trading rivals. Competition with Korea illustrates the challenge. Taiwan and Korea share the same major export markets, and some 70% of their export products overlap, notably semiconductors, electronics, textiles, LCDs, and cellphones. According to estimates by Taiwan’s Industrial Development Bureau, domestic manufactur-

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Korea

try exemplifies this point. In a paper prepared for the Berkeley Roundtable on the International Economy in 1997, Greg Linden and a team of researchers detailed how Korean firms took a long-range view and invested heavily and proactively in TFT-LCD production in the interest of increasing market share. Meanwhile, Taiwan firms, acting more on shortrun considerations, postponed expansion plans during periodic market dips, leaving them a step behind in the next demand cycle. Korean chaebols are also known to court competition with global production leaders, whereas Taiwanese enterprises are more inclined to seek cooperative partnerships. In the LCD industry in the 1990s, for instance, Korean firms initially licensed technology from Japanese manufacturers, but then undertook extensive internal development to ensure that future partnerships were on a more even footing. In the dynamic random access memory (DRAM) business, according to one Taiwan-based executive, Samsung’s success was not because of its size per se but because it made R&D a major

KOREA WIDENS ThE gAp IN TOTAL fOREIgN TRADE (in hundreds of millions of us dollars) 12000 10000

10,675

8000 6000

5,718

4000 2000 0

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: IEK, ITRI

Taiwan

priority. The Taiwanese players acquired memory-chip technology from foreign licensors and sought to compete by holding down costs, but this business model has not been successful. Though perhaps less aggressive than their Korean rivals, the Taiwanese maintain a robust entrepreneurial spirit. Everyone wants to be his own boss. One Chinese idiom expresses this point clearly: “It’s better to be the head of a chicken than the tail of an ox.” This factor may help explain the general low

ers could lose nearly US$60 million in textile orders due to the Korea-U.S. FTA. According to a 2010 Chung-hua Institution for Economic Research (CIER) report, Korea’s FTAs with the United States and EU will exert the largest negative impact on Taiwan’s chemicals, plastics, textiles, and ready-made clothes. Currently over 40% of Taiwan’s chemical exports to the EU are subject to tariffs of between 5% and 10%, and Taiwanese companies stand to lose market access and price competitiveness in these and other industries in the face of Korea’s lower tariffs. Because many Taiwan companies operate on thin profit margins, even a 5% tariff can significantly impact a company’s bottom line and its ability to invest in future R&D. The competition cuts both ways, however. Korea is concerned that Taiwan has gained an edge in China. The Korean Mission in Taipei notes that since ECFA was signed, the gap between the two countries’ share of the Chinese market has narrowed considerably. For the past 10 years, Korea has maintained an approximately 10% share of the Chinese import market, while Taiwan has increased its share from 7.17% in 2011 to 8.66% in the first half of 2013. Over the medium to long term, the Korean Mission expects the still-tobe-concluded ECFA agreement on trade in goods to have a “considerable negative impact” on Korean exports that are competing with Taiwanese products in China. Because of ECFA, Korea accelerated negotiations with China on an FTA, with an agreement now scheduled to be completed next year.

Korea

level of industry consolidation in Taiwan, where small and medium sized enterprises (SMEs) make up the bulk of the industrial structure. If the Taiwanese are noted for being entrepreneurial and cost-conscious, dedication and patriotism seem to be characteristics of the Korean national psyche. In the wake of the Asian Financial Crisis, the humiliation of Korea having to accept International Monetary Fund loans spurred the country to undertake comprehensive reform, acquire the capacity to

“That is the major challenge for Taiwan right now,” says Liu Da-Nien, director of CIER’s Regional Development Study Center. While Taiwan has suffered some negative trade diversion effects from Korea’s FTAs with the United States and EU, Taiwan ships a smaller percentage of its exports to those markets (12% and 10% respectively) than to China/Hong Kong (40%). Liu says Taiwan needs to move swiftly to finalize ECFA’s follow-on trade in goods negotiations by the end of this year so as to ensure that the FTAs China is negotiating with other countries do not dilute the economic benefits of ECFA. “For us it is very critical,” he observes. Despite its seemingly disadvantageous position, Taiwan may still have an opportunity to contribute to the next stage of regional integration. According to Peter Drysdale, a professor of economics at Australia National University and a leading architect of the Asia-Pacific Economic Cooperation (APEC) forum, the focus of integration in the region has shifted from liberalizing trade in manufactured goods and commodities – first to investment and now increasingly to trade in services, which will involve a whole range of regulatory issues affecting market access that cannot be negotiated in traditional ways. Consequently, “Taiwan doesn’t have to be an outsider to this process, certainly not economically, or even politically,” he asserts. “It has a lot to give because it is quite a tightly regulated system. It can be a driver of these new developments.” — By Daniel Severson

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Cover story produce its own technology, and venture out onto the world stage. Su notes that the Korean legislature may contentiously debate domestic issues, but when it comes to deregulating to help Korean companies gain more international market share, the lawmakers work assiduously toward a common goal.

Political considerations Political factors also influence Taiwan and Korea’s economic potential. “Taiwan’s problem is not its industries,” insists Wang of National Chengchi University. “The problem lies at the intersection of politics and economics. We’re disoriented.” He notes that while Koreans are crystal clear in their goal of exploiting the Chinese market, the Taiwanese are conflicted about their relationship with the mainland. On the one hand, they want to take advantage of the Chinese market, but on the other fear being pulled into Beijing’s orbit. Taiwan’s people still debate whether their island is

a part of China or separate. According to Wang, this uncertainty is an underappreciated factor that affects many levels of decision-making. Taiwan’s unsettled international political status has other costs, too. Korea has managed to attract many worldwide events, including the 2002 FIFA World Cup and the 2018 Winter Olympics. These major worldwide events bring investment, contracts from global companies, and international awareness of Korean culture and economic life. Some business leaders also point out that the continuing U.S. military presence on the Korean peninsula is a bargaining chip for Seoul to lobby Washington to consider its economic interests favorably. Because Taiwan does not enjoy these advantages, it must work harder to compensate and excel on other fronts. While the Korean model has helped its people surge ahead internationally, it is by no means devoid of risk. The economy is vulnerable to fluctuations, as the Asian Financial Crisis of the late 1990s showed.

許多決策層級的不自覺因素。台灣的國際政治地位未定，也引發許多代價。南韓設法爭取許多世界性活動，包括2002年世界盃足球賽和 2018年冬季奧運在內。這些大型國際活動帶來投資、來自全球企業的合約，以及南韓文化和經濟生活的國際知名度。一些受訪的商界領袖還指出，美軍持續駐紮朝鮮半島，成為首爾遊說華府考慮支持南韓經濟利益的談判籌碼。台灣並未擁有這些優勢，就必須更努力在其它方面尋求補償和勝利。南韓的模式幫助人民在國際間取得遙遙領先地位，但絕非毫無風險。其經濟易於波動，就像1990年代後期亞洲金融風暴的情況。此一脆弱性有一部分是經濟權力過度集中所致。在南韓2012年的出口中，財閥占了82%。光是三星就占南韓GDP的20%，相當驚人。倘若三星出事，誰能遞補其在南韓扮演的超級龐大角色？此外，在一個勝者為王的體制中，財閥抗拒能促進健全競爭的改變。蘇孟宗堅稱，基於前述種種原因，「我們要前進，不應試圖模仿南韓」，「我們反而應專注於我們最擅長的領域，嘗試促進更多創新，鬆綁更多法規」。南韓的另一個重大憂患是中小企業脆弱。台灣的中小企業都是活力充沛的創新者。根據台經院2010年針對研發強度（研發在銷售額所占百分比）的報告指出，員工編制在300到999人之間的台灣企業，研發支出超越南韓同類型業者（1.8%對1.2%），不過仍遠遠低於美、德兩國的同類公司。台灣的許多小型企業可能並不為消費者所熟知，卻是在供應鏈中扮演決定性角色的「隱藏冠軍」。例如 22

This vulnerability stems in part from the extreme concentration of economic power. In 2012, the chaebols accounted for 82% of Korea’s exports. Samsung alone accounts for an astonishing 20% of Korean GDP. If Samsung stumbles, who can fill its outsized role in Korea? Moreover, in a system that picks winners, chaebols resist changes that would stimulate healthy competition. For these reasons, “going forward, we should not try to emulate Korea,” maintains Su. “We should instead concentrate on what we do best and try to promote more innovation, more deregulation.” Another major concern in Korea is the weakness of its SMEs. In Taiwan, those enterprises are lively innovators. According to a 2010 report by TIER on research-and-development intensity (R&D as a percentage of sales), Taiwan companies with between 300 and 999 employees are spending more than their Korean counterparts – 1.8% as against 1.2 % – though still significantly less than similar sized companies in the United

台灣的上銀公司製造關鍵的機械零組件，供鴻海生產 iPhone。多樣化的中小企業賦予台灣經濟更多彈性，適應多變的市場環境。例如台灣最重要的自行車製造商巨大公司鑒於成本上升，將勞力密集的生產設施移往中國，卻將核心研發中心留在台灣，製造高附加價值的自行車。南韓財閥將業務發包給數以千計的國內中小企業，後者通常別無選擇，只能迫於壓力接受較低的價格。財閥也能利用自身的規模排擠競爭者。南韓駐台代表丁相基表示，南韓可以學習台灣大型和中小企業之間的「和諧關係」。的確，南韓巨獸企業和小型業者之間的緊張關係，反映經濟不平等問題越來越令人憂慮。朴槿惠總統的一項選戰訴求「經濟民主化」，就是針對中小企業員工的不滿情緒，他們的新資和福利都遠低於財閥的員工。整體而言日益擴大的貧富差距，也令人關切。南韓2013年的所得不平等情況，超越經濟合作暨發展組織（OECD）會員國的平均值，南韓最富有的10%人口收入，是最貧窮10%者的10.5倍。丁相基指出：「南韓人民已開始要求社會在成長和福利之間求取平衡。」就購買力平價（purchasing power parity）而言，台灣的人均GDP（38749美元）大大超越南韓（32272美元），是台灣生活費較低廉的部分反映。達美航空台灣暨韓國總經理張建仁觀察發現，南韓的工作與生活關係失衡情況較台灣嚴重許多。自殺率是另一個顯示社會代價的指標。南韓2011年的自殺率為每十萬人有28.4人自殺，台灣則不到一半

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Korea

States and Germany. Many of these smaller Taiwanese companies may not be recognizable to consumers, but are “hidden champions” that play crucial roles in the supply chain. For instance, Taiwan’s HiWin makes key mechanical components that go into Foxconn’s production of the iPhone. Diversified SMEs also give Taiwan’s economy more flexibility in adapting to changing market circumstances. For example, due to rising costs, Giant – Taiwan’s leading bicycle manufacturer – moved its labor-intensive production facilities to China but retains its core R&D center in Taiwan for making highvalue-added bicycles. In Korea, the chaebols contract with thousands of domestic SMEs, who often have no choice but to acquiesce to pressure to lower prices, and the mega-firms can also use their size to squeeze out competitors. Chung Sang-ki, the head of the Korean Mission in Taipei, says Korea can learn from Taiwan’s “harmonious relations” between large firms and SMEs.

Indeed, tensions between Korea’s behemoths and small companies reflect increasing concerns over economic inequality. One of President Park Geunhye’s campaign pledges was “economic democratization,” responding to negative sentiment among SME employees who receive much lower pay and benefits than their counterparts at chaebols. The general widening gap between rich and poor is also a concern. In 2013, Korea’s income inequality surpassed the average of Organization for Economic Cooperation and Development (OECD) members, with Korea’s richest 10% earning 10.5 times the income of the poorest 10%. “The Korean people have called for a balance in society between growth and welfare,” notes Representative Chung. In terms of purchasing power parity, Taiwan’s GDP per capita (US$38,749) substantially exceeds Korea’s (US$ 32,272), in part reflecting the lower cost of living on the island. Raymond Chang, the Delta Airlines general manager for both markets, observes that the work-

（每十萬人有12.3人）。根據OECD指出，南韓的自殺率在1995至2009年間增加157%，其它OECD會員國卻大多減少。在同一期間，南韓男性自殺率增加超過一倍，女性自殺率目前高居OECD之冠。這些赤裸裸的數字意味南韓在追求國際競爭力的過程中，也面臨社會成本不斷升高。

不只是競爭者台、韓在全球舞台是競爭者，卻也進行廣泛合作。 2012年的雙邊貿易首度超越300億美元。台灣是南韓的第六大貿易夥伴，南韓則是台灣排名第五的重要貿易國。同樣在2012年，兩國雙向往返的旅遊人次突破66 萬。駐台北韓國代表部指出，電子業零組件、原料和設備的雙向貿易尤其活絡。例如宏達電手機採用南韓零組件，三星的筆記型電腦則內含台灣零組件。即使是半導體業（雙方競爭最激烈的產業之一），兩國也進行大量貿易。去年南韓出口36億美元的半導體到台灣，台灣則運送價值81億美元的產品到南韓。這兩個經濟體也積極合作解決已發現的弱點。工研院和南韓中小企業研究院（KOSBI）在2012年簽署瞭解備忘錄（MOU），雙方矢言鼓勵台韓中小企業之間的合作。每一方都希望從對方的互補強項中受益——KOSBI 善長垂直整合，工研院則擁有水平分工和有效市場策略的專業知識。丁相基表示，未來雙邊合作最大有可為的領域，就

life relationship in Korea is much more imbalanced. The suicide rate is one indicator that points to the social toll. In 2011, Korea’s suicide rate stood at 28.4 per 100,000 people, while Taiwan’s was less than half that level (12.3 per 100,000). According to the OECD, Korea’s suicide rate increased by 157% from 1995 to 2009, even as the rate fell for most other OECD members. Over that time period, Korea’s male suicide rate more than doubled, and the rate among women is currently the highest in the OECD. These stark figures signal the rising social cost Korea has experienced in its quest for international competitiveness.

Not just competitors Despite being global competitors, Taiwan and Korea also cooperate extensively. In 2012, bilateral trade surpassed US$30 billion for the first time. Taiwan is Korea’s sixth largest trading partner, and Korea is Taiwan’s fifth most important

是半導體、電子和LCD面板產業業者之間的技術合作和零組件貿易，以及紡織業。他也樂見台韓企業合作滲透中、美、歐盟之類的大型市場。若台灣的經濟發展一直落後南韓，要如何才能迎頭趕上或至少縮小差距？這很難精確指出任何行動方向。不過商界人士、產業分析師和學者在訪問中提出一些主題。台灣的產業結構必須進行升級、整併和多樣化，也需要鬆綁法規，改善經濟效率。許多人都認為台灣應專注於成為創新與高附加價值服務的中心。不過台灣表示想做的東西和實際去做的成果一直有很大落差。為了讓台灣提升價值鏈，許多人呼籲台灣擺脫委託代工模式，把焦點放在品牌發展。三星、現代和起亞等南韓企業經過長久努力，成為家喻戶曉的品牌。台灣已建立國際知名度的品牌非常少。宏達電在2011年闖進品牌顧問公司Interbrand的全球百大品牌之列，但後來跌出榜外。在此同時，三星躍上全球第九名，被指為是2012年的「最佳崛起企業」。不過發展品牌所費不貲，而且可能只適合某些公司。台經院的呂曜志表示：「品牌發展是非常高度講究的策略。」「它不是社會運動，也不是研發。大家都需要研發，但不是所有人都需要發展品牌。」兩國產業結構的不同，導致台韓投資研發的程度和性質迥異。研發在GDP所占百分比的程度被視為創新能力的指標。幾乎沒有任何國家達到3%的大關，不過過去數年來，南韓的比率已有所增加，希望能提高經濟的知識和科技密集度（見附圖）。工研院的蘇孟宗說：「為了台灣，我們希望增加本院

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Cover story trading country. Also in 2012, travel in both directions exceeded 660,000 visits. The Korean Mission in Taipei notes that the active two-way trade is especially heavy in electronics industry components, materials, and equipment. HTC phones contain Korean components, for example, and Samsung notebooks include Taiwanese components. Even in semiconductors – one of the industries with the keenest competition – the two countries engage in substantial trade. Last year Korea exported US$3.6 billion dollars of semiconductors to Taiwan, while Taiwan shipped US$8.1 billion dollars’ worth to Korea. The two economies also actively collaborate to address their perceived weaknesses. In 2012, ITRI and the Korea Small Business Institute (KOSBI) signed a memorandum of understanding in which the two institutes pledged to encourage cooperation between SMEs in Taiwan and Korea. Each side hopes to benefit from their complementary strengths – KOSBI’s forte in vertical integration and ITRI’s expertise in horizontal work distribution and efficient

market strategies. Representative Chung says the most promising areas for future bilateral cooperation are technical cooperation and trade in components among companies in the semiconductor, electronics, and LCD sectors, as well as the textile industry. He would also like to see cooperation among Taiwanese and Korean companies to penetrate large markets such as China, the United States, and the European Union. If Taiwan has been lagging behind Korea in economic development, what might it do to catch up, or at least narrow the gap? It is difficult to pinpoint any one course of action. Yet in interviews with businessmen, industry analysts, and academics, a number of themes emerge. Taiwan needs to upgrade, consolidate, and diversify its industrial structure, and it needs to deregulate to improve economic efficiency. Many agree that Taiwan should focus on becoming a center for innovation and high-value-added services. But there has been a large discrepancy between what Taiwan says it wants to do and what it has actually done.

CApTURINg INNOVATION ThROUgh pATENTS

aiwan and Korea are classic success stories of economies that quickly moved from playing technological catch-up to generating innovation. Patents – a way of measuring a society’s success in developing useful inventions – help tell the story. Since the 1990s, both Taiwan and Korea have excelled in obtaining U.S. patents, surpassing all other advanced economies except for the United States, Japan, and Germany (see chart). For years, Taiwan led Korea in the volume of awarded patents, but Korea has recently shot ahead. In 2006, the U.S. Patent and Trademark Office issued roughly the same number of patents to Korea and Taiwan. Since then, however, Korea has outstripped Taiwan, earning 13,233 patents in 2012 as against Taiwan’s 10,646. Since the early 2000s, Taiwan firms have doubled the number of patents they hold. 24

Given its smaller population, on a per capita basis Taiwan is a very lively innovator. Yet among the top 200 patent recipients annually in the United States, only six companies and the Industrial Technology Research Institute (ITRI), the state-sponsored organization established to help Taiwan’s SMEs carry out R&D, are Taiwanese. “For an economy like this that is proud of innovation, that’s not a really good record,” observes Richard Thurston, general counsel at Taiwan Semiconductor Manufacturing Co. (TSMC). The challenge involves generating patent quality as well as quantity, however. “There’s a lot of innovation here, but is it truly strategic innovation?” asks Thurston. “Has it captured the right commercial intellectual property value?” In a 2010 paper that they co-authored, economists Wang Jenn-Hwan and Tsai ChingJung of National Chengchi University conclude that with the help of their vast financial

In order for it to move up the value chain, many voices call on Taiwan to shift away from the OEM model and focus on branding. After a long effort, Korean companies like Samsung, Hyundai, and Kia are becoming household names. Taiwan has very few internationally established brands. In 2011, HTC cracked Interbrand’s Top 100 Global Brands, but has since fallen out. Samsung, meanwhile, now sits at number 9 worldwide and was identified as a “top riser” in 2012. Branding is expensive and may only be suitable for certain companies, however. “Branding is a very highly selective strategy,” says TIER’s Liu. “It’s not a social movement. It’s not R&D. Everybody needs R&D, but not everybody needs branding.” As a consequence of the two countries’ differing industrial structures, Korea and Taiwan vary in the extent and nature of their investment in R&D. The level of R&D as a percentage of GDP is considered an indicator of innovation capacity. While few countries reach the 3% mark, over the past few years Korea has super-

resources, “Korean firms have produced products with higher levels of technological complexity than Taiwanese firms,” often leapfrogging to new levels of sophistication. By contrast, as contract manufacturers, Taiwan firms tend to prefer “modular and incremental innovations with low cost and flexibility.” The distribution of patent ownership reflects these structural differences. In Korea, chaebols have commanded the lion’s share of patents. In 2012, for instance, Samsung accounted for 38% of all U.S. patents granted to Korea – and also ranked second globally behind IBM. For Taiwanese applicants, a significant number of patent filings have been either by smaller companies or individuals, often with only one independent claim submitted per patent application. When issued, says Thurston, such patents are usually “not really strong for the purpose of bringing economic leverage and building business, and most especially, are often ineffective in litigation.” The picture is changing, however. Among Taiwanese applicants for U.S. patents, the

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KOREA OVERTAKES TAIWAN IN ANNUAL NUmBER Of Korea U.S. pATENTS AWARDED charged its rate in an effort to make its economy more knowledge- and technology-intensive (see chart). “For Taiwan, we want to increase our R&D spending, but resources are limited,” says ITRI’s Su. Given that Korean and Chinese R&D expenditures will inevitably dwarf Taiwan in absolute terms, the task is “better portfolio management” to gain the most benefit from the investment rather than focusing on the total dollar amount. One strategy would be to enhance R&D cooperation with Japan to obtain more opportunities for the transfer of sophisticated technologies. “Moving forward, one of the challenges Taiwan has is that it really needs to move up the value chain in terms of the products it builds, and to do that requires more core R&D,” notes Scott Meikle, president of Inotera Memories, a Micron joint venture. He says that the consolidation currently underway in the DRAM industry increases prospects for more basic R&D because “it makes the picture a lot cleaner and simpler.”

proportion of individuals has declined from 90% during the period 1978-1986 to less than 50% in 2000, 37% in 2004, and under 15% last year. Wang and Tsai therefore conclude that Taiwan’s innovation system is “converging towards that of its Korean counterpart,” with big firms playing a greater role in innovation, though sectors such as the machinery and drug industries still reflect the dynamism of Taiwan’s SMEs. Whether big or small, Taiwan companies face an increasingly adverse environment of patent-infringement litigation. Streams of outgoing royalty payments to foreign companies and rising legal costs risk undermining the competitiveness of many companies here. Thurston suggests that Taiwan firms adopt a strategic approach to IP protection. In a recent journal article, he calls on Taiwan companies to shift their mindset toward “strategic and defensive patenting” that integrates business, R&D, and legal resources to develop a “planned” patent portfolio. Implementation of that strategy, which requires foresight and patience, may be a

15000

10,675

12000 9000

5,718

6000 3000 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: U.S. Patent and Trademark Office (USPTO)

Taiwan

Korea, South

Consolidation in other major industries may also be necessary, especially if Taiwan wants to more closely follow the Korean model of development. The changing market environment favors large enterprises capable of investing in R&D to compete internationally. But Taiwan’s small market size and SME-centric industrial structure pose disadvantages in competing on a global scale. Reshaping the industrial structure therefore also involves diversifying, as Korea has been doing in adding K-pop and cosmetics, for example, to its ship-

building, automobiles, and electronics. According to TIER’s Liu, Taiwan would be best served by focusing its financial and human resources on specific niche areas, particularly knowledge-centric, high-value-added sectors such as the cultural-creative, design, and service industries. CIER’s Liu Da-Nien says that Korea’s industrial strategy is to continue diversifying, “but the problem for Taiwan is more serious because we are so concentrated on electronics-related industries.” Indeed, Taiwan’s ICT products account for over 45% of export value, among the highest ratios in the world. As Taiwan carries out such a shift,

challenge, however. Thurston says a patent application in the United States typically takes three years to complete, and usually it is not apparent until the seventh year whether that patent has real value. That may be a long waiting time for Taiwan companies operating on thin profit margins. Another issue is funding. According to Thurston, top-flight patents – the ones with a qualitative edge that can build a business – may require as much as US$7,000 to US$10,000 to file. ITRI spends an average of US$8,500 per patent. A few major Taiwan companies (such as TSMC, Hon Hai, Mediatek, and AU Optronics) also are committing similar sums, but most Taiwanese companies are not allocating sufficient resources to develop a top-quality portfolio of patents that will stand up in future law suits. Culturally, Taiwanese have also been averse to litigation. Giving her personal viewpoint, Intellectual Property Court judge Hsiung Sung-mei remarks that for many Taiwan companies, “the vision is not broad enough – they are only afraid of becoming

defendants,” rather than using patents as litigation tools. Korean companies are much more powerful in the global market in part because they are more aggressive. Hsiung notes, however, that the Korean judicial system remains relatively conservative and lacks a separate IP Court. According to the World Intellectual Property Organization, in 2011 China for the first time became the largest patent office in terms of the number of applications received. With its professional judges, efficient rulings, and low-cost filings, Taiwan has the potential to become an IP legal center for the greater China market, says Hsiung. Treating intellectual property as a business asset will require coordination and commitment. “Taiwan is perfectly capable of doing it, but we’ve gotten so far behind much of the rest of the techno-industrial world in this respect,” says Thurston. As Taiwan faces an economic watershed, one challenge will be how to best capture, protect, and advance its people’s innovations. — By Daniel Severson

Consolidating and diversifying

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Cover story there may be increased opportunities to bring some manufacturing back from China to Taiwan, since wages on the mainland have increased without a commensurate rise in productivity. In the long run, the government says it hopes to attract 5% of Taiwanese-run businesses in China back to the island. Achieving that goal will entail tackling labor issues and immigration policy, as well as promoting more extensive factory automation. Another important factor in ensuring Taiwan’s future economic competitiveness, most sources agree, will be the continuation of improved crossStrait relations and trade cooperation. In fact, several of the interview subjects suggest, Taiwan could aim to become the operations and design hub for China’s rapid industrial development. Taiwan’s geographic proximity to China, the cultural and linguistic ties between them,

and recent cross-Strait trade and investment agreements are significant advantages. At the same time, however, the potential for Taiwan to serve as a gateway to China for multinational corporations (MNCs) is being undercut by continuing restrictions on Chinese exports and investments, the experts say. “ Ta i w a n o v e r t h e l a s t 1 0 y e a r s has lost a lot of puff,” observes Peter Drysdale, emeritus professor of economics at Australia National University. “There hasn’t been a consistent economic reform agenda.” He views Taiwan as facing a “critical turning point” akin to the challenge Australia encountered in the 1980s when its economy struggled relative to countries in the OECD and Asia. Then-Prime Minister Bob Hawke took the case for deregulation and reform to the people, Drysdale says, delivering a simple message – “if we don’t lift our game, we’ll be at the bottom of the pack”

的研發支出，但是資源有限。」考量到南韓和中國的研發經費絕對無可避免會讓台灣相形見絀，這項任務是進行「較好的投資組合管理」，大部分獲益來自投資，而非把焦點放在金額總數上。強化和日本的研發合作是個辦法，以獲得更多尖端科技轉移的機會。美商美光科技（Micron）的合資企業華亞科技公司總經理梅國勳指出：「就打造的產品而言，台灣在前進過程中所面臨的挑戰之一，就是確實有必要提升價值鏈，而這麼做需要從事更多核心研發。」他表示，DRAM產業最近在進行的整併，提高從事更多基礎研發的可能性，因為「讓局面俐落簡單許多」。

整併與多樣化另一個產業也可能需要整併，尤其是如果台灣希望更密切追隨南韓的發展模式。不斷變化的市場環境，對有能力投資研發以從事國際競爭的大型企業有利。不過台灣的市場規模不大，加上以中小企業為中心的產業結構，並不利於全球性競爭。因此產業結構的重塑也包含多樣化，一如南韓在造船、汽車和電子產業之外，也增加了韓流音樂和美妝品等產業。據台經院的呂曜志表示，台灣最適合把金融和人力資源焦點放在特定的利基領域，尤其是知識核心的高附加價值產業，例如文創、設計和服務業。中經院的劉大年表示，南韓的產業策略是持續推動多樣化，「但台灣的問題更嚴重，因為我們非常集中在電子相關產業」。的確，台灣的資通訊（ICT）產品占出口值的45% 以上，比例之高在全球名列前茅。在台灣進行產業結構轉變的同時，吸引製造商從中國回流台灣的機會也增加，因為中國大陸的工資上漲，生產力卻並未等量成長。從長遠來看，台灣政府表示希望 26

– and the payoff was huge in terms of productivity gains. Taiwan could certainly go on in its comfortable existence, but economic reform will drive “what the fundamental ambitions of the Taiwan people might be, are encouraged to be, are made to be,” says Drysdale. Establishing a consistent economic reform agenda has so far eluded Taiwan, however. One proposal is to create a national blue-ribbon commission with the authority and financial wherewithal to set a new direction in economic policy. Taiwan has many of the right pieces – strong infrastructure, democracy, rule of law, and excellent human capital. Indeed, Taiwan’s greatest advantage is its smart, hardworking, entrepreneurial people. The chief task is to assemble those pieces in a way that enables Taiwan to further harness the imagination of its people and spur them to greater heights.

吸引5%的中國台商回流。要達成此一目標，就需處理勞工議題和移民政策，並促進更廣泛的工廠自動化。大部分受訪者都同意，確保台灣未來經濟競爭力的另一個重要因素，就是持續改善兩岸關係與貿易合作。事實上，數位受訪者指出，針對中國快速的產業發展，台灣可以成為營運和設計樞紐為目標。台灣在地理上鄰近中國、彼此擁有文化和語言的連結，加上最近達成的兩岸貿易和投資協議，都是重大優勢。不過專家表示，在此同時，台灣可做為跨國企業（MNC）進軍中國門戶的可能性，正因為台灣持續限制中國出口商品和投資而逐漸削弱。澳洲國立大學（Australia National University）名譽經濟學教授Peter Drysdale觀察發現，「台灣過去10年氣勢大減」，「沒有連貫的經濟改革計畫」。他認為台灣正面臨類似澳洲在1980年代遭遇的「關鍵轉捩點」，當時相對於OECD會員國和亞洲國家，澳洲經濟陷入困境。Drysdale表示，當時的澳洲總理Bob Hawke趁機向人民推銷法規鬆綁和改革，傳遞一個簡單訊息——「如果我們不加碼，就會被壓落底」，事後從提升生產力方面來看，成效相當龐大。 Drysdale表示，台灣當然可以繼續安然生存，不過經濟改革會驅動「台灣人民可能擁有、被鼓勵擁有和被迫使擁有的根本野心」。不過確立連貫的經濟改革計畫，目前對台灣來說是一大難題。有一項建議是創立擁有授權和財政手段的國家藍帶委員會，制定新的經濟政策方向。台灣有許多適當的元素——健全的基礎建設、民主、法治和優秀的人力資本。的確，台灣最大的優勢就是擁有機靈、敬業、具有開創精神的人民。最主要的任務就是將這些元素以適當方式組合，讓台灣能進一步利用人民的創造力，激勵民眾屢創高峰。

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The Competitiveness Conundrum Taiwan performs well in international surveys, but the significance of those results is subject to question. BY LEV NACHMAN AND DON SHAPIRO

everal times a year, reports in the Taiwan media spotlight the latest results from one of the leading research organizations that track international economic competitiveness. Quite often Taiwan scores quite well on those surveys. But members of the business community frequently wonder about differences between the survey findings and what they are seeing on the ground. And if Taiwan is such an attractive location, why isn’t more foreign direct investment (FDI) flowing into the island? Last year’s FDI figure, US$5.6 billion, while slightly better than the past several years, was still considerably less than most of the other major economies in the region. The amount for Korea, US$16.3 billion, was about three times as much. Although more than 10 organizations conduct international competitiveness surveys, four of them tend to be regarded as the most authoritative and prestigious, and they are the ones that receive the most publicity in the Taiwan media when their survey results are announced. Business Environment Risk Intelligence (BERI). A private U.S. company based in Washington State, BERI specializes in risk analysis. Of the six publications BERI releases each year, the one that receives the most attention is the Business Risk Service (BRS) published three times a year. BRS ranks 50 countries under three specific categories – Political Risk (based on 10 political and social variables), Operations Risk (comprising 15 political, economic, financial, and structural variables), and Remittance and Reparation Factors (a weighted index covering the country's legal framework, foreign exchange, hard currency reserves, and foreign debt). It then calculates an overall composite Profit Opportunity Recommendation score

by averaging the other three ratings. In the survey published this May, Taiwan moved up one notch from the previous report to rank third in the world overall behind only Singapore and Switzerland, making it second in Asia. In specific categories, it was rated seventh in the world for Political Risk and second for both Operations Risk and Remittance and Reparation. Besides quantitative data, BERI also receives input from two permanent panels of professionals to help with qualitative analysis. One panel is made up of 108 senior bank, corporate, and government officials who provide ratings for economic and financial operation conditions. The other panel, consisting of 102 experts, analyzes sociopolitical factors such as corruption. A major reason for Taiwan’s especially high score by BERI may be the survey’s high emphasis on the Remittance and Reparation factors. Taiwan has one of the world’s largest foreign exchange reserves (US$409 billion as of the end of July) and quite low external debt. Institute for Management Development (IMD). This world-renowned Swiss business school's World Competitiveness Center (WCC) has been closely studying global competitiveness for 25 years. Like BERI, IMD also offers consultation services to businesses and governments. Each year, IMD publishes the World Competitiveness Yearbook, which contains a survey report ranking the international competitiveness of 60 countries based on IMD’s own research. IMD's methodology is to rely two-thirds on hard data and one-third on survey data. The hard data consists of statistical information provided by both international organizations (such as the World Trade Organization) and private companies or institutions. To collect the survey data, IMD circulates

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a questionnaire to business executives who are judged to represent an authentic sample of the leadership in the business community in each country. IMD asks them to evaluate present and expected competitiveness conditions in their respective countries. For the 2013 report, 4,200 responses were received from the 60 countries. Once all the data has been collected, IMD evaluates each country based on four main factors: economic performance, government efficiency, business efficiency, and infrastructure. Each factor is further divided into five sub-factors for a total of 20 different criteria used to determine a country's rank. This year, Taiwan ranked 11th in the world in overall global competitiveness, a drop from its seventh place in 2012. Within East Asia, Taiwan this year was third, behind Hong Kong (second) and Singapore (fourth). Most notably, Taiwan's government efficiency rating fell from fifth in 2012 to eighth in 2013, and the infrastructure indicator from 12th to 16th. World Economic Forum (WEF). This not-for-profit organization based in Geneva, Switzerland, has been publishing reports on world economic trends for over 40 years. It also holds the famed annual forum in Davos, Switzerland, as well as an annual World Economic Forum on East Asia. WEF publishes reports on various regions, plus industry-specific competitiveness reports. But its main publication is the annual Global Competitiveness Report (GCR). GCR evaluates countries according to what it calls the “12 Pillars of Competitiveness.” Among the pillars are infrastructure and the macroeconomic environment, but also such factors as healthcare, primary and higher education, and career training. The various pillars may have different weightings when considered in scoring the overall Global Competitiveness Index (GCI). Taiwan’s universal healthcare system and strong educational and training programs undoubtedly contribute to bringing up its score. Data for the GCI comes from statistics taken from international organizations such as the International Monetary Fund (IMF) and World Health Organization (WHO), from national sources, and from WEF's own Executive Opinion Survey. This year, 14,059 responses were gathered, 70 of which came from Taiwan. For the third year in a row, Taiwan scored 13th in the world on the latest GCI, which covered 144 countries. The report described Taiwan as “consistently strong,” but cited policy instability and restrictive labor regulations as the two main problems for business. World Bank’s Doing Business Report. This annual exercise, conducted since 2002, takes a rather different approach to determining competitiveness. Rather than focusing on a country’s macroeconomic situation and on the operations of large multinational enterprises, it looks at how specific business regulations and conditions affect small to medium-sized firms on a microeconomic level. In addition, Doing Business's findings are based entirely upon econometric data, with none of the perception-based input used in the other surveys. The 11 categories that are evaluated range from the ease of starting a business (for example, calculating just how 28

many days and how much expense it takes to go through the registration process) to protecting investors and resolving insolvency cases. The Doing Business team gathers information from experts in the relevant fields, such as prominent lawyers and accountants. The questions – such as “How many procedures are companies required to go through to receive a building permit?” – are extremely specific and call for factual, objective responses. This year, 10,000 survey responses were received. A board of 35 specialists in public policy then evaluates the data and gives countries their ratings. In the most recent survey released in autumn last year, Taiwan ranked 16th in the world among 185 countries on the overall ease of doing business. Since 2008 when it was in 61st place, Taiwan has steadily moved up the ladder. The World Bank views the survey as a catalyst for policy reform, and that appears to be the case for Taiwan. The government formed a task force coordinated by the Council for Economic Planning and Development (CEPD) to work on areas specifically identified as weaknesses by Doing Business. The resulting reforms can be divided into three rounds. First, in 2008 the minimum capital requirement for starting a business was abolished. In addition, tax and insurance application procedures were simplified. The next year, the procedures for registering a business were revised to streamline and accelerate the process. Finally, in 2010 the application process for construction and certain other permits was both simplified and made available online. All of these measures were based on Doing Business recommendations.

Reality check Besides the BERI emphasis on foreign exchange and debt mentioned above, and WEF’s consideration of healthcare and education, what other reasons might account for the discrepancy between the survey scores and actual investment attractiveness? One factor could certainly be the possibility of Taiwan’s exclusion, due to political pressures, from the emerging regional trade blocs – the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP). Remaining outside those alignments would put Taiwan products at a significant competitive disadvantage, reducing the desirability of using Taiwan as a base from which to serve the rest of the region. Multinational companies may already be factoring in that prospect when doing their investment planning. Some other considerations were cited by the Taiwan Institute of Economic Research (TIER) in a report that analyzed the four international surveys covered in this articles. It noted that despite the overall excellent ratings Taiwan has received, actual business conditions and performance have been unsatisfactory, affecting foreigners’ willingness to invest here. The report attributed the poor FDI levels of recent years to an “insufficient degree of liberalization” in government regulations and inadequate investment incentives. TIER particularly called for the revision of the “cumbersome investment application process” and modification of labor laws to free up

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restrictions on human resource management. In response to a query from Taiwan Business TOPICS, Derek Scissors, an Asian economic specialist with the Washington, D.C.-based think tank The Heritage Foundation, noted that “it is obvious at the outset, but then gets forgotten, that competitiveness is not the same as attractiveness to multinationals. Mercantile countries work to increase the competitiveness of their own firms first and designated foreign firms second, with the hope that all other activities actually suffer in comparison.” Aside from the tech supply chain and a few other sectors,” he said by email, “I would expect Taiwanese competitiveness to outstrip its appeal to multinationals.” The surveys also have serious flaws, Scissors added. “One is data quality. Rather than the best measures, what’s used is those that can be replicated, e.g. GDP. Another flaw is expansion over time in what is meant – toward potential rather than current competitiveness.” In the opinion of Academia Sinica academician Hu Sheng-cheng, also responding to TOPICS by email, “These international competitiveness surveys (WEF, IMD, BERI) are by and large accurate reflections of the potential of an economy for growth and for attracting FDI. But whether the potential is realized may be affected by, among others, the

government’s actions.” “Although Taiwan ranks high in these surveys, its rankings are consistently lower than Hong Kong and Singapore,” he notes. “When a company decides where in East Asia to invest, our ranking compared with [those locations] is much more important than our overall ranking.” In addition, actual investment decisions are usually based on certain specific factors, or on opportunities in a given business sector, rather than the overall score that determines the final ranking in the surveys. As a result, many business executives may “find the rankings inconsistent with their own observations.” “In the last few years, the Taiwan government has tried hard to attract FDI by building Taiwan as a jumping board for international companies who want to invest in China (by signing ECFA for example),” says Hu, who headed the CEPD during the Chen Shui-bian administration. “This effort has not been successful. Despite ECFA, most FDIs in Taiwan are from those which wish to build or expand R&D facilities here, which ECFA does not help. ECFA does not cause firms to move their manufacturing facilities from China to Taiwan, nor to alter their investment plans.” “In sum, the Taiwan government works hard to attract FDI but does not have the right recipe,” Hu concluded.

The Krugman Perspective

ne of the first papers to put Princeton University economist Paul Krugman in the spotlight – long before he become a Nobel laureate and New York Times columnist – was a paper entitled “Competitiveness: A Dangerous Obsession,” published in the March/April 1994 issue of Foreign Affairs magazine. In this paper, he called into question the entire concept of international competitiveness as a guide for policymaking. “A government wedded to the ideology of competitiveness,” he wrote, “is as unlikely to make good economic policy as a government committed to creationism is to make good science policy, even in areas that have no direct relationship to the theory of evolution.” The main point of the article is that the concept of competitiveness is relevant to companies, but countries simply do not operate like businesses. The United States and Japan, for example, do not compete with each other in the same way that Coke and Pepsi do. If Coke has a successful year,

it may be at the expense of Pepsi’s market share. But Japan’s success often complements that of the United States or has no negative impact on it. Corporations, in addition, have a distinct bottom line. When a firm runs out of money and can no longer pay its workers, it will go out of business and other enterprises may step in to take over its market share. The result is likely to be more profit for the remaining companies. When a country goes bankrupt, on the other hand, it does not disappear or see its population taken in by other nations. Its bankruptcy can have a negative impact on all the other countries it has economic ties to, as was most recently demonstrated by the threat of a broad economic crisis posed by Greece’s insolvency. Krugman addresses why many people find the concept of national competitiveness so attractive. “Tell a group of businessmen that a country is like a corporation writ large, and you give them the comfort of feeling that they already understand the basics,” he writes. “Try to tell them about economic concepts...and you

are asking them to learn something new.” By framing a country’s economic standing in terms of competitiveness, politicians and businessmen are able to view its economic capability vis-à-vis other nations in a way they feel is understandable. The drawback to that approach is that it does not guarantee accurate analysis, says the noted economist. As to why focusing on international competitiveness can lead to bad economic policies, Krugman argues that this focus tends to distort policymakers’ perspective. “If top government officials are strongly committed to a particular economic doctrine, their commitment inevitably sets the tone for policy making on all issues, even those which may seem to have nothing to do with that doctrine,” he cautions. Krugman warns that government officials that commit themselves to following a specific kind of economic regulation will be influenced by that regulation on matters that may have no relevance to economic reform. — By Lev Nachman

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How to Be More Employable The AmCham Internship Program gives member companies a chance to offer guidance to local college students. BY LEV NACHMAN

his summer, AmCham Taipei put on its first summer internship program, with the assistance of sponsor Eli Lilly & Co. The goal of the program was to place Taiwanese college students in internships at AmCham member companies, both to provide the students with valuable practical experience and to introduce the companies to outstanding young talent to help with short-term projects. A total of 66 students applied from 21universities. After a rigorous screening process, the program placed five interns in four different member companies: McKinsey & Co., Eli Lilly, Compass PR, and the Fulbright Foundation.

William Farrell

William Farrell, managing director of boyden international executive search, notes that when college students or recent graduates begin applying for jobs, they are often faced with the challenge of a blank resume. 30

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He stresses that one of the best things students can do to begin to build their credentials is to hold an internship. “Internships are invaluable,” he says. “They show that someone takes initiative, they are aggressive, and that they are goal-oriented.”

says Leung, and the best way to learn how to behave in the business world is from direct experience. She regards that experience as even more valuable to candidates than the grades they received or degrees earned in school, noting that what someone majored in or how they performed academically may not matter nearly as much as one may think.

Pauline Leung

More than just a simple parttime job, internships – whether with a political, social, business, or some other organization – can be an important indicator that the person is hardworking and serious about gaining experience, says Pauline Leung, CEO of Compass PR. “I really suggest that students not waste their summer holidays and instead have the experience of working 9 to 5.” An internship gives students full exposure to working in a professional business environment, which is the type of experience that employers are seeking in new graduates. “We are looking for a professional attitude,”

Bill Wiseman

Echoing that thought, Bill Wiseman, Managing Partner of McKinsey & Co. Taiwan, says that while receiving high grades is essential for those looking to stay in academia, students planning to go into business may want to focus their efforts on gaining a broader range of experience. “I honestly do not look at academic performance,” says Wiseman. “I do not believe it is an indicator of potential success.” The hard truth for any students who invest a lot of their time into studying for perfection is that future employers may not

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value their academic record the same way as their professors did. Many students also spend too much time worrying about what subject to major in, the business executives say. Even for those headed for a career in business, having a business-administration major may not bring any advantage over someone who majored in another field. In fact, having majored in a subject other than business may make one’s application stand out more. “The majority of applicants that I see have a business background – they come with a very linear resume,” says Wiseman. “What I’m much more interested in is someone with a science background who is looking to get into business.” Those applicants are more likely to have a unique perspective to bring to a company and a different approach to problem-solving. Even if a student excels in business courses, it does not guarantee that he or she will perform better on the job than someone without business training. “Regardless of the major, as long as you meet basic requirements, we can train you,” says Leung, adding that no matter how much someone may have learned in school, every job will still require training. “We are much more interested in how fast a candidate can learn and adapt,” says Wiseman. Rather than what you already know, companies are much more interested in how fast you can grasp something new. Students should be mindful that although they have finished school, they will need to continue to learn new skills throughout their entire career.

Resumes and interviews “Just looking at the resume really doesn’t tell you much,” says Leung, noting that even for those with experience and a good background, what matters most to employers is the interview. “It’s not a test,” says Farrell. “Often people are too nervous. What it really is is a look to see if you are a good fit. People need to be comfortable with themselves.” Often what matters most to employers is not the applicant’s qual-

ifications per se, but whether they see the candidate as someone who would mesh efficiently into the company. When screening a candidate's resume, says Wiseman, “the first thing I do is to drop right to the bottom and look at hobbies and activities. What I'm looking for is: ‘Is this an interesting human being?’ If I look and see that they are a boring person, it may be the smartest person in the world, but I'm not going to look at their resume.” Like having an unusual academic background, having personal experiences to make you “interesting” can be just as valuable to a company, if not more so, than your education. “Taiwan is an overeducated market,” says Wiseman. Taking time to have more real life experiences enables students to stand out more, both on resumes and in interviews. Executives also emphasize the important of English, which is the language of business, no matter where you are in the world. Those wishing to work for a business organization need to have a high level of proficiency in the language – not just being able to

Edgard Olaizola

speak English, but having the ability to speak it well. Merely a basic proficiency will not suffice. “Just a couple of years’ exposure to a foreign language is really not enough,” says Leung. Students who have taken their language studies seriously will have a much stronger advantage when searching for a job. They will qualify for more jobs, interview better, and ultimately work better. Another piece of advice from the business executives is to know what it is you want professionally. As Eli Lilly General Manager Edgard Olaizola puts it: “Think about your motivation and what kind of environment you're looking for. That’s more important for your first jobs than landing a big name on your resume.”

Eli Lilly: Internship Program Sponsor “The AmCham Summer Internship Program would not have been possible without the generous support of sponsor company Eli Lilly & Co.,” says AmCham Taipei President Andrea Wu. Explaining the company’s interest, Edgard Olaizola, General Manager of Eli Lilly Taiwan, notes that “we are always looking for top talent and the future generation of leaders, and we do internships worldwide, including Taiwan.” “Since we partner with AmCham on many fronts, we thought this program was a great opportunity to continue supporting the Chamber,” says Olaizola. Five AmCham member companies took interns this summer thanks to the program, with Eli Lilly itself taking two interns. “The whole experience worked out very well for us,” says Olaizola. Eli Lilly is an industry leader in researching and producing pharmaceutical products used by thousands of people around the world. Their products help treat such diseases as depression, diabetes, and osteoporosis. Worldwide, Eli Lilly employs 38,000 employees, with more than 200 of them based in Taiwan, where the company has maintained operations since 1966.

A video based on the executive interviews can be viewed on the AmCham website (www.amcham.com.tw) or at www.youtube.com/amchamtaipei taiwan business topics • september 2013

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Reflections of a Counterfeit-fighter Since first arriving in Taiwan in 1981, Jeffrey R. Harris has been at the forefront of the drive to improve the climate here for intellectual property rights (IPR) protection. A native of Iowa, he came to Asia right after graduation from Iowa State University, and at first worked for a Hong Kong-based investigation company, The CTS Group. In 1982, he was the founding chairman of AmCham Taipei’s Intellectual Property & Licensing Committee – and currently is again a co-chair of the Committee. In 1987, Jeff and his wife Lyn established Orient Commercial Enquiries, of which he is managing director. Following are excerpts from a recent conversation he had with Taiwan Business TOPICS Editor-in-Chief Don Shapiro.

On the IPR environment in the 1980s.

When I first came, it was somewhat comparable to China today. You could basically go down any street and enter almost any shop – certainly in the night markets – and find counterfeits. That was especially true for the computer shops. Computer software was dominated by counterfeits – there was practically no real software on the market. The hardware was Apple compatibles and IBM compatibles, all knock-offs. It was a dream for investigators – we could do 10 to 20 raids a week, everything ranging from retailers to street vendors to factories and warehouses. The IPR environment at that time was very loose – just as it was elsewhere in Asia. It wasn’t necessarily any worse in Taiwan. Taiwan was just beginning to revise the laws to make it possible to start cracking down on counterfeits, 32

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especially in the area of copyrights for software, videos, and music. The work in those days was what we called a sighting-based business. You’d hire a large number of people and on a daily basis you’d send them out looking. Where they would look depended on what the clients were interested in. Some clients didn’t care about what was being sold on the street, they just wanted factories and warehouses. Others were interested in everything because they were trying to control the value of their brand. We’d have people out daily and they’d bring back from five to 10 sightings of goods. Then we’d send out messages to the clients, at that time by telex – it later went from telexes to faxes and then emails. It took a long time to write all the telexes we’d send out every day, so we had one employee doing nothing but that. After sending out the sighting reports to clients, we’d be very

happy if we got a return rate of at least 15%, telling us to go ahead and take action. Until recently, China worked pretty much the same way – just masses of people out in the field looking.

On how the market has changed.

Over time, there was less counterfeiting and the counterfeiters got more sophisticated. We had to search more. We’re one of the few businesses where if we really are good at what we do, we put ourselves out of a job. There is a point where the people in the market realize that it’s too much trouble to copy that brand. As a result, our best clients usually only last one or two years. By that time, counterfeiting has gone down and the client no longer has a big problem here. He decides to use his budget someplace else. With clients like Louis Vuitton and Gucci, in the old days we were doing

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numerous raids – we were raiding factories, we were raiding warehouses. Back then they didn’t have a major retail presence here, but now that they have a big sales network domestically, they’re interested in almost any sighting, because their objective now is not to seize a large amount of goods but to keep up their image. Now if you see an LV or Gucci purse on the street, the chances are that it’ll be genuine, as people like us are out there raiding all the counterfeits. You can divide the past few decades into different eras according to the products and how the sales and manufacturing was done. Back in the 1980s, there was a lot of counterfeiting of cosmetics, food items, and hair products. You don’t see much of that anymore. There was also much more counterfeiting of electronics and software, because the nature of the product was very simple back then. Fast forward to the last decade or decade and a half, and there’s less work in that area because software and electronics products now are more complex and therefore more difficult to counterfeit. In the 1990s and early 2000s, you saw a lot more knockoffs of characters for merchandise and toys – like Garfield and Snoopy. Although you still find some of that kind of merchandise around, these days it’s more whatever is big on TV this year or what new movie is coming out. There aren’t that many long-lasting brands any longer. Another change was that in the ’80s and ’90s, vendors were more accepting of counterfeits. But they soon saw that they were losing out because it was usually just the mafia guys or the smalltime players who would benefit from the business. So as the market cleaned up, you actually saw that the vendors would welcome the disappearance of the counterfeits. For them, there’s far more profit in legitimate merchandise than in counterfeits. You might think it would be the opposite, but with counterfeits whoever is the best organized will sell it for the lowest possible price. It ends up killing the market. A normal vendor who’s rented a store and has to build customer loyalty just can’t com-

Jeffrey Harris at a 1983 government meeting on anti-counterfeiting. At left, is thenDirector General of the Government Information Office Shao Yu-ming and at right thenMinister of Interior Wu Poh-hsiung.

pete with people who are setting up on the street. In addition, back in the 80s it was extremely common for legitimate manufacturers to also turn out counterfeits as a sideline. There was a certain lack of knowledge of branding and looseness in authorization, so you could find factories that had their own product but they were accepting orders for fakes as well – for the most part knowingly, though not always. You could go to the established factories and generally find counterfeit goods. In the early to mid ’90s, more temporary production sites were being set up specifically to make counterfeit products, because people like us were starting to raid the regular factories. But eventually most of the producers got out of the counterfeiting business entirely because the money just wasn’t there. At the end of the day they weren’t making huge money off counterfeit goods, and it became more trouble than it was worth.

On the impact of Taiwan’s manufacturing hollowing out.

Probably the biggest reason for people getting out of the counterfeit business, though, was the change in the economy, which caused most factories to move overseas. The generation of Taiwanese today just doesn’t want to work in factories assembling goods.

Back when there was more production here of counterfeits, that got the attention of the brand holders. The brand holders were less interested in Taiwan as a market of what was then 20 million people, and more concerned that Taiwan counterfeiters were having a huge impact on the international market. Our clients would come to us and say: ‘Be very active in Taiwan because 60% of everything you find is going out and getting into our other markets.’ In today’s world, very little is going out from Taiwan. If you take action here, now it’s only to protect the local market. Whether you’re a law firm or an enforcement company like me, that’s quite a decrease in the volume of work.

On differences among clients.

Every client was very different in the strategy they adopted for anti-counterfeiting. Also, although you can be a great investigator, you still have to rely on chance – you only have so many people, you’re only going out so much. If a factory is located someplace in the mountains, chances are you’re not going to stumble on it. So the approach really depended on what the client was trying to accomplish. If the client was a spark plug manufacturer and you were trying to stop spark plug counterfeiting, for example, you could target the areas

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in Taiwan that specialized in making spark plugs – and there weren’t that many. If you have your people spend a week in Hsinchu or Changhua, they could pretty quickly develop leads, and you could then do a series of raids that could deliver a killing blow to the counterfeit spark plug business – at least for your client’s brand. Other clients might be interested in a particular segment of the Taiwan marketplace – for example, the wholesale market. They might know from experience that the wholesale market was the source of material that was damaging their business in Hong Kong or elsewhere in the world.

On the IPR environment in Taiwan today.

In terms of Asia, it’s probably the cleanest of any country in Asia. Even in Japan, you can find more counterfeit products. Japan has well-established laws but the culture is not one of going out to look for counterfeits and conducting raids, whereas here it is. I would say that if you look at all the Asian countries, there’s very little doubt that Taiwan is the cleanest environment. I’ve spent most of my time in Taiwan, but I’ve also done anti-counterfeiting work in China and Hong Kong, and I’ve set up offices in the Philippines and Thailand, and done raids in all those countries as well as Malaysia and Singapore. A lot of the other countries are not as well organized as Taiwan. Also logistically, it’s easy for us to get around. From Taipei I can get pretty much anywhere in Taiwan in four or five hours. But the laws here have also been very important. In the rest of Asia, the laws have often been a big encumbrance to doing anti-counterfeiting work. Even in the better places like Hong Kong and Singapore, it’s still a civil-law environment that makes the process difficult. It requires a lot of lawyers and makes anti-counterfeiting very expensive. The ability in Taiwan to rely on criminal law has made enforcement a lot easier. And anyone can bring action – you don’t need to be a lawyer. Plus they have a very fast and effi34

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cient court system. It used to take anywhere from a year to a year-anda-half on average for these cases to go through the court system, but now they can be finished in less than a year. They went from a normal criminal court to a special administrative court, which made things much quicker, and the laws were constantly revised to reflect new conditions and technologies. By and large, the tools in place for doing anti-counterfeiting are so much better established here than elsewhere around the region. In the Philippines, even today when you raid someone it can be eight years before that case goes through the courts – and a year or two years before it’s even heard in court. So when you’re taking action in the Philippines, there’s no real effective recourse. Thailand is also not all that great. The deterrent here is that you’re going to get your goods seized and you’re going to find yourself in court quickly. That’s all very effective in trying to stop counterfeiting. The government deserves a lot of credit for changing policy. They developed a mindset that respecting IPR is a good thing for Taiwan-made goods. Also organizations like AmCham pushed them hard.

On what caused the policy change.

In the early 1980s, my boss in Hong Kong was actually blacklisted from coming here, because he was speaking up in the international press about counterfeiting in Taiwan. The government wasn’t happy with me either, because I was speaking out and they saw that as sullying Taiwan’s reputation. But the government officials began to turn around when they came to realize that Taiwan’s own industries, especially in electronics, would never advance if they just depended on knocking off Apples and IBMs. The international press was calling attention to the extent of counterfeiting in Taiwan, and the U.S. government was labeling Taiwan as one of the major sources of counterfeits in the world and was threatening tariff action. AmCham

also adopted a hard stance against counterfeiting. At that point, the government suddenly turned around – the change in attitude in just one year was day and night. They began giving rewards to the police for conducting raids. By 1984, the government was thoroughly supportive of anti-counterfeiting efforts. They began to make constant changes in the copyright, patent and trademark laws – especially the laws dealing with video and software. It was the start of a barrage of legal revisions that has been going on for years and years now.

On the major government initiatives.

The biggest step was to drop the requirement that a case be brought by a lawyer. I have nothing against lawyers, but that made anti-counterfeiting very expensive and really inhibited anticounterfeiting. If you have to spend 10 out of every 12 dollars on legal fees, you don’t do that many actions. Suddenly when you don’t have that requirement, you can do a lot more. Also making the government a lot more efficient in handling anti-counterfeiting was very important. For example, the creation of the Taiwan Intellectual Property Office (TIPO) in 1999 was a big step. TIPO has been very effective – they’ve been on top of what’s needed to change the laws, they’ve done the research. In most of Asia, the laws are two or three years behind Taiwan, because the organizations move at a snail’s pace. Corruption and protectionism are also problems in many of those societies. TIPO has been independent and responsive. They’ve made large changes in short periods of time. It’s a pretty amazing organization. TIPO was created largely by combining the trademark and patent sections under the Ministry of Economic Affairs with the copyright office, which was under the Ministry of Interior. MOEA had always looked at what was good for business and the international market, but MOI was more police and security minded. Just bringing the copyright function under MOEA made a big difference.

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The IP Court, which was established about five years ago, is also a significant institution – you really don’t see that in any other country in Asia. The judges are well-educated and knowledgeable, they delve into issues, and they’re open to mechanisms like international teleconferencing for taking testimony. But I tend to put the court in the same category as the special IP police. They were instituted in reaction to international pressures when Taiwan was still on the United States’ Special 301 Watch List as a major center of counterfeiting. When you set up a special IP police taskforce or special court, that’s another layer of bureaucracy. I’ve been working for 30 years with local police, the Investigation Bureau, and Customs. If you’re in this business and you work with these people regularly and have a good reputation, these people will give you their full cooperation. They raid right away. I have no problems with them. But you have to go down to that small town in Changhua and work with them. Most of the copyright and trademark cases that I handle never see the doors of the special IP Court [which mainly handles appellate cases] because

the system here works so efficiently it’s not necessary. A client of mine like LV, doing hundreds of cases every single year, isn’t going to appeal even if they would like to see a higher penalty. They just have too many cases going to court. But even though I don’t need to deal that much with the special IP Court, I respect them and see them as talented. Where the court can really make a contribution is when you have a complicated patent or copyright case. For those complex cases, the regular court system was never very adequate. The IP Court has technical staff to assist the judges, and the Court members are motivated and interested.

On remaining shortcomings.

The patent laws here are still fairly weak, and a case may go on for three or four years. How many patents are still relevant after three or four years? Internet piracy also continues to be a big problem, but I don’t get involved in that very much in my business. It’s handled more by the music, software, and motion picture associations. The biggest problem today in the battle against counterfeiting is smuggling. In terms of IP enforcement,

Taiwan is now a consumer market more than a production market, and most of those counterfeit consumer goods are coming in from China. China happens to be the source, but if China were cut off tomorrow, it would be somewhere else. The Taiwan system right now is totally inadequate to handle smuggling. Just go to the market and see all the peanuts, mushrooms, and other things that have been smuggled in. There’s also a flood of illicit ‘cheap white’ cigarettes. Trading companies get a license to import 1 million sticks and they’re importing 20 million and not paying taxes on 19 million. That’s the real weakness right now. Who should take the responsibility: Customs? The Coast Guard? The police? The health authorities? What really needs to happen is to establish a dedicated organization that just focuses on smuggling and starts setting up databases of information to track down the traffickers. That would also solve a lot of economic problems, since right now there’s lost revenue for both the tax authorities and legitimate businesses who hire employees and pay rent. It’s hard to compete against if you’re an honest guy.

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INDUSTRY

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A Report on the Food Industry

Variety, Taste, and Safety

photo : cna

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For Local Companies, the Watchwords are Diversification and Sophistication The major food-manufacturing enterprises are undertaking major new investment projects both in Taiwan and China.

IN THIS SURVEY

BY PHILIP LIU

• For Local Companies, the Watchwords are Diversification and Sophistication p38

• Welcome Tourists

• Incidents Raise Food-safety Awareness in Taiwan 41

• Pros and Cons

• Showcasing American Food Products in Taiwan 43

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espite the maturity of the domestic market, major Taiwanese food manufacturing companies are showing their confidence in its prospects by investing vigorously. The most noticeable example is Uni-President Enterprise, the industry leader, which is currently investing NT$10 billion (US$333 million) to build a new production complex on a 17.4-hectare plot of land in Hsinchu County’s Hukou Township. Besides a food-manufacturing zone with separate factories for making iced products, instant noodles, and bread, the complex will also consist of a logistics zone featuring normal- and low-temperate merchandise-handling and delivery systems, plus a tourist factory to familiarize visitors with food-manufacturing processes, especially baking. The project, Uni-President's largest investment on the island in recent years, will create the company’s sixth production base in Taiwan. Scheduled for inauguration in 2015, it is expected to bring about 2,500

job opportunities and generate NT$5 billion (US$167 million) in annual production value. In addition, Wei Chuan Corp., another leading Taiwanese food manufacturer, recently entered into a 49:51% joint venture with Japan’s Calbee Inc. The world’s secondlargest leisure-food firm, Calbee has a 46.1% market share in its home market. Inaugurated in late 2012, the joint venture has NT$250 million (US$333 million) in paid-in capital, and its factory in Yunlin County aims to generate NT$700 million (US$23.3 million) in annual revenue by 2015 to give it a leading 10% market share. Among other items, the joint venture is producing “Jagabee” French fries, which had previously received a warm reception on the local market as an imported product. The Namchow Group is also undertaking extensive domestic expansion. Following inauguration in July 2012 of its NT$200 million second production line for frozen cooked noodles, Namchow

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A Report on the Food Industry

is now spending another NT$200 million to build a central kitchen in Taoyuan County. Scheduled for opening this October, the facility is designed to meet the fast growing demand for cooked foods. A principal item will be high-fiber rice foods, the first cooked rice product to gain certification in Taiwan as a health food. It is even suited for consumption by diabetics. Namchow Chairman Alfred Chen notes that food production is no longer a traditional industry, as many food manufacturers are meeting the dual requirements of sophistication and safety by turning out tasty products in a germfree environment. Aside from the highfiber rice product, Namchow plans to introduce additional foods based on biotech techniques. On top of investing in new production facilities, Taiwanese firms are also seeking to boost sales by rolling out new and sophisticated products. Currently the bottled tea-drink market is the focus of the most attention. With annual production value of NT$22 billion, tea drinks accounted for 40% of the bottled-beverage market last year. In developing new products, food companies have received strong technological support from the semi-official Food Industry Research and Development Institute (FIRDI). In 2012, for instance, FIRDI successfully developed ultra-high pressure food processing technology that can kill germs without affecting the nutritional value, aroma, taste, or color of the food, as often happens with traditional high-temperature food-processing technology. Another trend is for the leading companies to take fuller advantage of their management and marketing expertise to sustain their development. Since assuming office in 2008, for example, Uni-President president Lo Chih-hsien has concentrated the company’s resources on developing a limited number of high-margin products, while eliminating many with below-average profit margins. In 2008 alone, some 2,000 products were removed from the shelves. Since then, only 10% of the new products developed by the company have been launched on the market. As a result, Uni-President now has 100 products with

A Uni-President truck loads up with various popular products that have helped make the company the largest in Taiwan's food industry. photo : uni-president

annual sales of over NT$100 million, compared with 40 in 2007, and gross profits in 2012 reached 28%, compared with 23% in 2011 and 19% in 2008. For its part, Namchow has adopted what it refers to as “consulting-style” marketing, building up a close-knit relationship with downstream bakeries, the major customers for its edible-oil products. Namchow provides them with new baking techniques and recipes it has developed. It has also begun supplying bakeries with frozen dough, sparing them from the time-consuming procedures of fermentation and kneading, so that they can concentrate on devising new finished products to distinguish themselves from their competitors. Namchow also offers bakeries assistance through an after-sales service and marketing system. The practice entails higher operating cost but brings higher added value.

Targeting snacks The government believes that improved marketing will be essential for the further development of the food industry. A “Program for Revitalizing Traditional Industries” announced by the Executive Yuan in August 2012 des-

ignates the “snack industry” as one of 12 sectors for priority development. The Program proposes to utilize indigenous food materials to create unique madein-Taiwan snack brands. It also seeks to promote Taiwanese snacks by fostering online marketing and holding competitive events, and to aid the manufacturers by setting up clusters of snack-industry production facilities. Through these efforts, the government aims to raise the annual output value of the industry – including candies, biscuits, chocolate, Western snacks, and Chinese snacks – by NT$4 billion by 2014 from the current NT$21 billion (US$700 million). The government has also been promoting a GMP (Good Manufacturing Practice) certification system among local food companies in an effort to help them assure high quality, cut production costs, and raise productivity. As of May 31, a total of 3,558 food items made by 458 companies had passed the certification, accounting for over 30% of market sales. Thanks to the industry’s continuous investment and development of new products, FIRDI predicts that total production value in the food industry – including frozen and cooled foods, processed and prepared foods, dairy

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products, beer, non-alcoholic beverages, and edible oils – will grow by nearly 4% this year to reach NT$602 billion (US$20 billion). In 2012, total net profits of listed food manufacturers amounted to NT$28.4 billion, up 51% from the year before, the highest growth rate for any category of traditional industry. To break out of the confinement of the limited domestic market and cash in on China’s expanding consumer spending, Taiwanese food companies are stepping up their investments on the mainland. For many firms, that market is accounting for an increasingly large share of their operations.

As part of its three-year US$2 billion investment plan starting in 2012, for example, Uni-President China Holdings (in which Taiwan’s Uni-President Enterprise holds a 70% stake) is establishing new factories for general foods, beverages, and instant noodles, as well as expanding existing facilities. Eight new plants are scheduled to be opened this year, boosting the company’s total to 31, including many in interior provinces such as Jilin, Inner Mongolia, Ningxia, Xinjiang, and Guizhou. The goal is to have a production base in every Chinese province and extend Uni-President’s reach to second- and third-tier cities.

The Chinese operation last year took in revenue equivalent to US$3.5 billion, up 26.4% from 2011 and double the level of 2010. It was also double the sales amount of Uni-President in Taiwan in 2012. The growth has made Uni-President China Holdings the third-largest food company in China. In terms of net profits in 2012, Uni-President China Holdings’ 855 million yuan (about US$134.6 million) showed growth of 175% and contributed 21% of the UniPresident Group’s overall earnings, up from 11% in 2011. The Group registered consolidated revenue of NT$388 billion (US$12.9 billion) in 2012 and expects to

Welcome Tourists

growing trend in the local food industry in recent years has been the establishment of “tourism factories” open to visits by tour groups. Many manufacturers have found the concept attractive, since tourism factories not only generate on-site sales and admission-ticket income but also greatly enhance the profile of the companies’ brands. An example is the tourism factory that the Namchow Group launched in Taoyuan County in June 2012. Encompassing an area of 3,700 pings (133,200 square feet), the compound consists of a memorial park for the group’s founder, brewery, edible-oil production facility, DIY area for soap-making, three branded restaurants, and a four-faced statue of Buddha. In the past two years, with the help of government encouragement, tourism factories have been mushrooming in Taiwan. They now number over 130, with food-production facilities the most numerous. These factories attracted some 6.5 million visitors in 2011, generating NT$1.6 billion (US$53.3 million) in economic value, according to the Ministry of Economic Affairs. Vigo Kobo, Taiwan’s leading pineapple-cake (fengli su) maker, is currently building its second tourism factory, in Kaohsiung, at a cost of NT$300 million. The first one, also costing NT$300 million, opened in the Wugu district of New Taipei City in March

photo : hunya Foods

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2012. The company has embraced the idea of tourism factories, since it owes its meteoric rise to the patronage of mainland Chinese tourists buying fengli su as gifts and souvenirs to bring home with them. Chinese tourists contributed some 70% of the company’s 2012 revenue of more than NT$1.2 billion, up 80% from the year before. In the Wugu tourism factory exhibition hall, display technology enables visitors to have the virtual experience of being on a pineapple farm, including the sounds of insects chirping and birds singing, and with the aroma of pineapples in the air. The most popular tourism factory in Taiwan in 2012 was that of Royal Family Food in Nantou County, which attracted 1.08 million visitors during the year. The plant produces sticky rice cakes (mocha) with Japanese technology. Besides learning about mocha production, visitors are introduced to the history of rice culture and can try their hand at DIY mocha-making, stroll through a sky garden, and shop in the compound’s stores. Hunya Foods, a chocolate maker, kicked off its NT$300 million tourism factory in Taoyuan’s Nankan district in mid-2012. It attracted 400,000 visitors in the second half of 2012, double the expected number. — By Philip Liu photo : Vigo Kobo

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A Report on the Food Industry

top NT$400 billion in 2013. As mentioned above, the group owes much of its success to a strategy of concentrating on developing and promoting a limited number of products with good performance, while eliminating many other items from its inventory. In 2012, for instance, the company derived almost 60% of its sales from four star products: bottled iced black tea and green tea (for combined sales of NT$24.4 billion), beef noodles with pickled cabbage (NT$19.5 billion), and “Asamu” milk tea (NT$14.6 billion). It is now the number-two brand in China for both instant noodles and beverages. For its part, Wei Chuan (China) is carrying out second-stage construction at its cooled-products plant (for fruit juices, lactic acid bacteria drinks, yogurt, and coffee drinks) in Hangzhou, which is running at full capacity one year after its inauguration in June 2012. Wei Chuan is also building a similar plant in Beijing. Following completion of these projects in 2015, revenue from the company’s Chinese operation will exceed the level of its sales in Taiwan, which came to NT$15 billion in 2012. At Namchow, factories are already operating in Tianjin and Guangzhou to make edible oil for baking, frozen dough, and ice cream – and construction is underway in Shanghai’s Jinshan dis-

trict on three plants, mainly for edible oil, frozen cooked noodles, and ice cream. The complex, which will double as the first Taiwanese-invested tourism food factory in China, involves total investment of US$230 million and is scheduled to be operational in 2017 to meet growing demand from Nanchow’s bakery customers in China, which now number 50,000. The company has set up over 30 service centers to provide consulting services to those clients, including bakery classes and guidance on customer-service and retailing systems. Besides China, Taiwanese food firms are making forays into the Southeast Asian market to tap the significant potential from the ethnic Chinese populations there. Uni-President has set up aquaticfeed and beverage factories in Vietnam and is studying the feasibility of an aquatic-feed plant in Malaysia, where it now operates a warehouse. Having established a solid presence in the Chinese market, Vedan Enterprise Corp. has now switched the focus of its overseas initiative to Vietnam, attracted by the expanding consumer market that is taking shape after years of rapid economic development. The company is promoting new beverages and other consumer products through its 20,000 retail outlets there, originally set up to sell monosodium glutamate and starch. The

Incidents Raise Food-safety Awareness in Taiwan Government and industry are responding to try to restore consumer confidence in local products. BY PHILIP LIU

Instant ramen noodles are among the favorite snack foods in Taiwan. photo : cna

company has also established a foothold in Thailand and plans to extend its reach to other Southeast and South Asian nations, notably Burma, Indonesia, and India. Yang Kun-hsiang, Vedan’s general manager for administration, notes that since the population of ASEAN plus India far exceeds 1 billion, the food industry should seek to take advantage of such a huge potential. Nanchow has a similar game plan. It plans to construct a pineapple-cake plant in Southeast Asia, where the tens of millions of ethnic Chinese living in the region have taste preferences similar to those of Taiwanese.

fter being impacted by the outbreak of two major food-safety incidents within a two-year span, Taiwan’s food industry has joined hands with the government to set up what is hoped will be a solid foodsafety mechanism on the island. Local companies are aware of the vital importance of the step in regaining the confidence of consumers in order to assure the industry’s long-term development. The latest scandal, which occurred in May this year, involved the use of maleic anhydride, an industrial adhesive, in many domestic starch-based snacks. The incident dealt an especially severe blow to night markets, where many of the vendors offer foods made with starch. The effect on the tourism business was substantial, since Taiwan’s food delicacies are one of its major attractions. For the domestic food industry, the recent problem reopened wounds that had barely healed after the plasticizer incident that broke out in May 2011, quickly

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developing into a tsunami that engulfed numerous downstream food manufacturers, including some well-established ones. A wide range of industries was affected, including the production of beverages, jam, bakery products, and medicines. The total monetary loss suffered by the local food industry in the incident has been estimated at some NT$20 billion (US$667 million). The scandals have greatly increased food-safety awareness in Taiwan. Since then, many major food firms have invested heavily to upgrade their testing facilities and establish systems for tracking their raw materials and additives. Uni-President, for instance, spent NT$250 million in upgrading its testing facilities to the level of a national laboratory, while both Taiwan Sugar and Young Energy Source set up materials-tracking systems. On June 10, 2011, the Legislative Yuan passed a revised Food Sanitation Act, sharply raising penalties for offenders. The maximum fine for violation was raised to NT$6 million (which can be imposed repeatedly until the problem is fixed), up from the original NT$300,000, and violations causing hazards to human health are liable to imprisonment of up to seven years. Efforts to build a comprehensive food-safety system on the island also accelerated in the wake of the problem-starch incident. On May 31, 2013, the Legislative Yuan passed another revision of the Food Sanitation Act, requiring companies in specified food categories to carry out the tracking of sources of supply for raw materials, as well as tracking the flow of semi-finished and finished products. The system will enable the authorities to pinpoint the responsibility for any problems in the food supply chain and facilitate the recall of harmful products. As part of the implementation of the law, the Executive Yuan has set up a “Safe Food Certification Tracking Service Network,” which currently covers the products of around 10 large

Pros and Cons

lthough they strongly applaud efforts to better assure the healthfulness and safety of food products sold in the Taiwan market, AmCham Taipei committees have reservations about some of the specific measures that have been enacted or proposed. The Retail Committee, for example, has raised concerns about Article 22 of the revised Food Sanitation Act that was hurriedly passed in June at the end of the spring Legislative Yuan session. The Article requires that a listing of all ingredients, including additives, contained in a food product, as well as the name, address, and telephone number of the factory that

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food enterprises, including Uni-President, Wei Chuan, Namchow, and Taisun. By the end of the year, the Ministry of Health and Welfare will release a list manufacturers in specified food categories that will be required to join the system. One of the priority categories will be food additives. In addition, the government plans to establish a system to monitor the flow of chemicals to prevent their improper usage in food production. Draft amendments to the Labor Safety and Health Act, now pending Legislative Yuan approval, calls for the creation of a source-management mechanism for chemicals. Under this system, businesses will need to report on the production, import, and distribution of chemicals. The original intent was to prevent the exposure of laborers to hazardous chemicals, but the mechanism can also be used to block the flow of unauthorized chemicals into the food sector – a problem that many suspect is a major cause of the high incidence of kidney ailments in this society. Taiwan has some 70,000 hemodialysis patients (representing the fourth-highest occurrence rate in the world), who reportedly cost the National Health Insurance program some NT$30 billion a year. The private food sector, aware of the vital importance for its long-term development of assuring consumer confidence, has also intensified its efforts to augment food safety. The Taiwan Food GMP Development Association this June established a new affiliate, the Taiwan Food Industry Promotion Association (TFIPA), to promote self-regulation for food safety among domestic food firms. The new group is organizing a testing alliance, which will unite the resources of existing private testing laboratories to provide lower-cost testing services to local food businesses, especially small- and medium-sized enterprises. Chou Neng-chuan, executive consultant of the Taiwan Food

produced the item, be included on the labels of the food products. Food suppliers often regard both types of information as confidential. Some of the world’s most famous brands have long guarded their specific formulas as propriety information, and many companies are also reluctant to let competitors know which factories they are outsourcing production to. The brands maintain that since they hold legal responsibility for products marketed under their name, the identity of the individual production site is irrelevant. “This regulation is Taiwan-unique and very likely will become a serious impediment to food importation in Taiwan,” says one of the Committee members. The Retail Committee is also looking into the proposed positive list of allowable food flavors to be introduced by the

Taiwan Food and Drug Administration of the Ministry of Health of Welfare. The question is whether the list is compatible with the allowed list in the United States, and if not, what the ramifications may be for American food products entering this market. AmCham’s Chemical Manufacturers Committee is expressing similar concerns about proposed new legislation for the registration of chemical materials that would require the listing of all substances, including catalysts, that go into the product – whether for use in foods or other types of production. Again the concern is that the regulation would force the disclosure of propriety information that should be protected under the law as trade secrets. — By Don Shapiro

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A Report on the Food Industry

GMP Development Association, stresses the local food industry’s announced determination to promote self-regulation, with big companies pledging to assist the SMEs in assuring food safety on their own. Chou says that TFIPA will also create an evaluation system to assess food-industry suppliers, including inspections of the sanitary conditions at food production sites. Tsai Shu-chen, chief of the TFDA food section, notes that the TFDA is pleased to see the industry take steps to engage in selfregulation, as food industry alliances in advanced countries often adopt even stricter measures than does the government.

High demand for testing In the wake of the various food-safety scandals, the demand for food testing services in Taiwan has been increasing markedly in recent years, overstraining the capacity of the existing 100some food testing laboratories with national accreditation. Some are affiliated with educational institutions and others are operated by large food companies. Kang Chao-chou, the TFDA director-general until his recent retirement, cautions, however, that besides testing, food manufacturers need to pay increased attention to their procurement process, for instance by conducting on-site inspections of their material suppliers’ production plants. “Big food firms should help their peers upgrade their operations, rather than just caring only about their own affairs, in order to regain the confidence of consumers,” adds Wei Yingtsung, chairman of both the Taiwan Food GMP Development Association and the Wei Chuan Corp. Self-regulation is considered vital for food safety, in view of the magnitude and complexity of the food industry. According to the Ministry of Health and Welfare, Taiwan has 45,000 food manufacturers and more than 300,000 businesses (counting street vendors) dealing with food. But local governments have only 474 inspectors to monitor their operations. Local food firms have become increasingly aggressive in adopting self-regulation, mainly due to their painful experience of the two major food-safety incidents over the recent two years. In March this year, the Taiwan Food and Drug Administration (TFDA) under the Ministry of Health and Welfare started to probe the problematic starch after receiving tips from industry insiders, and soon discovered the presence of maleic acid in a number of popular locally made foods on the market. The TFDA ordered the vendors to stop selling the foods while it continued its investigation. On May 13, the agency announced its findings that many domestic starch-based snacks have contained maleic acid due to the addition of maleic anhydride, an industrial adhesive, during the production process in order to give the foods an appealing texture. While maleic anhydride is not a poisonous substance, TFDA explained, it is not one of the 21 legally permitted additives for starch, since long-term consumption can be harmful to the kidneys. TFDA decreed that starting from June 1, vendors of eight such Taiwanese snacks, including tapioca, Taiwanese meatballs, thick pork soup, and rice flour lath (a type of rice noodle),

During the 2011 plasticizer scare, retailers and leading manufacturers cooperated with the authorities in removing suspected products from the shelves. photo : cna

must post test results provided by starch providers proving the absence of maleic acid in their products. Otherwise, vendors who continue in business will face a fine of NT$30,000$150,000 (US$1,000-$5,000). Those with lab certification that the products are free of maleic acid will be allowed to use a special food-safety logo provided by the local health agencies. Subsequently, TFDA and municipal health agencies carried out an extensive spot check of related starch foods nationwide, confiscating and destroying several dozen tons of problematic foods. The source of the foods was traced to two starch manufacturers and five of their downstream customers. Most of the latter were regarded as innocent, since they were believed to be unaware of the content of the starch. The incident had an impact on Taiwan’s tourism business, says Chang Hsi-tsung, deputy director general of the Tourism Bureau, since Taiwan’s delicious foods are one of the island’s major attractions. And it tarnished the international image of Taiwanese food industry. After extensive testing, for instance, the Singapore government banned the import of 15 Taiwanese food products containing maleic acid.

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“Starch containing maleic anhydride has been prevalent on the local market for decades,” says Mr. Ho, a retired manufacturer of rice flour lath who declined to be identified by his full name. “Many food manufacturers accepted the starch, since – aside from the tasty flavor – it can help cut production costs. Not only is the starch inexpensive, but it facilitates the use of mechanized production, which saves on labor cost.” While the starch incident was still raging, another major food-safety case surfaced when the Tainan City Government’s Department of Health discovered the use of industrial-grade EDTA-Na2 by the Rico Industrial Co. in the production of raw materials for local icy food products, including vegetarian gelatin and Chinese mesona or “grass jelly” (xiancao). It was found that over the past five years, Rico, a major supplier of food additives, had sold over 40 metric tons of the material – which is only one-third the price of the food-grade version – to numerous food manufacturers. Uni-President rushed to withdraw numerous affected food products, including puddings, ice cream, chocolate, and macaroons, from the shelves, incurring a loss of some NT$100 million (US$3.3 million) – although it characterized the move as a precautionary one, contending it had purchased some materials from Rico but not the one in question. AVG Corp., another major food company, took similar action. Meanwhile, Rico was also found to have provided outdated preservatives and coagulants to other food manufacturers, including Elate, a well-known producer of pudding. “Our goodwill, built by our hard effort over several decades, was ruined,” laments Fang Ku-pai, Elate’s chairman. On May 31, Rico president Tsai Fu-yuan was taken into custody by the Tainan prosecutors’ office on charges of forging documents and fraud. Experts say that industrial-grade EDTA-Na2 may contain heavy metals and other toxins, while outdated preservatives may be harmful to the liver.

Plasticizer episode When the recent scandals occurred, the heavily publicized plasticizer episode of May 2011 was still a fresh memory. The heroine of that event was Yang Ming-yu, a technical specialist at the TFDA. As part of an extensive crackdown on fake and inferior drugs, Yang in March 2011 was examining a sample of probiotics powder, a health food, using a highly sophisticated gas chromatograph/mass spectrometer (GC/MS). While failing to find the suspected Western-medicine ingredients in the product, she spotted some abnormal wavelengths. Although this aberration was not within the scope of her original mission, she spent an extra two weeks analyzing the sample. To her shock, she discovered a substantial quantity of DEHP, a plasticizer – 600 times the permitted daily human intake. The plasticizer in the sample probiotics was traced to a clouding agent – a common additive for a wide range of food products and medicines to increase their stickiness and thickness – supplied by the Yi Shen Co. For 16 years, Yishen, based in Changhua County, had allegedly substituted DEHP for

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edible palm oil in the production of clouding agents and jam, in order to cut production costs (the price of the plasticizer is only half that of palm oil). Over the years, according to the local prosecutors, the company had sold over 100,000 kilograms of toxic clouding agents and jam to 16 food companies. The local prosecutors’ office estimates that the substitution enabled Yi-shen’s owner, Lai Chun-chieh, to make some NT$9.6 million (US$320,000) in additional profits, though many observers consider that figure to be a gross underestimate. DEHP is a carcinogen and is harmful to the reproductive organs, although it doesn’t pose an immediate health hazard after consumption, according to the World Health Organization (WHO). The TFDA also uncovered another major suspect, Chen Che-hsiung, head of the Binhan Co. of New Taipei City, who allegedly sold over 90,000 kilograms of clouding agents containing plasticizers DEHP and DINP to seven major food firms, including Uni-President, Tsin Tsin Corp., and Young Energy Source Co. during a 13-year period beginning in May 1998. The incident soon developed into a tsunami engulfing numerous downstream food manufacturers in a wide range of industries, including beverages, jam, bakery products, and medicines. Over 1 million food items were removed from the shelves, and the Executive Yuan estimated that the incident decreased food industry sales by NT$20 billion (US$667 million). UniPresident alone suffered a loss of NT$340 million in revenue. Many countries, including China, Singapore, and Malaysia, demanded the submission of testing documents before specific food products could be imported from Taiwan. TFDA’s Yang Min-yu became a national celebrity. The Executive Yuan awarded her a first-class performance medal (the highest honor given to a public functionary) and a NT$200,000 (US$6,666) bonus, and TFDA promoted her by one civil-service grade and gave her a bonus equivalent to one month’s salary. For their part, Yishen’s Lai Chun-chieh and his wife Chien Lin-yuan received final sentences of 15 and 12 years’ imprisonment, respectively, on charges of fraud, while the company was slapped with a fine of NT$24 million (US$800,000). Chen Chehsiung of Binhan and his wife Wang Fen were sentenced by the high court to 13 and 10 years’ imprisonment, respectively, also for fraud, and the company faces a NT$5 million fine. The verdict is subject to appeal to the supreme court. Some downstream businesspersons were also convicted. Chen A-ho, head of the Jinguowang Co., for instance, received a final verdict of 14 months in prison, plus NT$760,000 (US$25,333) in fines on the company and a subsidiary, for knowingly using clouding agents from Yishen to produce concentrated fruit juice and for supplying it to downstream domestic and foreign food vendors, including some in Taipei’s Shilin night market. Commenting on the food-safety incidents, Wei Ying-tsung of Wei Chuan stresses that “food is a business of conscience.” Uneasy consumers may take heart from signs that the government and industry are now creating institutions to turn that ideal into reality.

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A Report on the Food Industry

Showcasing American Food Products in Taiwan This summer’s Taipei International Food Show gave U.S. food exports a big boost. BY LEV NACHMAN

he 23rd annual Taipei International Food Show (TIFS), held June 26-29 at the Taipei World Trade Center’s Nankang Exhibition Hall, provided an opportunity to showcase some of the many food products from the United States being offered in this market. The American Pavilion was the largest international pavilion at the event, with participation by 33 exhibitors, including U.S. companies; local importers/distributors of American food products; U.S. industry associations such as the U.S. Meat Export Federation, U.S. Grains Council, U.S. Highbush Blueberry Council, Southern United States Trade Association, and USA Poultry and Egg Export Council; and trade or economic development offices from the states of Idaho, Louisiana, and Missouri. In his remarks at the opening reception for the show, American Institute in Taiwan (AIT) Director Christopher Marut described the show as “an excellent opportunity for our U.S exhibitors to learn more about the Taiwan market and to begin or continue productive relationships with Taiwan importers and business partners.” After his remarks, Marut joined Chef Lars Kronmark from the Culinary Institute of America in a cooking demonstration to prepare U.S. Pork Loin Chop Santa Fe Style. During its four days, TIFS attracted 58,535 attendees from among local food professionals, a 6% increase from 2012, plus 5,688 international visitors. The U.S. Pavilion exhibitors reported on-site sales of about US$660,000 and 12-month projected sales of nearly US$19 million,

The American Pavilion at this summer's 23rd annual Taipei International Food Show. photo : ait

more than three times the amount last year. The U.S. exhibitors introduced some 250 new products and reported that the items drawing the greatest interest were beef, chicken-leg quarters, sauces, snacks, and potatoes. According to AIT, Taiwan is the seventh largest market for U.S. food and agricultural exports, and on a per capita basis, Taiwan ranks second only to Canada. The most prominent feature of the American Pavilion was a custom-built kitchen stage equipped with four separate cooking stations. The main event utilizing the stage was United Tastes of America, an “Iron Chef”-style cooking competition among top chefs from Taipei, Tokyo, Hong Kong, and Shanghai. The contending teams from those four cities

competed to create the best appetizer, soup, main course, and dessert using 20 specified high-quality American food product ingredients. The winning team consisted of Chefs Eyck Zimmer and Yiu Sing Lau from the Hong Kong Jockey Club’s Derby Restaurant. Of the exhibitors in the American Pavilion, the Southern U.S. Trade Association (SUSTA) was marking its fifth time at the show. SUSTA’s function is to assist small and medium-sized businesses from the American South looking to expand their business globally. This year six companies took part in TIFS through SUSTA, double the number participating last year. SUSTA officials expressed their appreciation to AIT’s Agricultural Trade Office (ATO) and the U.S. Department of Agriculture (USDA) for their smooth handling

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AIT Director Christopher Marut dons an apron and helps to demonstrate how highquality U.S. foods can be prepared. photo : ait

of the arrangements for the show. Another exhibitor was the Iowa Economic Development Authority (IEDA), which was a first-time exhibitor at TIFS, even though the state has a well-established trade relationship with Taiwan. IEDA works with Iowan industries to promote the state’s position in the global economy. The state claims to have the lowest cost of doing business in the United States. Thanks to high demand for Iowa’s agricultural products in Taiwan, particularly soybeans and corn, IEDA also predicts continued growth in the coming year. Not all exhibitors reported steady growth, however. The Ginseng Board of Wisconsin (GWB), for example, said it has faced a long period of slow progress. GWB is a nonprofit organization representing all of the ginseng growers in Wisconsin, the major ginseng-producing area in the United States. Their newly revamped product presentation emphasizes Wisconsin ginseng’s high levels of the active ingredient ginsenoside, and its purity because of strict standards for pesticide usage and rigorous safety tests. But threats to market share are coming from emerging producers in such locations as Ontario, Canada and mainland China, causing GBW to intensify its promotion efforts. Also in the American Pavilion was

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the USA Poultry and Egg Export Council (USAPEEC), whose more than 200 member companies account for over 90% of all the poultry and eggs exported from the United States. A spokesman said that they too have faced a tough year. The threat of Avian flu of Chinese origin caused the market in Taiwan for poultry to drop by over 30%. Many of the largest buyers of U.S. poultry are schools, but after the outbreak of Avian flu they completely stopped serving poultry of any kind to their students. Today the scare is mostly over, but many consumers are still wary of eating poultry. USAPEEC remains hopeful that business will begin to pick up again next year.

The Costco perspective A major channel for the sale of American food products in Taiwan is Costco, which positions itself as a “membership warehouse club.” Based in the Seattle area, Costco has been operating in Taiwan since it launched its first store in Kaohsiung in 1997. With the recent opening of a new warehouse in Chiayi, Costco now has 10 locations around the island and has become a prime location for Taiwanese looking to purchase American food products. One of the key aspects to Costco’s success in Taiwan, says Richard Chang,

president of the Taiwan operation, has been its ability to market itself as an American company supplying U.S. goods. “The U.S. has always had a strong presence in Taiwan,” he notes. “Thanks to a history of good relations, over the years there has been a steady flow of Taiwanese going to the U.S. and Americans coming to Taiwan. As a result, Taiwanese relate to American goods, more so than people in most other countries.” According to Chang, people in Taiwan tend to perceive U.S. brands as being high-quality and prestigious. “That makes Taiwan a great place for U.S. business. This market has been much more open to U.S. products than say Japan or South Korea.” Roughly half of the goods for sale at Costco are imported from the United States. Some of the more popular food items are American cereals and snacks, but during the past year the biggest demand has been for American beef, following the resolution of a longstanding trade dispute that restricted the entry of U.S. beef products to this market. Costco is the largest importer of chilled (meaning fresh) beef on the island. Many of the Costco products are sold under its house brand, Kirkland Signature, named after the location of the Costco headquarters in Kirkland, Washington. “The Kirkland Signature items do particularly well because Taiwanese know they are based on U.S. standards, says Chang. “People here have a high level of confidence in U.S. standards, and value those products.” Although Costco has enjoyed many years of success in Taiwan thanks to receptive consumers, Chang says there is still room for improvement in the ease of doing business. “Regulations on importation can be too strenuous or restrictive,” he notes. “For example, Costco is known for selling in bulk. But when we offer a case of soup, each individual can must be labeled instead of just labeling the case. This increases the cost of importing into Taiwan, and customers see this reflected in the price of goods.” Costco is working with AIT and AmCham to try to make the business environment more conducive for U.S. firms looking to enter the Taiwanese food products market, says Chang.

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AmCham Taipei’s 2013 CSR Forum

T Sponsors

he American Chamber of Commerce in Taipei periodically conducts a CSR Forum to give member companies the chance to exchange ideas and gain new insights on how to run effective Corporative Social Responsibility programs. The 2013 CSR Forum, conducted in Mandarin and held July 30 in the Ballroom of the Sherwood Hotel, attracted a total of 81 participants. The event was sponsored by Spring Professional, with Ogilvy Public Relations as the PR sponsor. The Forum featured a keynote speech by Stan Shih, founder of the Acer Group and now chairman of ID Soft Capital and Stans Foundation. Shih has long been known for his commitment to CSR activities. His presentation focused on the Eastern concept of Wangdao (王道) or The King’s Way, which incorporates the three core ideas of sustainable management, creating value, and balancing interests. “As we continue to create value for ourselves, our social responsibility also grows,” Shih stressed. That responsibility is greatest toward consumers, then employees, and finally shareholders. “Social value is forged by all stakeholders involved,” said Shih, “and CSR is a way for us to take care of those without a voice.” He noted that “benefiting others is the best way to benefit oneself.” He encouraged the audience to follow his motto: “Challenge the difficulties, break through the bottlenecks, and create value.” Rather than just following the mainstream, there is more to be gained by finding new ways to do things, while avoiding the pitfalls. Among his suggestions was that companies establish affiliated “Wangdao enterprises,” which function as semi-NGOs, “utilizing the company’s

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positive image, professionalism, and funds to pay back the society” for the advantages the corporation has received. The Forum also included a panel discussion moderated by Huang Pingder, deputy director of the Center for Public and Business Administration at National Chengchi University. The panelists were Lin Yi-ying, executive director of the Hondao Senior Citizen’s Welfare Foundation; Wim Chang,

deputy executive director of the Delta Electronics Foundation; and Mike Lin, CEO of the Chunghwa Telecom Foundation. Lin Yi-ying shared information on Hongdao’s work with senior citizens, including the promotion of community care and projects to help the elderly realize their dreams. She showed clips of the documentary film “Go Grandriders,” which follows a group of senior citizens as they go touring by motorcycle, and of the stage performance “Senior Hollywood,” which enabled the elderly performers to show off their singing and dancing talent. Wim Chang reported on Delta’s efforts to promote energy preservation and green housing, as well as to raise awareness of global warming and climate change. He presented examples of how Delta made use of recycled materials to construct the National Museum of Natural Sciences build-

ing in Taichung. The structure was also designed and constructed to ensure low energy consumption. At Chunghwa Telecom, the main CSR thrust has been to help narrow the digital divide in terms of geographical location, age, and gender. The company has helped to train residents of rural areas, the elderly, and underprivileged women to access and make use of the internet.

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Where Travelers Find Inspiration: The 2013 Taipei International Travel Fair

hether you are a seasoned traveler who has been almost everywhere and done almost everything, or someone so new to the delights of travel that your suitcase or backpack still looks brand new, the 2013 Taipei International Travel Fair (ITF), scheduled for October 18 to 21, is sure to stoke your wanderlust. The ITF is not only Asia’s largest and most important travel-related trade show but also Taiwan’s most popular tourism festival for consumers. Held almost every year since 1986, the fair is a first-rate place to gather information, find inspiration, and snag excellent deals on accommodations and tour packages. Those who come hoping to snare bargains will find that advance research into the strengths and specialties of particular exhibitors can really pay dividends. On one score, however, those who adore traveling can set their minds at ease. Because all exhibitors must meet a strict set of conditions, visitors to the fair can be sure that every single business represented here, even

those subleasing space from larger enterprises, has met all of the Taiwan Tourism Bureau's licensing and insurance requirements. From the perspective of travel businesses, nothing proves the fair’s effectiveness as a way of reaching consumers better than the speed with

which exhibitors snap up booth space. The ITF’s main organizer, the Taiwan Visitors Association, opened the registration process at the beginning of March. Very soon it had a full house, a record 900-plus exhibitors having taken all 1,350 available booths. Japan has long been a favorite destination for Taiwanese travelers, and Japanese exhibitors this year will occupy 116 booths, up from 106 in 2012. The United States is set to have 40, while Macau, Malaysia, and South Korea will each have at least 20. In addition, the 2013 ITF will be welcoming four first-time exhibitors from abroad: Argentina, Chile, Egypt, and the Seychelles. Domestic tourism plays a huge role in the ITF, and among those with a major presence in this year’s fair will be Yilan County (an unspoiled region in Taiwan’s

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northeast now easily accessed from Taipei as a result of a tunnel through the mountains), the Council of Agriculture (a central government department which oversees Taiwan’s growing network of leisure farms, as well as its national forest recreation areas), Miaoli County (which offers splendid scenery and rich Hakka culture), and the Taipei City Government. As in recent years, the fair will be held in Halls 1 and 3 of the Taipei World Trade Center (TWTC), located right beside Taipei 101 in the capital’s modern and bustling Xinyi District. Hall 1 of the TWTC has been designated the General Travel area and will be divided into six zones. One gathers together Taiwan exhibitors, another is devoted to the Asia-Pacific, while a third embraces Europe, the Americas, Africa, and the Middle East. The remaining three zones are organized along industry lines: travel agents, airlines and other transportation providers, and miscellaneous travel-related businesses. In response to exhibitors’ requests for more space, Area H on the second floor of Hall 1 is being opened up, and will be divided into a hotel cuisine zone and a zone showcasing distinctive homestays and hotels. Hall 3 is given over to accommodations, with exhibitors arranged according to the following categories: starred hotels, quality hotels, hot-spring hotels (Taiwan has more than 100 natural geothermal springs), motels, and leisure farms. The theme of this year’s ITF is “Love to Travel.” When applied to Taiwan

and its people, it is as much a statement of fact as an aspiration. In 2012, international arrivals hit a record 7.3 million, 20% higher than 2011 and surpassing the Tourism Bureau’s target of seven million. The 2013 tally is expected to top eight million. Taiwanese are continuing to go abroad in large numbers as well. In 2012, Taiwan nationals took 10.2 million journeys outside the country – an impressive total considering the country’s population is just over 23 million. Mainland China, Hong Kong, and Japan accounted for two-thirds of all trips. Last year’s ITF pulled in 262,590 visitors – 4.5% more than in 2011– and sales totaled around NT$1.5 billion (US$51.2 million). The event generated a great deal of media coverage, being featured in more than 2,600 TV, radio, newspaper, magazine, and online reports. To e n c o u r a g e e x h i b i t o r s t o b e creative in designing their booths and planning activities, the organizers will again be giving out prizes including Best Booth Performance Award, Best Booth Design Award, Most Popular Booth Award, and Best Folk Performance Award. Winners will be determined by polling visitors. Each day of the fair also features exotic stage performances as singers, musicians, and other entertainers from around the world showcase their countries’ characteristic cultures and national spirit. The full schedule will not be confirmed until closer to open-

ing day, but visitors can be sure that several of the performances will highlight Taiwan’s ethnic diversity. Previous editions of the fair have featured Maori dancers from New Zealand; folk artists from Central America, Brunei, Palau, Thailand, and India; Mongolian singers; Austrian classical musicians; and Chamorro dancers from Guam. The day before the fair opens, Taiwan’s Tourism Bureau is hosting the fair’s B2B Travel Mart. As in previous years, this event aims to match specially-invited buyers with suppliers of local travel products such as accommodations. Almost 100 buyers are expected to attend, including many from mainland China and other overseas markets. Halls 1 and 3 will be open to the general public from midday on Friday, October 18 and from 10 a.m. on the following three days. Closing time is 6 p.m. except on the final day, when the fair winds up at 7 p.m. Online promotions begin on October 1 and will continue until the fair’s final day. For further information, contact the Taiwan Visitors Association, (Tel: +886 2 2597-9691; Fax: +886 2 2597-5836; e-mail: contact@taipeiitf.org.tw), the notfor-profit organization running the event, or go to their website (www.taipeiitf.org. tw). The site has a list of official carriers and hotels, through which certified attendees can arrange discounted air travel and accommodations. For general travel information about Taiwan, visit the website of Taiwan's Tourism Bureau (www.taiwan.net.tw), or call the 24-hour tourist information hotline 0800-011-765 (toll free within Taiwan).

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