Taiwan Brief - March 2009

Overview

Australian Government policy towards Taiwan is based on the Joint Communiqué with the People’s Republic of China (PRC) of 21 December 1972. Under the terms of the Joint Communiqué, Australia recognises the Government of the PRC as the sole legal government of China and acknowledges the position of the Chinese Government that Taiwan is a province of the PRC. Australia does not accept that the authorities in Taiwan have the status of a national government and the Australian Government can have no official dealings with Taiwan. All Australian governments since 1972 have adhered to this policy.

Within the framework of our one-China policy, the Australian Government strongly supports the development, on an unofficial basis, of economic and cultural contacts between Australia and Taiwan. Australia supports Taiwan’s participation in international organisations and conferences provided this can be achieved in a manner consistent with the Joint Communiqué. The Government encourages Australian business to pursue trade and investment opportunities involving Taiwan and supports the development, on an unofficial basis, of people-to-people contacts.

Political overview

System of Government

Liberalisation has transformed Taiwan’s political landscape since the end of martial law in 1987. The first democratic elections for the Legislative Yuan (parliament) were held in 1992, with democratic elections for the Presidency following in 1996.

The central government consists of the Office of the President and five branches – the Executive Yuan, Legislative Yuan, Judicial Yuan, Examination Yuan and Control Yuan. The President, as Head of State, has command of the armed forces and the authority to promulgate laws under the “Constitution of the Republic of China (Taiwan)”.

The Executive Yuan, the main policymaking arm of government, consists of the Premier, Vice Premier, Ministry and Commission Chairs, and Ministers without Portfolio. Its members are presidential appointees in the American style rather than elected representatives.

The 2008 Legislative Yuan elections were held under a new system that saw the number of parliamentary seats halved from 225 to 113. Members serve four-year terms.

Political Developments

Ma Ying-jeou of the Kuomintang (KMT), the Nationalist Party, won 58 percent of the vote in the most recent presidential election, held on 22 March 2008. Ma was inaugurated on 20 May 2008, ending eight years of the Democratic Progressive Party (DPP) administration of Chen Shui-bian. Chen’s victory in the presidential election in 2000 marked the first time that the KMT had lost power since retreating to Taiwan in 1949.

In his inauguration speech on 20 May 2008, Ma said his administration would:

• lead Taiwan through the challenges of globalisation by improving Taiwan’s international competitiveness and opening up and deregulating Taiwan’s economy;
• continue efforts to strengthen Taiwan’s democracy and enhance the integrity and efficiency of Taiwan’s institutions based on the rule of law;
• ensure dignity, autonomy, pragmatism and flexibility were Taiwan’s guiding principles when developing foreign relations; and
• seek to play a greater role in regional cooperation, as well as strengthen bilateral relations with the United States.

The most recent Legislative Yuan elections were held on 12 January 2008. The KMT won 81 of the 113 seats, the DPP 27, with the balance going to pro-KMT minor parties and independents.

The Cross-Strait issue

The Government of the PRC in Beijing claims sovereignty over Taiwan. PRC policy statements advocate peaceful reunification while refusing to rule out the use of military force if this cannot be achieved. The PRC codified its position on 14 March 2005 when it enacted its Anti-Secession Law.

On the Taiwan side, Ma Ying-jeou has undertaken to maintain the status quo in the Taiwan Strait, under the principle of “no unification, no independence and no use of force” (commonly referred to as the “three nos”) and within the framework of the Republic of China (Taiwan) Constitution. In his inauguration speech, Ma said that he was committed to cross-Strait peace and regional stability and that he hoped that the two sides of the Taiwan Strait could work towards the long-term peaceful development of cross-Strait relations and the achievement of peace and co-prosperity.

Since Ma took office in May 2008, Taiwan’s Straits Exchange Foundation (SEF) and China’s Association for Relations Across the Taiwan Strait (ARATS) have held direct talks in Beijing and Taipei on economic issues. As a result of these exchanges, China and Taiwan have commenced direct cross-Strait passenger and cargo flights, tourism from China to Taiwan, and direct cross-Strait shipping. The entry into force of SEF-ARATS agreements achieved the long-standing goal of mainland China and Taiwan to realise the “three links” (direct trade, transport and postal links) across the Taiwan Strait.

International Recognition

Most governments recognise the PRC as the sole legal government of China and do not recognise Taiwan. Currently 23 states recognise Taiwan as the Republic of China (ROC):

1. Belize
2. Burkina Faso
3. Dominican Republic
4. El Salvador
5. Gambia
6. Guatemala
7. Haiti
8. Holy See
9. Honduras
10. Kiribati
11. Marshall Islands
12. Nauru
13. Nicaragua
14. Palau
15. Panama
16. Paraguay
17. Sao Tome and Principe
18. Solomon Islands
19. St Lucia
20. St Kitts and Nevis
21. St Vincent and the Grenadines
22. Swaziland
23. Tuvalu

Taiwan maintains extensive unofficial ties with countries that do not recognise it, focusing on trade, investment and cooperation in non-political areas. Taiwan has more than 90 unofficial offices in over 60 countries, including four offices in Australia (Canberra, Brisbane, Melbourne and Sydney).

Since 1971, when the PRC replaced the ROC in the United Nations as China, Taiwan has not been a member of any UN bodies, for which statehood is a requirement.

Through a policy of pragmatic diplomacy, Taiwan participates in a range of international and regional organisations, often under nomenclature such as “Chinese Taipei”. It acceded to the World Trade Organization (WTO) as the “Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu” with effect from 1 January 2002. Since its admission to the Asia Pacific Economic Cooperation (APEC) in November 1991 as “Chinese Taipei”, Taiwan has played a positive and constructive role in APEC activities (China and Hong Kong were also admitted at the 1991 APEC meeting).

Economic overview

Over the past six decades, Taiwan’s economy has evolved from reliance on agriculture (primarily rice and sugar) through manufacturing to services. Agriculture now constitutes just 1.7 percent of gross domestic product (GDP), down from 35 percent in 1952, while services now account for over 70 percent of national output and over half of all employment. One of Asia’s economic “tigers”, Taiwan, with a population of 23 million, is a dynamic, middle-income economy that is at the leading edge in a number of high-technology sectors. Taiwan’s nominal GDP exceeds US$400 billion, and has a per capita nominal GDP of around US$18,000. Taiwan is the world’s 17th largest trading entity, with over 70 percent of GDP derived directly or indirectly from exports.

Taiwan, as small, export-orientated economy, has been hit heavily by the global economic downturn, and is officially in recession. Taiwan has experienced a significant decline in exports in its major export industries, such as semiconductors, memory chips and electronic machinery, and to its major export markets, China and the United States. Industrial production has fallen, and consumer confidence is at its lowest level for some years. The unemployment rate (5.3 percent in January 2009) is at its highest level since 2003. The Taiwan government estimates GDP growth for 2009 will be minus 2.97 percent.

In response, the Taiwan government has announced a series of stimulus packages since late 2008. The packages include funding for public infrastructure works, urban renewal projects, employment and labour support programs, and shopping vouchers for Taiwan consumers. The Central Bank has responded by adopting a loose monetary policy, with successive interest rate cuts since September 2008. The continuation of an agenda of fiscal and financial reform is important to Taiwan’s longer term economic well-being.

On taking office (and prior to the global economic downturn), Ma Ying-jeou set ambitious economic targets for his administration as part of the process of opening up and deregulating Taiwan’s economy. These targets are an annual GDP growth of 6 percent, an unemployment rate of less than 3 percent, and per capita income of US$30,000 by 2016. Ma has said these objectives would be achieved by focusing on four key areas: expanding domestic demand, improving the investment environment, strengthening the economy, and increasing the quality of life. The “i-Taiwan 12 Projects” form a key plank of Ma’s economic policy, with the “i” indicating an emphasis on investment and infrastructure. Ma plans investment totalling approximately $140 billion, sourced from the public and private sectors, over the next eight years under the program. Other areas of focus for the Ma administration include the expansion of Taiwan’s services sectors in areas such as finance, tourism and health care, including medical tourism.

Cross-Strait Trade and Investment Links

China is Taiwan’s largest trade partner and outward investment destination. Taiwan Government figures show that Taiwan’s trade with China has more than tripled since the beginning of this decade. Taiwan’s trade with China accounts for approximately 20 percent of Taiwan’s total trade, and over one-quarter of Taiwan’s total exports. Official Taiwan government statistics show that in recent years, approximately 60 percent of Taiwan’s approved outward investment has gone to China, and that cumulative investment in China has more than tripled since the beginning of the decade (reaching US$75.5 billion in 2008, although the actual level of investment is estimated to be far higher at between US$100 billion and US$280 billion). The electronics sector accounts for 40 percent of Taiwan investment in China. Taiwan factories in China make a major contribution to Chinese exports elsewhere.

China’s industrialisation has given Taiwan access to a low-cost manufacturing base and new markets within China itself. Geographic proximity as well as business and cultural ties make China an attractive destination for investment from Taiwan, although Taiwan maintains some restrictions on investment. The Ma administration has relaxed these restrictions and also eased those on the exchange of the Taiwan and Chinese currencies. The Ma administration plans to allow Taiwan banks to establish branches in China.

The establishment of the “three links” in December 2008 will help reduce transport costs, travel times and encourage further cross-Strait economic integration.

Bilateral economic and trade relationship

Overview

Taiwan was Australia’s 12^th largest merchandise trading partner in 2008, accounting for 2.8 percent of Australia’s total merchandise trade ($12.71 billion). Taiwan was Australia’s eighth largest merchandise export market and 15^th largest source of merchandise imports. Australia’s exports to Taiwan increased by 39.5 percent to $8.3 billion in 2008, with major exports including coal, copper, iron ore and aluminium. Imports from Taiwan were worth $4.4 billion in 2008, a 2.3 percent increase on the previous year. Key imports include refined petroleum, computers, telecommunications and integrated circuits. Australia accounted for 3.4 percent of Taiwan’s imports in 2008, ranking Australia as Taiwan’s 6^th largest source of imports. Australia’s prominence in the supply of resources and primary products to Taiwan, and the significant value of Taiwan’s high-technology exports to Australia, underpin the complementary nature of the trading relationship between the two economies.

Two-way services trade was $724 million in 2007-2008 ($482 million in Australian exports to Taiwan and $242 million in imports from Taiwan). Taiwan is a major tourism and education market for Australia. Almost 99,000 Taiwanese visited Australia in 2008, while there were 9,646 Taiwanese enrolments in Australian educational institutions. Taiwan and Australia have a mutual working holiday maker arrangement, with 8,460 working holiday maker visas granted to Taiwanese visitors in 2008.

Despite the strong trade ties between Australia and Taiwan, two-way foreign investment remains relatively low. Taiwan ranks 20^th among foreign investors in Australia, while Taiwan ranks 26^th as a destination for Australian investors. Taiwanese investment in Australia was $4.1 billion in 2007, while Australian investment in Taiwan amounted to $2.8 billion in 2007.

Australian Trade and Investment Strategies

Australia holds annual Bilateral Economic Consultations with Taiwan. The consultations cover a wide range of issues, including market access, investment, agriculture, science and technology, and telecommunications. The two sides also hold annual Energy and Minerals Trade and Investment Consultations to support trade and investment in these two sectors, which account for the bulk of Australia’s exports to Taiwan. In addition, Australia has held bilateral electronics talks with Taiwan since 2005. The Australian Government supports the work of the Australia-Taiwan Business Council (ATBC) and actively liaises with business to facilitate trade and investment in Taiwan.

The Australian Government has a number of arrangements in place to facilitate trade between Australia and Taiwan, covering issues such as quarantine, competition policy, double taxation and scientific cooperation. To this end, the Australian Government is enhancing cooperation between agencies, such as the Australian Customs Service, the Australian Quarantine and Inspection Service and their Taiwan counterparts.

Export opportunities

The expected acceleration of privatisation and deregulation of Taiwan’s economy, in conjunction with programs such as the “i-Taiwan 12 Projects”, may offer new commercial opportunities for Australian business, in sectors such as infrastructure, services, finance, aerospace and telecoms.

Taiwan is continuing its privatisation program for state-owned enterprises (SOEs), with a total of 34 SOEs already privatised. Another 15 SOEs, including in the areas of petroleum, shipbuilding, water supply, tobacco and liquor, banking and chemical manufacturing, are listed for privatisation. The cumulative value of stocks and assets sold so far is estimated by the Taiwan authorities at US$21 billion.

The average tariff on products imported into Taiwan had fallen to 4.6 percent by 2007, down from 9.5 percent in 2002. On agricultural products, the average tariff was 17.5 percent. Import quotas and bans were abolished following Taiwan’s accession to the WTO in 2002, but a small range of products – including rice, certain other agricultural products and passenger cars – are subject to tariff rate quotas, with high tariffs applying to “out of quota” imports.

Taiwan is also reforming its regulatory environment. According to Taiwan’s Council for Economic Planning and Development (CEPD), 209 deregulatory reforms had been undertaken by the Ma administration as of March 2009.

For more information on export opportunities and export assistance in Taiwan, visit Austrade's country page.

Trade Successes

Biotechnology & Medical Research

• Immuron, an Australian publicly-traded biotechnology company (formerly known as Anadis) and Taiwan’s Development Centre for Biotechnology are jointly researching and commercially developing an oral vaccine for the polio-like enterovirus 71.
• Wholesome Biotech from Melbourne cooperated with the Taiwan Development Centre for Biotechnology on research into new applications of Chinese Herbal Medicine in 2008.
• Progen Pharmaceuticals is involved in discussions with Taiwan’s Department of Health on regulatory and registration requirements in Taiwan for the possible development and commercialisation of the PI-88 therapy treatment for liver cancer in Taiwan. Progen announced a strategic alliance in January 2007 with Taiwan’s Medigen Biotechnology Corporation.
• CSL Bioplasma commenced delivery of plasma to the Taiwan Blood Service Foundation by commenced in 2007.
• The National Health and Medical Research Council Clinical Trial Centre and the National Taiwan University Hospital signed a Memorandum of Understanding covering cooperation on clinical trials in March 2005.
• Sirtex (which has operations in Australia) launched its Yttrium-90 microsphere therapy treatment for liver cancer through its Taiwan strategic partner Synmosa in 2008. Leading hospitals in Taiwan have adopted this new therapy treatment for liver transplant patients.

Health

• Blackmores, a major Australian producer of natural nutritional supplements, entered the Taiwan market in an island-wide chain with an official launch in 2007.

Education

• Australia retains its position as the third most popular offshore education destination for Taiwanese students. Taiwan has been a consistent and healthy market for Australian education institutions, with approximately 10,000 Taiwanese students in Australia at any given time during the year.

Energy and Utilities

• In November 2007, Woodside and CPC Corporation Taiwan entered into a Key Terms Agreement (KTA) for the sale of liquefied natural gas (LNG) to Taiwan. The agreement was signed in February 2008. The KTA forms the basis for the parties to negotiate an LNG Supply Agreement for the potential sale of 2 to 3 million tonnes a year of LNG for a period of 15 to 20 years. The LNG Supply Agreement has the potential to bring revenues in the order of $35 billion to $45 billion into Australia, equal to the largest-ever single trade deal in Australia’s history.
• Centennial Coal Company Limited entered the Taiwan coal market in January 2006 with a 500,000 tonne per annum export contract with Taiwan Power Company (Taipower). Centennial will supply Taipower with premium thermal coal for five years.
• The Board of China Steel Corporation approved a $16.5 million purchase of a 5 percent stake in Australia’s Q Coal Sonoma coal mine in December 2006.

Science & Technology

• E-Ton signed a 3-year collaborative research agreement on solar energy technology development with UNSW from 2007-2010, valued at more than USD1 million.
• The Australian Nuclear Science and Technology Organisation and the National Science Council of Taiwan signed an $8.5 million Arrangement on Neutron Beam Applications Research in June 2005.

ICT

• The Austrade-managed Global Opportunities program will provide export and investment facilitation services as well as funding support of up to $1.8 million over the next three years to eight industry clusters of Australian companies, including the Australia-Taiwan ICT cluster, to help them expand their international business activities, link into global supply chains and bid for work on major projects.
• Acer Group, a world leader in computer manufacturing, established subsidiary Acer Computer Australia in 1990. The company officially opened its Oceanic Head Office Facility in Sydney in August 2006.
• In December 2005, Macquarie Bank and Macquarie Media Group (MMG) agreed to buy The Carlyle Group’s interest in Taiwan Broadband Communications (TBC) for around $1.189 billion.
• in June 2008, MMG announced the completion of the sale of its 60 percent economic interest in TBC to Macquarie Korea Opportunities Fund.

Infrastructure

• Thales Australia was awarded a contract in 2006 by the Air Navigation and Weather Services of the Civil Aeronautics Administration of Taiwan for the supply of a fully integrated Air Traffic Management System. Coming online in 2010, all take-offs and landings across airports in Taiwan will use Australian designed and developed Air Traffic Control Systems.

Construction

• Brisbane-based HOK Sport + Venue + Event won a contract in 2006 to design a major sports stadium in the heart of Taipei as part of a US$500 million mixed-use development.