Taiwan's WTO entry mixes bad with good


The WTO will likely bring long-term gains to Taiwan, but demonstrators like this labor-rights advocate protest job losses

By Alex Frew McMillan
CNN Hong Kong

TAIPEI, Taiwan -- Taiwan formally joins the World Trade Organization on Tuesday, ending a 12-year quest.

The island becomes the 144th member of the group, which sets the rules for world trade.

Taiwan's membership comes three weeks after China's formal induction into the WTO. It also comes as Taiwan suffers through its worst recession on record.

Taiwan's chip- and export-driven economy is forecast to shrink some 2 percent this year, possibly more.

In Asia, only Singapore is faring worse, facing a likely 2.7 percent drop in 2001.

Political move with unclear economic effect

Experts are divided on the benefits of joining the WTO for Taiwan. Many see it as a political move more than an economic one.

Taiwan was cleared to join on November 11, one day after trade ministers in Qatar voted to admit China. The island's admission is widely regarded as a quid pro quo for China's entry.

On the business front, WTO membership will likely cause pain for Taiwan, by increasing competition and making it easier for Taiwanese companies to move overseas.

Frank Gong, northeast Asia economist for Bank of America, says the island's membership is "long-term good, short-term bad."

Banking sector already facing change

In the long run, opening its market to overseas companies will force Taiwan to make some vital structural changes in its economy, Gong explained.

Taiwan's banks have similar problems as those in Japan, where a slump in property prices left a raft of bad debts. Faced with greater competition, Taiwan has already started bank reform, leading to merger mania in bank stocks.

Joining the WTO has other benefits. It will also ensure easier access for Taiwan's exports to the other WTO countries. Poor domestic demand leaves Taiwan relying on exports, which make up around half its economy.

The WTO will help create a set of rules to settle trade disputes, as well as linking Taiwan a little better with the rest of the industrialized world.

But in the short run, the island's unemployment will almost surely rise as a result of the WTO.

Industry continues to move jobs abroad

As Taiwan is forced to ease restrictions, more Taiwanese companies are expected to shift manufacturing abroad, typically across the Taiwan Strait to mainland China.

That "hollowing out" process is expected to speed up. Taiwan in November scrapped its tight restrictions on the amount of money companies could invest directly in the Chinese mainland. Only investments in the vital chip-foundry industry now require government approval.

Taiwan's farming will also suffer a tough adjustment, according to Cheng Cheng-mount, assistant research fellow at the Taiwan Institute of Economic Research.

"In domestic agriculture production, the production cost (in Taiwan) is much too high compared to other countries," Cheng said. "The agricultural sector will be forced to focus on more limited (specialized) products that can be more profitable."

Jobless rate likely to rise up to 0.2 percent

Farming and banking were the industries that the Taiwanese government protected the most. So they will feel the increased competition from WTO membership most severely, Cheng said.

His institute expects Taiwan's near-record jobless rate - now around 5.3 percent - to rise 0.1 percent to 0.2 percent as a result of joining the WTO.

But Cheng also feels the WTO will be good for Taiwanese industry and consumers.

"In the long run, definitely this is good news for Taiwan, because Taiwan can get more involved in international trade," he said.

Even in farming, "whilst we have more competition, I think overall it (being in the WTO) will improve the quality of those agricultural products. So in general, I believe this is a good direction to go."

China's Nationalist government was in fact one of the founding members of the WTO's predecessor, the General Agreement on Tariffs and Trade (GATT).

But after losing a civil war with China's communists in 1949, the nationalists moved to Taiwan and quit the GATT.

Since then, mainland China has done its best to stem attempts to recognize Taiwan as a separate country. China views Taiwan as a renegade province and insists it should come back to the fold under the "One China, Two Systems" policy that Hong Kong accepted.

Taiwan, which refers to itself as the Republic of China, is joining the WTO as the economy of "Chinese Taipei," in line with Beijing's wishes.