Economic Integration and the Investment Climates in ASEAN Countries 9789814279185

Table of contents :
CONTENTS
INTRODUCTION
I. Economic Integration and the Investment Climates in ASEAN Countries: Perspectives from Taiwan Investors
Background of the Symposium
Opening Remarks
Session 1
Session 2
Session 3
Questions and Answers
Conclusion and Policy Suggestions
II. Background Papers
1. Taiwan and ASEAN Economic Interaction: Prospects and Opportunities
2. Taishang: A Different Kind of Ethnic Chinese Business in Southeast Asia
3. ASEAN Economic Integration and Taiwan
4. ASEAN’s Bilateral Free Trade Agreements: Benefits and Challenges for the Region
Annex I: Programme of the Symposium

Citation preview

ECONOMIC INTEGRATION AND THE INVESTMENT CLIMATES IN ASEAN COUNTRIES

The Institute of Southeast Asian Studies (ISEAS) was established as an autonomous organization in 1968. It is a regional centre dedicated to the study of socio-political, security and economic trends and developments in Southeast Asia and its wider geostrategic and economic environment. The Institute’s research programmes are the Regional Economic Studies (RES, including ASEAN and APEC), Regional Strategic and Political Studies (RSPS), and Regional Social and Cultural Studies (RSCS). ISEAS Publishing, an established academic press, has issued almost 2,000 books and journals. It is the largest scholarly publisher of research about Southeast Asia from within the region. ISEAS Publishing works with many other academic and trade publishers and distributors to disseminate important research and analyses from and about Southeast Asia to the rest of the world.

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Report No. 7

ECONOMIC INTEGRATION AND THE INVESTMENT CLIMATES IN ASEAN COUNTRIES Perspectives from Taiwan Investors

INSTITUTE OF SOUTHEAST ASIAN STUDIES Singapore

First published in Singapore in 2009 by ISEAS Publishing Institute of Southeast Asian Studies 30 Heng Mui Keng Terrace Pasir Panjang Singapore 119614 E-mail: [email protected] Website: bookshop.iseas.edu.sg All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the Institute of Southeast Asian Studies. © 2009 Institute of Southeast Asian Studies, Singapore The responsibility for facts and opinions in this publication rests exclusively with the contributors and their interpretations do not necessarily reflect the views or the policy of the publisher or its supporters. ISEAS Library Cataloguing-in-Publication Data Economic integration and the investment climates in ASEAN countries : perspectives from Taiwan investors. (Report / ASEAN Studies Centre ; no. 7). 1. ASEAN. 2. Southeast Asia—Economic integration. 3. Investments, Taiwan—ASEAN countries. 4. Taiwan—Commerce—ASEAN countries. I. Institute of Southeast Asian Studies. ASEAN Studies Centre. II. Zhong yang yan jiu yuan. Ya tai qu yu yan jiu zhuan ti zhong xin. III. Taiwan Institute of Economic Research. IV. International Symposium on ASEAN Economic Integration and the Investment Climates in the ASEAN Countries : Perspectives from Taiwan Investors (2008 : Taiwan) V. Series. JZ5333.5 A9A85 no. 7 2009 ISBN 978-981-230-998-3 (soft cover) ISBN 978-981-230-999-0 (E-book PDF) Typeset by Superskill Graphics Pte Ltd Printed in Singapore by Seng Lee Press Pte Ltd

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CONTENTS

Introduction

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I. Economic Integration and the Investment Climates in ASEAN Countries: Perspectives from Taiwan Investors • Background of the Symposium • Opening Remarks • Session 1 • Session 2 • Session 3 • Questions and Answers • Conclusion and Policy Suggestions

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II. Background Papers 1. Taiwan and ASEAN Economic Interaction: Prospects and Opportunities Chao-Jen Huang

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2. Taishang: A Different Kind of Ethnic Chinese Business in Southeast Asia Michael Hsiao Hsin-Huang, I-Chun Kung and Hong-Zen Wang 3. ASEAN Economic Integration and Taiwan Rodolfo C. Severino

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4. ASEAN’s Bilateral Free Trade Agreements: Benefits and Challenges for the Region Sanchita Basu Das

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Annex I: Programme of the Symposium

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INTRODUCTION THE SYMPOSIUM ON ASEAN-TAIWAN ECONOMIC RELATIONS

In November 2008, the Center for Asia-Pacific Area Studies of Academia Sinica, Taiwan, the ASEAN Studies Centre of the Institute of Southeast Asian Studies, Singapore, and the Taiwan Institute of Economic Research organized a symposium in Taipei. The symposium addressed the unique situation in which Taiwan companies had an active presence in Southeast Asian countries, while political factors prevent government frameworks concluded between Taiwan and the Association of Southeast Asian Nations (ASEAN) from placing the economic interaction between Taiwan companies and ASEAN members in a political and policy context. Those factors also keep official protection from being extended specifically to Taiwanese investments in Southeast Asia. The symposium noted the rapid rise of Taiwan’s trade with and investments in the ASEAN countries and their spread among a larger number of those countries, particularly since the appreciation of the New Taiwan dollar in 1987. Taiwan investments have been attracted by the relatively low wages prevailing in most ASEAN countries and by the rich resources there. ASEAN countries have also been found to be receptive to foreign direct investments and their economies oriented towards exports. Obstacles, however, were also pointed out — infrastructure deficiencies, macro-economic problems like inflation, difficulties with labour, and cultural differences, including attitudes towards work.

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Introduction

The symposium heard a presentation of the results of a survey of the personal concerns of Taishang (overseas Taiwanese business people), in the ASEAN countries. These included education for their children and healthcare for their families. The Taishang also had trouble establishing and obtaining credit in the ASEAN countries, leading to a proposal for a regional credit bureau. An analysis presented at the symposium found that including Taiwan in the free trade area schemes in ASEAN+3 and between ASEAN and China would theoretically yield benefits for all. Although this was not, for political reasons, possible at this time, Taiwanese businesses could do much to improve and expand the business environment in ASEAN countries for their own benefit. ASEAN countries were committed to integrating the regional economy. They were entering into Free Trade Agreements (FTAs) with China, South Korea, Japan, India, and Australia and New Zealand. Taiwanese businesses could encourage these trends. Seven ASEAN economies and Taiwan were all in the Asia-Pacific Economic Cooperation (APEC) group. They could cooperate more closely in advancing APEC’s purposes. Taiwanese business enterprises could push for and assist in the necessary domestic reforms in the ASEAN countries in which they operate. This should be done particularly to improve the investment climate and to ensure that the educational systems produce the manpower needed by foreign investors. Taiwanese firms could also see where they could take part in the production chains that had developed around ASEAN. Subjects for future symposiums were suggested — labour mobility, production chains and the regional division of labour, and cooperation in tourism.

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Perspectives from Taiwan Investors

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I ECONOMIC INTEGRATION AND THE INVESTMENT CLIMATES IN ASEAN COUNTRIES: PERSPECTIVES FROM TAIWAN INVESTORS

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ECONOMIC INTEGRATION AND THE INVESTMENT CLIMATES IN ASEAN COUNTRIES: PERSPECTIVES FROM TAIWAN INVESTORS

Background of the Symposium 1.

The symposium on the “Economic Integration and the Investment Climates in ASEAN Countries: Perspectives from Taiwan Investors” was jointly organized by the Center for Asia-Pacific Area Studies (CAPAS), Academia Sinica, Taiwan, the ASEAN Studies Centre (ASC), Institute of Southeast Asian Studies (ISEAS), Singapore, and the Taiwan Institute of Economic Research (TIER), Taiwan, on 17 November 2008 in Taipei. The programme is presented in Annex I. The objective of the expert discussion was to help Taiwanese investors understand the ASEAN economic integration process and get their perspectives on the investment climate in ASEAN.

2.

The symposium involved both Taiwan and ASEAN representatives, who exchanged their views on ASEANTaiwan socioeconomic relations, ASEAN economic integration and ASEAN’s bilateral Free Trade Agreements (FTAs). Later, a roundtable discussion with Taiwanese scholars, business leaders, consultants and other opinion

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makers dealt with the benefits and challenges faced by Taishang in investing in ASEAN. They also voiced their views on the ASEAN economic integration and provided some policy inputs where Taiwan and ASEAN can work together.

Opening Remarks 3.

Dr Michael Hsiao H.H., Executive Director, CAPAS, welcomed the participants and acknowledged the initiative of ISEAS Director Ambassador K. Kesavapany in 2007 in setting the train of process that led to the seminar in Taipei.

4.

Mr Rodolfo C. Severino, Head of the ASC, emphasized that, as there was limited contact between ASEAN and Taiwan, it was good to take a closer look at the relationship. In doing so, two elements of trade and investment relations must be brought forward: (a) the economic relationship between ASEAN and Taiwan; and (b) investor’s opinions of the integration process with a view to improving the investment environment.

5.

Dr David Hong, President, Taiwan Institute of Economic Research (TIER), stated that it was a great time for Taiwanese investors to observe ASEAN integration. Taiwan started looking at Southeast Asia in the 1970s, when the country ran into trouble with labour shortages, wage hikes, land price increases, environmental protests, and the appreciation of the New Taiwan dollar. After ten years in Southeast Asia, the investors started to move into China, which gave them a larger comparative advantage. After twenty years in China, the Taiwanese businesses started to feel pressure — wage hikes and increased competition.

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Hence, with the current global economic crisis, it was the right time for Taiwanese investors to look into other options for the future. Moreover, Taiwan was too dependent on China, and there was an urgent need to diversify its investments. It was in this light that Taiwan needed to look at Southeast Asia again as an important destination for future investments.

Session 1 6.

The first speaker of Session 1, Dr Chao-Jen Huang, Director, Research Division of Southeast Asia, TIER, discussed the economic interactions between ASEAN and Taiwan since the late 1980s. He also examined the economic impact of East Asian economic integration on the assumption that Taiwan joined the scheme.

7.

He asserted that East Asian regionalism was necessary to cope with the threats of globalization. Signing bilateral FTAs among East Asian nations was a natural way of promoting economic integration. Hence, ASEAN and Taiwan needed to form an economic cooperative unit to enhance economic efficiency and political power.

8.

It was found that, while Taiwan, with its relative superiority in technology and capital, was in a leading position for industrialization, ASEAN-5, with its rich natural resources, cheap labour and 600 billion population, was better placed in the labour-intensive industries and the services sector.

9.

The characteristics of Taiwan’s foreign direct investment (FDI) in Southeast Asia depicted the structure of economic relations between the two. In the late 1980s, Taiwan

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enterprises decided to relocate their manufacturing operations to Southeast Asia, where there was cheap labour and rich natural resources. Taiwan’s FDI in Southeast Asia increased sharply from US$8.1 million in 1986 to US$2.1 billion in 2007. As a proportion of total Taiwanese outbound FDI, the share of ASEAN hit a high of 43.5 per cent in 1991. Thereafter, it went down, a process accelerated by the 1997– 98 financial crisis. On the other hand, Taiwan investment flows to the world increased, mainly to mainland China. However, by 2004, because of high natural resource prices and to diversify investments, Taiwanese investors again started looking at Southeast Asia. 10.

Before 1987, Taiwan’s FDI in Southeast Asia was mainly centred in Indonesia and Thailand. By 1993, it had moved to Vietnam, taking advantage of the deregulation reforms happening in that country. In 1952–2007, most of Taiwan’s FDI went to the electronic and electrical industry (41 per cent), followed by textiles (20 per cent) and chemicals (5 per cent).

11.

The FDI relationship between ASEAN and Taiwan developed the trade relations between the two. Of its total global exports, the share of Taiwan’s export to Southeast Asia rose from 8.3 per cent in 1989 to 14.7 per cent in 2007. The proportion of Taiwan’s imports from Southeast Asia also went up from 6.2 per cent in 1989 to 10.1 per cent in 2007. This implies that ASEAN is an important market for Taiwan both in terms of exports and imports. ASEAN also benefited from attracting larger capital and technology flows to the region.

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12.

Dr Chao-Jen Huang developed two scenarios to study the economic impact of East Asian integration that included Taiwan — (a) ASEAN+China+Taiwan; and (b) ASEAN+3+Taiwan. He found that in both the cases, Taiwan and ASEAN enjoyed a benign economic impact. Both scenarios showed that if Taiwan joined the ASEAN+China FTA or ASEAN+3 FTA, all members would benefit in terms of GDP, trade and social welfare.

13.

The second speaker of Session 1, Dr Hong-Zen Wang, Professor and Head of the Graduate Institute of Sociology at National Sun Yat-sen University, Taiwan, discussed how social networks, gender and nationalism affected the behaviour of Taishang (Taiwanese resident businesses or business people) in Southeast Asia. He reviewed the current and past research work on Taishang in Southeast Asia.

14.

Data from the past ten years led to the following observations: (a) 11 per cent of Taishang moved to Southeast Asia because of the “Southbound” policy; (b) 8 per cent were attracted by the overseas Chinese network. The decisions of Taiwanese investors to move to Southeast Asia were governed mainly by labour and ethnic relations. Most of the researches were done in Vietnam, Malaysia, Thailand, Indonesia and Singapore.

15.

As to the question of why Southeast Asian people come to Taiwan, most of them do so on account of cross-border marriages, the education of migrant spouses and their children, family relations, healthcare, and social networking.

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Research activities on Taishang are driven mainly by the rise of China and by the increase in the number of Southeast Asian people in Taiwan. However, there is very little research on life adaptation by Taishang. Mostly, the research concentrates on Southeast Asian migrant women. There are quite a number of researches on transnational ethnic Chinese networks and ethnic division of labour in Taiwanese factory in Southeast Asia. While there is increasing research on Taishang and women, there is very little work done on Taishang and local politics in Southeast Asia.

Session 2 17.

The first speaker of Session 2, Mr Rodolfo C. Severino, Head of the ASEAN Studies Centre (ASC) at the Institute of Southeast Asian Studies (ISEAS), Singapore, stressed that, for obvious reasons, “Taiwan and ASEAN as a whole cannot enter into government-to-government commitments such as those in FTAs.” He, however, gave an account of the ASEAN Economic Community (AEC) and discussed how Taiwanese and other foreign companies would profit from investing in or otherwise dealing with that community.

18.

In December 1997, ASEAN leaders issued ASEAN Vision 2020, partly in response to the Asian financial crisis. In 1992, the region had entered into an agreement to reduce tariffs on intra-ASEAN trade to minimal levels, and to remove non-tariff barriers to that of trade. Thereafter, ASEAN leaders adopted several action plans and committed themselves to intensifying ASEAN economic cooperation and regional economic integration.

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19.

At their summit meeting in October 2003, the ASEAN leaders issued the second Bali Declaration of ASEAN Concord, in which they envisioned “ASEAN as a single market and production base, turning the diversity that characterises the region into opportunities for business complementation (and) making … ASEAN a more dynamic and stronger segment of the global supply chain”. In November 2007, in a “blueprint” for the ASEAN Economic Community, the leaders defined the nature of that community — “a single market and production base” and a region that was competitive, equitably developed, and “fully integrated into the global economy”. They moved the deadline for its achievement forward from 2020 to 2015.

20.

Thus, most building blocks for regional economic integration were already in place. The tariff-cutting exercise was almost done. While the implementation of the other integration measures was progressing slowly, all these arrangements signalled to the international community the importance that the ASEAN governments placed on regional economic integration and directed the attention of the business communities to the opportunities that trade and investments between their countries offered to them.

21.

Mr Severino further stressed what Taiwan companies and the Taiwan authorities could do to seize the opportunities offered by an integrating ASEAN. He pointed out that, in addition to market access, Taiwan companies could seek places in the regional production chains that ASEAN’s FTAs encouraged. They could consider taking part in the ASEAN Industrial Cooperation (AICO) scheme, which ASEAN is

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seeking to keep relevant in the face of the imminent elimination of tariffs on intra-ASEAN trade. They could make use of the institutional mechanisms that ASEAN had put in place to promote members’ compliance with their trade and investment commitments. 22.

Mr Severino categorically ruled out FTAs and other government-to-government arrangements between Taiwan and ASEAN as a whole.

23.

The second speaker of Session 2, Ms Sanchita Basu Das, Visiting Research Fellow and Lead Researcher for Economic Affairs of the ASEAN Studies Centre at the Institute of Southeast Asian Studies, Singapore, spoke on “ASEAN’s Bilateral Free Trade Agreements: Benefits and Challenges for the Region”.

24.

ASEAN sought FTAs because of three reasons: (a) the slow progress of the World Trade Organization (WTO)/Doha negotiation process; (b) the fast progress of regionalism in Europe and North America; and (c) the 1997–98 Asian financial crisis. In addition to these, changes were also happening in Asia: ASEAN economic integration was progressing very slowly; China was attracting investments; and India was also emerging as a major economic power.

25.

ASEAN countries had signed or were negotiating two kinds of FTAs. One was region-wide FTAs with Australia and New Zealand, China, India, Japan and Korea. These FTAs were at different stages of negotiation or implementation. Individual ASEAN economies’ FTAs, particularly those of Singapore,

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Thailand and Malaysia, had been concluded or were being negotiated with “like-minded” trading partners. 26.

Most of the FTAs currently in force involved Singapore. The agreements ranged from limited FTAs on trade in goods, to highly comprehensive ones (WTO-Plus). A variety of Rulesof-Origins (ROOs) were being applied or being negotiated. There was much overlap between FTA partners of ASEAN and those that individual ASEAN member-countries have signed. The WTO had not been notified of many of these agreements.

27.

While FTAs in theory enlarged markets for goods and services, promoted regional production networks and facilitated domestic reforms, they suffered from a multiplicity of ROOs, the absence of a common framework between the FTAs of ASEAN as a region and those of individual member-countries. As most of the FTAs were under negotiation, it was impossible to gauge their final content and possible impact on the region.

28.

For ASEAN, FTAs could be useful tools for promoting economic cooperation in the region provided: (a) they were well-designed and properly implemented; and (b) they were well-supported by unilateral liberalization and important domestic economic reforms. ASEAN countries could also benefit from greater liberalization and stronger strategic links.

29.

As discussant, in Session 2, Mr David Parsons (Executive Director of the Committee on Investment and International

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Trade Development at the Chamber of Commerce and Industry, Indonesia), stressed the point that Taiwan was not losing anything by not joining the ASEAN+3 regionalism process. Joining a FTA raises high expectations and is very complicated. Many issues lack clarity. The Taiwanese business sector should take a much more strategic approach, for which official trade negotiations were not important. 30.

More important than ASEAN’s external relationship, was its own economic integration process. This had a very specific deadline of 2015 and was far more comprehensive than the normal FTAs. Taiwanese businesses should be part of that regional integration process, especially because involvement in ASEAN’s production chain would give Taiwanese enterprises access to other markets — Australia, New Zealand, India, etc. For this to happen, Taiwanese businesses must approach the ASEAN governments or businesses directly, gathering information and contributing effectively to the ASEAN integration process.

31.

Mr Parsons called on Taiwan investors to help shape policy in ASEAN countries and build the ASEAN community by, for example, encouraging reforms in customs, logistics, etc.

32.

Taiwanese businesses should look beyond the Chinese business communities in ASEAN. They must help drive policy-making. The businesses should encourage ASEAN economies to remain attractive to the Taiwanese business community for the next twenty years. Then business decisions should not be driven by short-term objectives but should be taken with strategic gains in mind, including those from the creation of the ASEAN single market.

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Another role that Taiwanese firms could play was monitoring the implementation process of ASEAN economic integration. Taiwanese investors could also fill in the gaps in infrastructure and help in building better production chains in the region. It would be better for Taiwan investors to act more like a partner for ASEAN economies rather than go for formal arrangements, which would be impossible to conclude for political reasons.

Session 3 34.

The last session was in the form of a roundtable discussion involving Taiwan business leaders and scholars. There were four panellists — Dr Yau-Jr Liu, Associate Research Fellow, Taiwan Institute of Economic Research; Mr Pao Chuan Lin, Vice President and Head of International Administration Department at Chinatrust Commercial Bank; Dr Jang Pao Kang, Associate Professor at National Chengchi University; and Dr Jiang-Jong Guo, Associate Professor, Graduate Institute of China Studies, Tamkang University.

35.

With family businesses in Singapore and Vietnam, Dr Yau-Jr Liu, shared some of the results of his research and his opinions about doing business in ASEAN countries. Traditionally, Taiwanese firms invested in ASEAN countries for four reasons. One was to make use of abundant resources. Thus, Taiwanese firms invested in Malaysia and Indonesia and more recently moved to Vietnam and Cambodia. These were in labour- and resource-intensive industries. Another reason was market expansion, especially for staple industry manufacturers. These were located in populous countries like Indonesia, the Philippines, Thailand

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and Vietnam. Thirdly, in the last ten years, Taiwanese investors sought involvement in the international production chains in ASEAN. The fourth reason was to spread risks, especially in the case of investors in China. Recently, there had been policy changes in China, and several of them were not very friendly for the Taiwanese manufacturing sector. Hence, many firms moved to the northern part of Vietnam or elsewhere in ASEAN. Even with the current global economic crisis, the four motivations remain intact as ASEAN countries are less exposed to the crisis compared to some other economies. 36.

Nevertheless, cost savings and market expansion remained the crucial driving forces for Taiwanese investors to move into Southeast Asia. However, moving would pose some risks to these businesses. Firms that moved rapidly to ASEAN countries could overlook problems like labour shortages or strikes by labour unions (Vietnam, Indonesia and Thailand). Hence, business people must think of spreading their risks among ASEAN countries. In Thailand, even though the cost of labour was a bit higher, the problem of strikes was less. Taiwanese businessmen should look at the risk to a firm’s value rather than simply at cost savings.

37.

Dr Jang Pao Kang used the example of Vietnam to illustrate the business experience of Taiwanese in ASEAN. In the past twenty years, most Taiwan investments went to China. It was only in the last two years that most investors started looking at ASEAN. ASEAN countries were considered to have abundant supplies of cheap labour, so most businessmen saw Vietnam as a good alternative to China.

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Vietnam has a total population of 85 million, of which more than 80 per cent are below 33 years of age. 38.

Taiwanese enterprises observed that Vietnam had many infrastructure problems. In Vietnam, Taishang (Taiwanese business people) could not simply rent a standard plant and had to get all utilities in place before they could start operating. The Taishang also did not understand the language and needed interpreters. These interpreters often acted like general managers. Vietnam also had a culture different from that of Taiwan or China. For example, in Vietnam, no one liked to work overtime, which posed a problem for Taiwanese companies. Taishang also faced frequent strike problems. In May 2008 alone, there were more than 300 strikes in the Hanoi area. This forced some companies to shift back to China. In 2008, Vietnam had a lot of macroeconomic problems — a huge trade deficit, stock market volatility, hyper-inflation, high interest rates, etc. All this raised the cost of doing business in Vietnam. Lastly, Vietnam suffered from pollution, which should be a concern for Taiwanese investors in future. Nevertheless, there were also some successful Taiwanese business cases in Vietnam and they had been operating in the country for the last ten years.

39.

Dr Kang had some policy recommendations for Vietnam: the country needed to solve the infrastructure problems and should create a business-friendly environment for Taiwanese investors. The Vietnamese government should try to lower the frequency of strikes and encourage workers to agree to work overtime. This would be good for Vietnam,

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as this would increase production and hence trade. Noting that Taiwan was very strong in the electronics industry, he also recommended that ASEAN should attract the whole industry by creating a competitive environment like China’s. Otherwise, ASEAN countries could lose some good investment opportunities to India and Middle Eastern countries. 40.

Dr Jiang-Jong Guo took the Taiwanese information technology (IT) industry as a case study for Taiwanese investments in ASEAN. In the last two years, many of its IT companies had moved from China to Vietnam. There were several reasons for this — the appreciation of the renminbi, the increase in the income tax of enterprises from 15 to 20 per cent, new labour laws, the change in the value-added tax on exports. All these raised the cost of Taiwanese companies by 5–15 per cent. The other factor that drove the relocation to Vietnam, especially from the Pearl River Delta, was the integration of Vietnam and China (Kunming). The northern part of Vietnam is the main concentration of the IT industry and is economically well integrated with Kunming through various initiatives of the two governments. Taiwanese enterprises in Vietnam achieved some cost savings and gained some benefits from the ASEAN-China FTA. However, Vietnam needed to work on its interest rate, which was too high at 16.2 per cent, compared to around 3 per cent in Taiwan. The two governments must work on this, especially because IT is a very capital-intensive sector.

41.

Dr Guo added that at present, the trade between Taiwan and Vietnam was in favour of Taiwan, which had with a

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surplus of US$5.8 billion. In 2007, Vietnam was an important destination for Taiwanese investments, with 165 investment projects worth US$1.25 billion. The leading sectors were textiles, electronics, chemicals and food. On the whole, Taiwanese enterprises were interested in ASEAN, and they are aware of the advantages of the ASEAN FTA arrangement with China. 42.

Mr Lin of China Trust Commercial Bank presented his views on ASEAN countries and shared his experience with Taiwanese enterprises in ASEAN countries which included the presence of China Trust Bank in Bangkok, Manila, Indonesia and Hanoi. The main objective of setting up representative offices and branches in Southeast Asia was to diversify the bank’s portfolio. Secondly, the bank wanted to follow the customer, that is, the Taishang. The bank had the Taishang’s credit information and understood their language. Thirdly, the bank wanted to seize the growing opportunities in ASEAN, especially in Indonesia, where the bank enjoyed high net interests. Fourthly, the bank was also looking to upgrade its network in the region so that it could grow globally. Finally, the bank aimed to increase its business by following the supply chain of the Taishang, who shared the same language.

43.

Mr Lin pointed out that the Taishang went to ASEAN for the sake of lower manufacturing costs. Some of them looked at the local market potential, like in Indonesia. However, companies faced problems in funding their businesses, especially the small and medium enterprises (SMEs), as local banks did not have their credit records. That is where

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Taiwanese banks, like the China Trust Commercial Bank, filled in the gaps. Mr Lin recommended that ASEAN set up a regionwide credit bureau, if it is to be an economically integrated community.

Questions and Answers 44.

Dr Chao-Jen Huang explained that FDI brought advantages in terms of trade and division of labour. This strengthened competitiveness, especially with the formation of a single market. He said that regionalism had negative effects on other regions and countries. If one looked closely at Taiwan, China and South Korea, one would find similarities in their economic structures. If Taiwan joined the economic integration of East Asia, there might be a little setback to China and South Korea, but Taiwan would suffer a major setback if it did not join the FTA. However, ASEAN would be much better off with economic integration with Taiwan.

45.

Dr Hong-Zen Wang stressed the importance of the Taiwanese business network. The government had conducted many surveys on the sources of Taiwanese investments. The sources were the local society, the local Taiwanese business people and Taiwanese companies in other countries. For example, any investment in Penang (Malaysia) might acquire around 60 per cent of its materials from another Taiwanese company. Hence, when one said that Taiwanese investment increased trade, this trade was often between Taiwanese companies or within the Taiwanese business network.

46.

Mr Rodolfo Severino stressed that ASEAN was trying to promote a single market, so that the supply chain would be

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enlarged. The Japanese recognized this and they were pushing ASEAN to integrate the regional market. He pointed out that there was actually no contradiction between APEC and bilateral FTAs. The proposed Free Trade Agreement for the Asia Pacific was not going fast enough, and so it was very natural for countries in APEC to go into something that was more possible. 47.

Mr Severino prophesized that FTAs were more than economic in nature. Essentially, FTAs conferred political status. They sent out signals to the international community about the relationship between the two parties to the FTA. They also sent signals to the business community that it was good to invest in and trade with the partner countries. Mr Severino observed that ASEAN was trying to create a regional identity, and it had succeeded in some ways and failed in others. For example, ASEAN was able to take united positions on issues like the Vietnamese invasion of Cambodia and the turmoil in Cambodia in 1997. ASEAN could take positions as long as the national interests of the member-states converged.

48.

Ms Sanchita Basu Das clarified that ASEAN was aware of the gaps within the region and it was taking several initiatives to close these gaps. The IAI programme helped the less developed ASEAN countries to pull themselves up and come closer to the more developed ones. With so many trade agreements coming up, member-countries were directing their attention to the FTA negotiations. While this might divert their attention from the domestic reform process, the implementation of the FTAs required them to undertake necessary reforms. This should eventually help to narrow

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the gap over a period of time. Ms Basu Das said that it was too early to gauge the impact of FTAs, with only the Singapore-New Zealand FTA about to finish its ten-year term in 2009. Otherwise most of them were still either in the negotiation stage or under implementation . 49.

Mr David Parsons suggested that Taiwanese businesses be more proactive. They should be suggesting areas where ASEAN was lacking, where Taiwanese institutes could set up centres in ASEAN. Education systems in ASEAN needed a boost. This could not be done only with government processes. APEC was still very important.

Conclusion and Policy Suggestions 50.

Dr Michael Hsiao concluded by saying that for ASEANTaiwan relations, there existed many issues from both the research and political angles. However, for now the focus was on ASEAN economic integration and how it might affect the Taiwanese business people in the long run. While this symposium had taken a first step by raising the awareness of a small group of people, more needed to be discussed in the future.

51.

Mr Rodolfo Severino gave a few policy suggestions: (1) To strengthen ASEAN-Taiwan relations, a Taiwan-ASEAN business council could be formed among Taiwanese companies doing business in ASEAN. Although many small and medium enterprises might not be ready for this, it could

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help ASEAN to shape trade and investment policies that would be more favourable to Taiwanese investors. It might also push domestic reforms in ASEAN countries. (2) ASEAN might also need to upgrade or change its educational system so as to fit the needs of the Taiwanese manufacturing sector in the region. Moreover, the education of Taiwanese children in ASEAN should be given important consideration. (3) ASEAN also needed to provide appropriate medical facilities for migrant Taiwanese workers. (4) There were also some gaps in research in areas such as studies on the social situation of Taishang in ASEAN countries. (5) Information from ASEAN countries was needed in terms of infrastructure, labour laws, taxation policy, etc. This information should be available in Chinese, as many Taiwanese investors had limited grasp of the English language. 52.

Mr Severino suggested some themes for future symposiums. A survey had been done by a Taiwanese institute on Taishang in ASEAN. The findings would be available by the third quarter of 2009. So the next symposium could focus on these findings and could have attendees from the ASEAN Secretariat, Taishang and other knowledgeable people from ASEAN and Taiwan. This could be arranged sometime in late 2009 in Singapore.

53.

Dr David Hong from TIER suggested a few other areas that required discussion: (1) labour mobility between ASEAN and Taiwan; (2) ASEAN’s production chain and the division of labour; and (3) regional tourism cooperation.

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Taiwan and ASEAN Economic Interaction: Prospects and Opportunities

II BACKGROUND PAPERS

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1 TAIWAN AND ASEAN ECONOMIC INTERACTION: PROSPECTS AND OPPORTUNITIES Chao-Jen Huang

This paper is an attempt to look at economic interactions between Association of Southeast Asian Nations (ASEAN) and Taiwan since the late 1980s, which reflect on the forces of regionalization and globalization. Its underlying intention is to develop some insights into issues, which argue that ASEAN and Taiwan have created a format for regional economic partnerships. These insights may facilitate a flexible approach towards an examination of the prospects and opportunities between them in the era of regionalization and globalization. As a hypothesis, if there are constraints (that is, without formal relations between Taiwan and ASEAN countries) or opportunities (that is, long-term economic interdependence between Taiwan and ASEAN) in trying to target a goal of comprehensive cooperation between ASEAN and Taiwan, it would require the use of political and economic approaches to examine these specific issues. As its methodology, this paper uses mainly trade and investment data between Taiwan and six of ASEAN’s membercountries (ASEAN-6)1 to indicate the complementary attributes of ASEAN countries and Taiwan. It is further shown that economic forces, driven by foreign direct investment and trade, have built a sense of a regional economic community between Taiwan and the ASEAN-6 since the late 1980s. From a practical perspective, the

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emergence of close economic relations among Taiwan and ASEAN-6 reflects the fact that these countries pursued their economic comparative advantages so as to maintain their global competitiveness. Based on the above, this paper is structured as follows. Section 1 explores the notion of regionalization and globalization, which helps us to understand the essence of common interests between ASEAN and Taiwan. It is argued that cooperation between ASEAN and Taiwan should be regarded as a means or process undertaken by individual countries to pursue national, regional and global interests. Section 2 provides a brief review of the comparative advantages of Taiwan and ASEAN-6 in order to highlight the essence of the division of labour characteristic of the economic relations between them. This section assumes that bilateral economic relations between Taiwan and the ASEAN-6 minus Singapore have spun an economic cooperation web so as to seize comparative advantages that have successfully exploited the benefits of economic division of labour. This would accelerate the momentum of economic development of individual countries. The trend of Taiwan’s foreign direct investment (FDI) to ASEAN6 will be briefly introduced in Section 3, followed by the argument in Section 4 that FDI has successfully integrated Taiwan and ASEAN-6’s economic activities in terms of both horizontal and vertical dimensions. In this section, empirical data is used to explore trade interactions between Taiwan and ASEAN-6 to illustrate the evolving patterns of trade between them. Section 5 concludes the paper and outlines the policy implications of the analysis undertaken.

1. Globalization, Regionalization and Southeast Asia Globalization is commonly referred to as the dynamics of linkages and interconnections between states and societies, that make up

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the modern world system. It can be described as the process of interdependence between economies and global enmeshment, which happens as people, capital, information and production move ever more swiftly and smoothly across national boundaries. It is further assumed to be a process driven by economic forces (that is, information technologies and communication innovations). These trends will lead to an increasingly interconnected and interdependent world system. Undoubtedly, a process of globalization brings powerful international and transnational pressures on the complex situation of East and Southeast Asia. Under these circumstances, the regionalization of East and Southeast Asia is invaluable in coping with the threats of globalization. Indeed, regionalization can co-exist side by side with the powerful forces of globalization. Since the 1990s, East and Southeast Asia have been promoting regional economic integration in order to increase the economic welfare of regional countries. Currently, signing a bilateral Free Trade Agreement (FTA) among East and Southeast Asian countries is a natural trend for future economic integration. The goal of this type of economic integration is to accelerate the flow of capital, people and goods among FTA members and to ensure an increase of economic welfare and industrial strength of individual members. Hence, it is argued that the effects of regionalization and globalization may force East and Southeast Asian countries (which may have to include Taiwan eventually), to form an economic cooperative unit to enhance both economic efficiency (using complementary economics) and political power (bargaining over rules and institutions that may govern the global economy). Moreover, it is necessary to investigate and to address the potential areas to be pursued in economic cooperation between ASEAN and Taiwan. Both ASEAN and Taiwan have to find out their common economic interests in advance and explore (1) in

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what areas it has to be pursued; and (2) what potential economic areas/business items in ASEAN may interest Taiwanese investors; and (3) if Taiwan could be included in a future regional FTA, then what economic advantages ASEAN would enjoy. Above all, it may be argued that ASEAN and Taiwan have complementary economic attributes between them. ASEAN enjoys a comparative advantage in exporting raw materials (that is, palm oil, timber, oil and gas, minerals, and others) and some manufactured products (that is, textiles, electronic components, and so on). In contrast, Taiwan can provide business experience in technology development, business management, global markets and capital.

2. Economic Comparative Advantage between Taiwan and ASEAN-5 Economic complementarities are expressed in increasing investment and trade flows between Taiwan and ASEAN. Traditional arguments hold that the comparative advantage of an economy is determined principally by factor endowments (availability of relatively cheap inputs) and the stage of industrialization (level of technology) that it has reached.2 If we investigate the economic structure of Taiwan and ASEAN-5,3 we find that it is basically in the form of a division of labour. Taiwan, with its relative superiority in capital, marketing, and technology, is in a leading position of industrialization compared with ASEAN-5. In contrast, ASEAN-5, with rich natural resources, vast land, cheap labour and significant population size, is a place for labour-intensive industries, like service industries, and has a large base of potential consumers. Taiwan moved from producing labour-intensive manufactured products, like food and beverage processing, textile, garments and footwear, paper products and printing, in the late 1980s to

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exporting capital and labour-intensive manufactured products, such as electronic and electric components, in the early 1990s. The country, driven by the appreciation of its currency in 1987, rising wage costs, scarcity of land and environmental protection, began to relocate labour-intensive industries to ASEAN-5. Along this natural development trend, Taiwan’s FDI has produced another pattern of relatively asymmetric economic interdependence between Taiwan and ASEAN-5, with Taiwan dominating some of the critical technologies, capital and global marketing. This economic phenomenon is also reflected in the economic policies of ASEAN-5 during that period, which was aimed at increasing exports, raising competitiveness and attracting FDI from more advanced countries in order to upgrade their economic structure. Traditionally, ASEAN was based on cooperation to exclude competition both from outside ASEAN and from within ASEAN, which had created inefficient regional monopolies. All ASEAN countries recognized that they should head for more outward orientation in trade, investment and industrialization to accelerate their economic development.4 Consequently, ASEAN countries are partly dependent on the inflow of capital and technologies from Taiwan and the rest of the advanced Asian economies. This development has resulted in a regional economic interdependence group. In the case of Taiwan and ASEAN-5, they constitute two tiers of countries at different levels of skill, technology, wage rates and stages of development. The flow of investments, capital goods and technology transfers from Taiwan to ASEAN-5 has spun a web between them. For instance, Taiwan companies have transferred their production lines in electrical, electronics and light industries to ASEAN-5 since the late 1980s. Consequently, Taiwan has been a powerful factor in significantly increasing bilateral trade (which will be discussed in Section 3).

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3. Trend of Taiwan Outbound Direct Investment in Southeast Asia The characteristics of Taiwan’s FDI in Southeast Asia reflect a subset of trading issues, namely policies towards FDI and regional trade growth, which play crucial roles in structuring economic relations. First, from the trading perspective, FDI is one of the key determinants of economic growth in Southeast Asia. For investor countries, FDI reflects the fact that the investors use the ownership, location-specific assets and international advantages of production to increase their international competitiveness.5 In the late 1980s, Taiwan enterprises adopted a FDI policy of relocating their manufacturing lines in Southeast Asia, where there are comparative economic advantages in providing cheaper labour costs and richer natural resources. The advantages of FDI could be used as an argument to explain why Japan has successfully exploited Southeast Asian resources while being engaged in vertical and horizontal integration. By contrast, Southeast Asian countries strive to create an environment conducive to investment formation in order to attract foreign capital and upgrade their technologies. So far, ASEAN-5 has implemented policies of deregulation and liberalization as part of an export-promotion strategy, which in turn aims to increase industrialization. The importance of deregulatory or liberalizing trading policies has convinced ASEAN-5 to further relax and reform policies that bring in more export-oriented foreign investment and stimulate domestic economic activities. In line with the above argument, we find that FDI involves an economic trilogy – international trade, investment and technology transfer. FDI is a double-edged sword in that it will enlarge both vertical gains (through resource reallocation and technology transfers) and horizontal gains (through the exploitation of

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economies of scale, pro-competitive effects on local markets and stimulating growth) for both host and investor countries. In general, the characteristics of FDI in Southeast Asia are threefold. First, it is geared towards the export sectors. Second, the host countries have sought to attract transfers of technology and inflows of capital from relatively developed countries. Third, in doing so, they have used FDI as an instrument to improve the welfare of the people. Table 1.1 shows that Taiwan’s foreign direct investment in Southeast Asia increased sharply in U.S. dollar terms since 1986, from US$8.1 million in 1986 to US$2,094.5 in 2007. The share of Southeast Asia in Taiwan’s total FDI hit a historical high in 1991 at 43.5 per cent, as shown in Figure 1.1. Data shown in Table 1.1 indicate that Southeast Asia is one of the key destinations for Taiwan investors as reflected in the increasing volume of capital poured into this region since 1986. If we look at Taiwan investments by individual country, we find in Tables 1.2 and 1.3 that Taiwan’s FDI in Southeast Asia was mainly in Indonesia and Thailand before 1987. Since then, Taiwan investors have dispersed their investments to the rest of Southeast Asian countries and have increased significantly in the early 1990s (excluding Vietnam). Moreover, Taiwanese investments in Vietnam have increased since 1993 due to deregulation in Vietnam. However, the momentum of Taiwanese investments since 1998 in ASEAN-5 (except in Vietnam) tended to be in a downward trend due to the 1997 financial crisis. Nevertheless, FDI from Taiwan investors in ASEAN-6 seems to have bounced back since 2004, as indicated in Table 1.1. Furthermore, if we look at various industries of Taiwan’s FDI in Southeast Asia cumulatively from 1952 to 2007, we find that electronics and electrical industry is in a leading position, accounting for 40.48 per cent of the total amount of Taiwan’s

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TABLE 1.1 Taiwan Outbound Foreign Direct Investment Unit: US$ million

Year

1952–86 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

All Countries (Approved by Taiwan Government)

Approved by Taiwan Government

Approved by Local Government

271.8 56.9 102.8 218.7 930.9 1,552.2 1,656.0 887.2 1,660.9 1,616.9 1,356.8 2,165.4 2,893.8 3,296.3 3,269.0 5,077.1 4,391.7 3,370.0 3,968.6 3,382.0 2,447.4 4,315.4 6,470.0

71.3 8.1 18.7 59.1 282.1 567.4 719.7 309.1 433.7 397.7 326.1 587.2 641.2 477.5 522.2 389.4 523.3 210.9 298.1 966.3 264.1 1,065.2 2,094.5

867.2 n.a. 408.4 2,195.3 2,360.0 4,072.9 3,266.2 2,197.9 1,738.0 5,046.0 4,010.7 4,444.3 5,052.9 1,253.9 2,524.7 1,626.4 1,991.3 1,043.2 1,285.2 1,794.9 1,362.5 1,715.8 3,857.8

Southeast Asian Countries

Source: The data for Taiwan are taken from Investment Commission, Ministry of Economic Affairs, ROC; Thailand data, from the Board of Investment; Malaysia data, from the Malaysian Industrial Development Authority (MIDA); the Philippines data, from the Board of Investmenst; Indonesia data, from the BKPM; Vietnam data, from the Ministry of Planning and Industry (MPI).

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18.2

27.0

30.3

36.6

43.5

24.0

26.1 24.6

34.8

22.2

14.5

27.1

16.0

7.7

11.9

Proportion (rhs)

6.3

Investment in South Asia Total Invesment

7.5

28.6

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Source: Investment Commission, Ministry of Economic Affairs, ROC.

％

10.8

24.7

87 988 989 990 991 992 993 994 995 996 997 998 999 000 001 002 003 004 005 006 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2

19

0

1,000

2,000

3,000

4,000

5,000

6,000

US $ million

Year

0

10

20

30

40

50

FIGURE 1.1 Proportion of Taiwan Outbound Direct Investment in Southeast Asia (Approved by the Investment Commission, Ministry of Economic Affairs, ROC) Taiwan and ASEAN Economic Interaction: Prospects and Opportunities 33

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86.25 59.13 282.07 567.36 719.71 309.14 433.68 397.70 326.05 587.18 641.23 477.50 522.18 389.45 523.34 210.86 298.10 966.33 264.15 1,065.23 2,094.48

Total 20.65 11.89 51.60 149.40 86.40 83.29 109.17 57.32 51.21 71.41 57.55 131.19 112.67 49.78 16.29 5.96 48.99 8.66 20.27 81.67 712.12

Thailand 13.13 2.71 158.65 184.88 442.01 155.73 64.54 101.13 67.30 93.53 85.08 19.74 13.70 19.41 45.52 31.96 50.22 35.48 28.20 31.24 65.02

Malaysia 9.70 6.40 5.20 47.60 12.50 8.80 69.50 100.70 31.60 164.90 230.31 158.18 324.52 219.53 378.30 25.76 26.40 822.23 97.70 806.30 1,194.11

Singapore

Source: Investment Commission, Ministry of Economic Affairs, ROC.

1959–87 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Year 28.51 1.92 0.31 61.87 160.34 39.93 25.53 20.57 32.07 82.61 55.86 19.54 7.32 33.71 6.12 9.16 12.75 2.45 9.12 8.80 0.70

Indonesia 12.82 36.21 66.31 123.61 1.32 1.22 6.54 9.60 35.72 74.25 127.02 38.78 29.40 12.97 46.20 82.83 2.37 2.39 14.94 13.48 13.25

Philippines 1.44 – – – 17.14 20.17 158.40 108.38 108.15 100.48 85.41 110.08 34.57 54.05 30.91 55.19 157.37 95.13 93.93 123.74 109.28

Vietnam

Unit: US$ million

TABLE 1.2 Taiwan Direct Investment in Southeast Asia (Approved by Investment Commission, Ministry of Economic Affairs, ROC) 34 Economic Integration and the Investment Climates in ASEAN Countries

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Source: Investment Commission, Ministry of Economic Affairs, ROC.

FIGURE 1.2 Taiwan Direct Investment in Southeast Asia (Approved by the Investment Commission, Ministry of Economic Affairs, ROC)

Taiwan and ASEAN Economic Interaction: Prospects and Opportunities

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35

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3,479.96 2,195.27 2,359.99 4,072.93 3,266.16 2,197.91 1,738.01 5,045.98 4,010.73 4,444.34 5,052.94 1,253.87 2,524.65 1,626.38 1,991.30 1,043.15 1,285.24 1,794.91 1,362.45 1,715.80 3,857.81

Total 345.20 859.90 892.20 782.70 583.50 289.90 215.40 477.50 1,803.90 2,785.20 414.30 253.60 211.10 437.41 158.69 62.93 338.83 268.53 417.66 284.30 247.75

Thailand 151.20 306.10 799.70 2,347.83 1,326.17 574.70 331.18 1,122.76 567.80 310.40 480.40 263.40 70.26 241.07 296.58 66.29 163.69 109.09 113.64 110.48 118.79

Malaysia 465.30 6.40 5.20 47.60 12.50 95.11 69.47 171.19 31.65 165.00 144.01 158.18 324.52 219.53 378.30 25.76 26.40 751.78 97.68 806.30 1,194.11

Singapore

Source: Investment Commission, Ministry of Economic Affairs, ROC.

1959–87 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Year 2,501.40 913.00 513.20 618.30 1,057.80 563.30 358.90 2,484.03 567.40 534.60 3,419.40 165.20 1,486.10 134.54 83.85 83.18 117.54 68.86 133.39 218.62 51.40

Indonesia

TABLE 1.3 Taiwan Direct Investment in Southeast Asia (Approved by Local Governments)

16.86 109.87 148.69 140.70 12.00 9.10 5.40 199.15 13.60 117.11 80.56 30.48 19.15 5.42 11.99 236.35 47.11 29.52 25.30 38.05 444.86

Philippines

– – 1.00 135.80 274.19 665.80 757.66 575.48 963.34 478.62 470.23 344.62 358.13 493.06 1,004.92 561.82 590.67 562.53 570.59 241.61 1,786.91

Vietnam

Unit: US$ million

36 Economic Integration and the Investment Climates in ASEAN Countries

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Source: Investment Commission, Ministry of Economic Affairs, ROC.

FIGURE 1.3 Taiwan Direct Investment in Southeast Asia (Approved by the Investment Commission, Ministry of Economic Affairs, ROC)

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Textile 19.47%

Precision Instruments Food & Beverage 0.60% Processing 4.38%

Chemicals 4.99% Rubber Products 1.56% Basic Metals & Metal Non-metallic Minerals Products 2.89% 3.55%

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Source: Investment Commission, Ministry of Economic Affairs, ROC.

Machinery Equipment 0.72%

Electronic & Electric Appliance 40.48%

Transport Equipment 2.34%

Paper Products & Printing 2.10%

Leather & Fur Products 0.81%

Garment & Footwear 1.05%

FIGURE 1.4 Statistics on Different Industries of Taiwan Outbound Direct Investment in Southeast Asia (1952–2007)

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Taiwan and ASEAN Economic Interaction: Prospects and Opportunities

39

Southeast Asian investment. It is followed by textiles, chemical industries, food & beverage processing and basic metals and mining, each with a share of 19.47 per cent, 4.99 per cent, 4.38 and 3.55 per cent, respectively.

4. Trade between Taiwan and ASEAN-6 The tendency of Taiwanese companies to produce in various sites around Southeast Asia according to each country’s comparative advantage has been a powerful force for regional economic cooperation. Moreover, Taiwan’s FDI influences the economic and trading performance of both the investing and the host countries. FDI has thus encouraged a trade nexus between Taiwan and ASEAN-6. The empirical data, shown in Tables 1.4 (a) and 1.4 (b), indicate that the proportion of Taiwan exports to Southeast Asia has risen from 8.3 per cent of its global export value in 1989 to 14.72 per cent in 2007. Tables 1.4 (a) and 1.4 (b) also show that the value of Taiwan’s export to Southeast Asia has rapidly increased since the late 1980s, from US$5,504 million (US$5.504 billion) in 1989 to US$36,300 million in 2007. Tables 1.5 (a) and 1.5 (b) indicate that the proportion of Taiwan imports from Southeast Asia has also risen from 6.19 per cent in 1989 to 10.85 per cent in 2007. The value of Taiwan’s imports from Southeast Asia, as shown in Tables 1.5 (a) and 1.5 (b), has also increased significantly, from US$3,233 million in 1989 to US$23,789 million in 2007. What does this trade nexus imply for Taiwan and ASEAN-6? First, ASEAN-6 has been one of the predominant markets in terms of both import and export for Taiwan. Second, ASEAN-6 has attracted a larger share of capital flows and technologies transferred from Taiwan since the late 1980s. The benefits to ASEAN-6 of accessing Taiwan’s capital and technology has improved its industrial competitiveness and market efficiency.

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66,303,563 67,213,980 76,177,881 81,468,026 85,091,719 93,036,732 111,656,321 115,939,232 122,077,877 110,579,613 121,587,866 148,316,282 126,313,837 135,312,632 150,594,744 182,363,733 198,424,333 224,012,938 246,673,444 23,399,404 25,692,422 31,152,849 34,783,523 39,075,038 45,933,204 58,664,882 60,752,616 61,542,429 50,146,356 59,207,553 76,666,570 67,193,012 78,055,824 91,019,308 115,143,404 129,028,338 146,720,512 164,277,413

Asia

Unit: US$ thousand

5,504,788 6,853,452 7,530,079 8,448,478 9,418,826 11,459,388 14,984,083 15,498,151 16,317,200 11,869,795 14,292,596 18,475,852 15,358,274 16,451,440 18,130,948 24,025,663 27,363,279 31,192,811 36,300,727 934,088 1,245,806 1,207,203 1,214,711 1,284,492 1,432,972 1,868,820 1,955,270 2,133,778 1,048,870 1,298,558 1,733,591 1,480,849 1,472,547 1,528,455 1,895,740 2,358,492 2,499,420 2,910,709 694,804 1,103,559 1,464,847 1,600,201 1,671,728 2,224,083 2,898,508 2,953,628 3,035,345 2,285,816 2,848,048 3,611,610 3,136,290 3,215,838 3,172,391 4,218,182 4,282,517 4,941,334 5,390,034 778,069 811,413 848,012 1,023,203 1,031,058 1,222,436 1,653,495 1,931,129 2,242,372 1,934,085 2,611,203 3,035,569 2,212,218 2,108,517 2,501,182 4,035,428 4,324,859 4,484,342 4,921,726 1,975,626 2,203,646 2,403,477 2,505,071 2,890,296 3,359,145 4,404,874 4,573,056 4,894,450 3,255,502 3,818,164 5,455,513 4,220,653 4,622,799 5,274,449 6,747,123 8,042,071 9,279,407 10,501,222 1,110,149 1,423,633 1,444,860 1,809,494 2,018,891 2,440,152 3,071,647 2,789,513 2,562,030 1,925,761 2,104,391 2,562,166 2,196,933 2,367,212 2,639,493 3,317,748 3,820,209 4,576,515 5,199,532

8,880 62,744 152,286 278,466 501,275 742,568 1,013,635 1,175,327 1,297,187 1,213,285 1,341,503 1,663,392 1,743,668 2,310,382 2,679,236 3,451,467 4,102,585 4,869,229 6,860,340

Southeast Asia Indonesia Malaysia Philippines Singapore Thailand Vietnam Total

Source: Investment Commission, Ministry of Economic Affairs, ROC.

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Year The Whole World

TABLE 1.4 (a) Taiwan Exports to ASEAN-6 (1989–2007)

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35.29 38.22 40.89 42.70 45.92 49.37 52.54 52.40 50.41 45.35 48.70 51.69 53.20 57.69 60.44 63.14 65.03 65.50 66.60

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

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8.30 10.20 9.88 10.37 11.07 12.32 13.42 13.37 13.37 10.73 11.75 12.46 12.16 12.16 12.04 13.17 13.79 13.92 14.72 1.41 1.85 1.58 1.49 1.51 1.54 1.67 1.69 1.75 0.95 1.07 1.17 1.17 1.09 1.01 1.04 1.19 1.12 1.18 1.05 1.64 1.92 1.96 1.96 2.39 2.60 2.55 2.49 2.07 2.34 2.44 2.48 2.38 2.11 2.31 2.16 2.21 2.19 1.17 1.21 1.11 1.26 1.21 1.31 1.48 1.67 1.84 1.75 2.15 2.05 1.75 1.56 1.66 2.21 2.18 2.00 2.00 2.98 3.28 3.16 3.07 3.40 3.61 3.95 3.94 4.01 2.94 3.14 3.68 3.34 3.42 3.50 3.70 4.05 4.14 4.26 1.67 2.12 1.90 2.22 2.37 2.62 2.75 2.41 2.10 1.74 1.73 1.73 1.74 1.75 1.75 1.82 1.93 2.04 2.11 0.01 0.09 0.20 0.34 0.59 0.80 0.91 1.01 1.06 1.10 1.10 1.12 1.38 1.71 1.78 1.89 2.07 2.17 2.78

Southeast Asia Indonesia Malaysia Philippines Singapore Thailand Vietnam Total

Source: Investment Commission, Ministry of Economic Affairs, ROC.

100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00

Asia

Year The Whole World

Percentage Share of Taiwan Global Export Value

TABLE 1.4 (b) Taiwan Exports to ASEAN-6 (1989–2007) Taiwan and ASEAN Economic Interaction: Prospects and Opportunities 41

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52,264,224 54,715,200 62,859,745 72,003,103 77,059,035 85,346,732 103,547,451 102,367,832 114,421,916 104,661,545 110,684,868 140,004,900 107,965,539 113,237,862 128,007,459 168,750,606 182,610,211 202,694,857 219,248,355 23,169,557 23,751,076 28,799,939 33,424,879 36,038,024 40,616,735 50,837,669 48,391,150 54,273,030 52,040,516 59,431,489 76,871,475 57,344,974 62,351,800 72,688,498 95,858,302 103,678,248 112,779,903 117,501,694

Asia

Unit: US$ thousand

3,233,234 4,168,728 5,072,269 6,291,046 7,020,079 8,753,476 10,560,566 11,195,045 13,391,036 12,650,401 14,477,635 20,230,773 16,081,891 16,673,613 17,540,909 20,375,751 21,170,266 23,402,646 23,789,012 706,187 921,579 1,234,327 1,407,251 1,624,024 2,114,342 2,150,384 1,884,455 2,184,677 2,101,046 2,291,311 3,015,020 2,527,848 2,592,575 2,926,612 4,114,472 4,542,925 5,204,257 5,775,911 887,476 1,003,017 1,409,358 1,829,146 1,938,898 2,326,808 2,953,669 3,565,199 4,228,253 3,622,980 3,881,935 5,325,273 4,232,691 4,175,512 4,766,667 5,424,948 5,217,175 6,051,517 6,192,363 238,466 236,258 235,309 305,157 364,795 460,653 623,199 840,278 1,374,600 1,822,932 2,172,394 3,593,755 3,256,569 3,660,272 3,087,215 3,063,778 2,794,744 2,775,515 2,277,380 889,379 1,406,034 1,445,848 1,694,825 1,865,819 2,412,195 2,957,887 2,789,068 3,150,315 2,696,802 3,312,032 5,013,648 3,401,625 3,562,201 3,878,975 4,330,670 4,960,610 5,105,539 4,791,649

390,162 32,468 447,956 55,556 586,127 80,063 824,547 122,900 972,957 154,139 1,108,719 218,946 1,485,228 270,278 1,671,670 316,723 1,926,860 391,413 1,967,598 343,005 2,383,256 387,762 2,767,872 468,847 2,192,795 425,776 2,182,134 456,452 2,379,373 462,089 2,784,634 608,983 2,887,035 700,992 3,317,378 849,935 3,613,348 1,042,281

Southeast Asia Indonesia Malaysia Philippines Singapore Thailand Vietnam Total

Source: Investment Commission, Ministry of Economic Affairs, ROC.

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Year The Whole World

TABLE 1.5 (a) Taiwan Imports from ASEAN-6 (1989–2007) 42 Economic Integration and the Investment Climates in ASEAN Countries

02 Eco_Integration

44.33 43.41 45.82 46.42 46.77 47.59 49.10 47.27 47.43 49.72 53.69 54.91 53.11 55.06 56.78 56.80 56.78 55.64 53.59

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

43

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6.19 7.62 8.07 8.74 9.11 10.26 10.20 10.94 11.70 12.09 13.08 14.45 14.90 14.72 13.70 12.07 11.59 11.55 10.85 1.35 1.68 1.96 1.95 2.11 2.48 2.08 1.84 1.91 2.01 2.07 2.15 2.34 2.29 2.29 2.44 2.49 2.57 2.63 1.70 1.83 2.24 2.54 2.52 2.73 2.85 3.48 3.70 3.46 3.51 3.80 3.92 3.69 3.72 3.21 2.86 2.99 2.82 0.46 0.43 0.37 0.42 0.47 0.54 0.60 0.82 1.20 1.74 1.96 2.57 3.02 3.23 2.41 1.82 1.53 1.37 1.04 1.70 2.57 2.30 2.35 2.42 2.83 2.86 2.72 2.75 2.58 2.99 3.58 3.15 3.15 3.03 2.57 2.72 2.52 2.19 0.75 0.82 0.93 1.15 1.26 1.30 1.43 1.63 1.68 1.88 2.15 1.98 2.03 1.93 1.86 1.65 1.58 1.64 1.65 0.06 0.10 0.13 0.17 0.20 0.26 0.26 0.31 0.34 0.33 0.35 0.33 0.39 0.40 0.36 0.36 0.38 0.42 0.48

Southeast Asia Indonesia Malaysia Philippines Singapore Thailand Vietnam Total

Source: Investment Commission, Ministry of Economic Affairs, ROC.

100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00

Asia

Year The Whole World

Percentage Share of Taiwan Global Import Value

TABLE 1.5 (b) Taiwan Imports from ASEAN-6 (1989–2007) Taiwan and ASEAN Economic Interaction: Prospects and Opportunities 43

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44

89

US$ thousand

90

19

8.3

91

19

93

19

10.3

92

19

10.2 9.9

95

19

12.3

94

19

11.0

97

19

13.3

96

19

13.4

02 20

11.9

01 20

12.2

00 20

11.5

99

19

10.5

98

19

13.2

Southeast Asia (total)

Source: Investment Commission, Ministry of Economic Affairs, ROC.

19

0

50,000,000,000

100,000,000,000

150,000,000,000

200,000,000,000

250,000,000,000

300,000,000,000

Global

03 20

11.9

04 20

11.8

05 20

13.0

Percentage

FIGURE 1.5 Taiwan’s Exports to ASEAN-6 (1989–2007)

06 20

13.6

14.5

07 20

13.7

Year

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

%

44 Economic Integration and the Investment Climates in ASEAN Countries

9/28/09, 12:32 PM

9/28/09, 12:32 PM

6.0

7.9

9.0 10.1

2000

1998

1997

1996

1994

1993

1992

1991

1990

10.1

1999

1995

US$ thousand

Source: Investment Commission, Ministry of Economic Affairs, ROC.

0

50,000,000,000

100,000,000,000

7.4

8.6

2001

150,000,000,000

2002

200,000,000,000

2003

250,000,000,000

2004

Year

0.0

2.0

4.0

6.0

8.0

% Southeast Asia (total) Percentage 16.0 14.9 14.7 13.7 14.0 14.4 12.0 11.6 11.6 13.0 12.0 10.8 10.8 12.0 11.5 10.0

2005

Global

2006

45

2007

02 Eco_Integration

1989

FIGURE 1.6 Taiwan Imports from ASEAN-6 (1989–2007)

Taiwan and ASEAN Economic Interaction: Prospects and Opportunities 45

46

Economic Integration and the Investment Climates in ASEAN Countries

Furthermore, the trading relationship between Taiwan and ASEAN6 has been partly reflected in the adjustment of Taiwan’s macroeconomic policy. By forming an economic partnership between Taiwan and ASEAN, Taiwan has sought not only to disperse its exporting destinations, but also to expand its trade relationships with ASEAN-6. As a consequence of these developments, Taiwan has successfully built itself as one of the core regional economic entities. For ASEAN-6, the growing technological expectations from Taiwan via FDI reflect the need to maintain the regional economic momentum.

5. Conclusion From the above analysis, we can see how economic interdependence and interpenetration of the regions have occurred in the areas of regional FDI, intra-industry trade, intra-firm trade, and trade and services in intermediate products. Indeed, economic interactions between Taiwan and ASEAN-6 have been expanded and intensified by the forces of trade and investment. It also shows that these interactions reflect the complementary nature of the economies of Taiwan and ASEAN-6 and may lead to the formation of an economic region. This economic analysis comes to a further conclusion. Taiwan may act as a key economic partner to ASEAN in providing feasible and competitive approaches for increasing the growth rate of the ASEAN countries further and enhance their level of development. This argument has been ignored in the Southeast Asian community for some time. Taiwan and ASEAN should embrace the advantages of economic integration through the formation of closer economic arrangements. If this scenario can be on the horizon, then the economic momentum will come from liberalization and the flow of goods to Taiwan and ASEAN. The formation of regional

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Taiwan and ASEAN Economic Interaction: Prospects and Opportunities

47

economic integration between Taiwan and ASEAN reflects the importance and advantages of economic enmeshment in response to economic regionalization and globalization.

Notes 1. 2.

3. 4.

5.

ASEAN-6 are Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam. Ippei Yamazawa, Akira and Hazuhiko Yokota, “Evolving Patterns of Comparative Advantage in the Pacific Economies”, in The Pacific Economy: Growth and External Stability, edited by Mohamed Ariff (Sydney: Allen and Unwin, 1991), pp. 218–19. ASEAN-5 are Indonesia, Malaysia, the Philippines, Thailand and Vietnam. Tan Kong Yam, Toh Mun Heng, and Linda Low, “ASEAN and Pacific Economic Co-operation”, ASEAN Economic Bulletin 8, no. 3 (1992): 321. John H. Dunning, Explaining International Production (London: Unwin Hyman, 1988), p. 27.

Chao-Jen Huang is a Research Fellow and the Director of Research Division of Southeast Asia at Taiwan Institute of Economic Research.

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48 paper was Economic Integration theTransformations Investment Climates ASEAN Societies, Countries This first published in and Social in in Chinese vol. 3 (2007).

2 TAISHANG: A DIFFERENT KIND OF ETHNIC CHINESE BUSINESS IN SOUTHEAST ASIA Michael Hsiao Hsin-Huang, I-Chun Kung and Hong-Zen Wang

1. Introduction Taiwanese transnational capital emerged in the mid-1980s, and its importance is now widely recognized by Taiwanese scholars in various disciplines. There has been an increasing interest to investigate the nature of this newly emerging transnational capital, which is considered to be different from the Western or Japanese ones. Studies of Taiwanese businesses (Taishang) in Southeast Asia have concentrated on the domains of overseas investment patterns (Chen 1994, 1998; Lin 2001), industrial relations (Kung 2002; Wang 2002), and ethnic relations and overseas Chinese networks (Hsiao and Kung 1998; Tseng 1999). Some scholars have noted that, to Taishang, Southeast Asia is not only a geographical area, but also a cultural entity, and thus their investment behaviour as a whole is embedded in the social contexts of the region. As latecomers to transnational capital in Southeast Asia, the Taishang demonstrates some distinguishing features. This paper argues that the Taishang phenomenon in Southeast Asia should be understood first in terms of its capital formation and special characteristics, and second in terms of the

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Taishang: A Different Kind of Ethnic Chinese Business in Southeast Asia

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influences of the political economy of the host countries. The paper tackles the issue of how the Taishang have globalized their capital and business strategies to maintain their competitiveness in the world economy. It also explains how the Taishang have reorganized their industrial production networks and how they manage labour relations in Southeast Asia. The information that feeds this paper is primarily drawn from interview data collected in various research projects conducted by the three authors over the past decade. These projects include: (1) “Taishang in Southeast Asia: Networks and Ethnicities”, a three-year project sponsored by the National Science Council between 1999 and 2002, which involved fieldwork in Malaysia, Indonesia, Thailand, Vietnam, and China; (2) “Exit: Cross-border Investment and the Local Embeddedness of Taishang in Asia Pacific”, sponsored by the National Science Council in 2002; (3) “Market and State Together? Changing Labour Relations in Taiwanese Companies in Southeast Asia”, financed by the Academia Sinica in 2001; (4) “Transnational Capital, International Migration and Ethnic Division of Labour: Labour Regimes in Vietnam’s Taishang Factories”; and (5) “A New Paradigm or an Old Trick? Effect of Private Codes of Conduct on Industrial Relations in Vietnam”, supported by the National Science Council in 2001 and 2003–04, respectively. The fieldwork interviews were conducted with Taiwanese Business Associations, as well as Taishang employers and managers in various Southeast Asian countries. The informants were selected from the membership list of the Taiwanese Chamber of Commerce in Malaysia, Vietnam, Thailand, Indonesia, and China, and from the Taiwan Directory of Overseas Firms published by the Ministry of Economic Affairs.

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50

Economic Integration and the Investment Climates in ASEAN Countries

2. Reorganizing Taishang Production Networks in Southeast Asia

Production Networks Enclave Investment by Taiwanese companies (Taishang) in Southeast Asia has grown significantly since the late 1980s, a phenomenon that has been attributed by many economists primarily to the changing economic environment in Taiwan. The abrupt appreciation of the Taiwanese currency in the late 1980s caused problems for many export-oriented and labour-intensive local industries. In 1987, the New Taiwan dollar rose 22.4 per cent (from NT$36.00 to NT$28.95) against the U.S. dollar. This led to the increase in the average monthly wage in the manufacturing sector from US$353 in 1985 to US$821 in 1990 and then to US$1,086 in 1992, which undermined the competitiveness of labour-intensive small-medium enterprises. Inevitably, foreign direct investment (FDI) emerged as an alternative for such businesses. Since then, from being a meagre investor in Southeast Asia before 1986, the Taishang have emerged as the largest investors in the region. Between 1959 and 2006, Taiwanese companies ranked third in terms of investment in approved projects among foreign investors in Malaysia, third in Thailand, sixth in Indonesia, seventh in the Philippines, and third in Vietnam (see Table 2.1). Before 1990, overseas investment from Taiwan was concentrated in Southeast Asia, but as the political tensions between Taiwan and China eased at the beginning of the 1990s, and as China began to open up its economy and market, huge amounts of Taiwanese capital began to flow into China since 1991 (IDIC 2002). Most of this investment has gone into the manufacturing industry, which is the most competitive sector in Taiwan’s economy. As the official surveys of the Taiwanese government have repeatedly shown, the most important reason for moving factories abroad is the need to secure cheap labour.

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Philippines Indonesia Singapore Vietnam Cambodia

477 270 182 137 86 100 123 79 63 74 66 92 88 64 57 78 71 70 10

3 3

349.41 140.70 12.00 9.10 5.40 199.15 13.60 117.11 80.56 30.48 19.15 5.42 11.99 236.35 47.11 29.52 25.30 38.05 N.A. 75 94 58 23 20 48 89 111 101 91 92 82 69 50 49 41 43 27 9 1,381.38 618.30 1,057.80 563.30 358.90 2,484.03 567.40 534.60 3,419.40 165.20 1,486.10 134.54 83.85 83.18 117.54 68.87 133.39 218.62 10.36

7

5

883 1,370.40 1,172 13,486.76

1,257.05 348 2,347.83 158 1,326.17 109 574.70 27 331.18 21 1,122.76 42 567.80 34 310.40 22 480.40 16 263.40 19 70.26 18 241.07 10 296.58 9 66.29 22 163.69 17 109.09 11 113.64 N.A. 110.48 N.A. 11.61 N.A.

1,893 11,961.38 2,187 9,764.40

642 2,097.25 144 782.70 69 583.50 44 289.90 61 215.40 88 477.50 102 1,803.90 66 2,785.20 62 414.30 69 253.60 86 211.10 120 437.41 50 158.69 41 62.93 57 338.83 53 268.53 63 417.66 63 284.30 13 78.68 22.72 47.60 12.50 8.79 69.47 171.19 31.65 165.00 230.32 158.18 324.52 219.53 378.30 25.76 26.40 751.78 97.68 806.30 0.49 2 4.69 8 135.80 13 224.19 15 615.80 30 757.66 55 575.48 45 913.34 47 478.62 54 249.56 62 258.15 80 201.33 135 403.33 140 1,004.92 198 511.82 190 540.67 171 562.53 187 570.59 125 241.61 18 101.80 N.A.

3

437 3,548.18 1,575 8,351.89

35 10 13 11 12 19 20 54 27 56 19 40 26 27 15 18 16 18 1

192

0 0 0 0 0 2 14 34 62 25 15 15 8 4 1 6 4 1 1

3

542.43

0 0 0 0 0 15.87 10.03 163.73 44.04 138.51 55.39 18.85 56.97 6.82 1.00 4.60 4.19 16.44 5.99

Cases Amount Cases Amount Cases Amount Cases Amount Cases Amount Cases Amount Cases Amount

Malaysia

51

Source: Ministry of Economic Affairs, Department of Investment Services, ROC, “Statistics of Investments to ASEAN” [available in Chinese only] (accessed 6 August 2007).

Ranking

Total

1959–89 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 (1-3)

Year

Thailand

Unit: US$ million

TABLE 2.1 Taiwanese Investment in Southeast Asian Countries (from 1959 to March 2007) Taishang: A Different Kind of Ethnic Chinese Business in Southeast Asia

52

Economic Integration and the Investment Climates in ASEAN Countries

When Taiwanese enterprises move into Southeast Asia, one of the strategies that allows them to remain competitive is to persuade suppliers in the same production network in Taiwan to move to the region as well, which means that seemingly new production networks in Southeast Asia have, in fact, been transplanted from original production networks in Taiwan (Jou and Chen 2002). How the transplanted pattern of production network works depends on the size and business strategy of the enterprises and the business environment in the destination country. Nevertheless, an important asset of these newly established production networks is their “Taiwaneseness”, or the fact that they are mainly composed of enterprises of Taiwanese origin. Taiwanese businesses tend to work with other Taiwanese companies, and form an “enclave network” that is founded on past experiences in Taiwan and Taiwanese cultural affinity. From the perspective of social embeddedness, these reconstructed overseas production networks are more or less ethnically closed. These networks serve to reduce transaction costs and the risks associated with an imperfect market mechanism, insufficient information, and the different legal and social systems in foreign countries. Not only do Taishang rarely cooperate with indigenous Southeast Asian business to establish a production network, it is also very rare to find cooperation between Taishang and local ethnic Chinese capital. If there is any, such cooperation usually takes place at the initial stages of investment when a Taishang firm needs to understand local socioeconomic conditions. In addition, when Taishang companies want to evade strict regulations on foreign investment, such as caps on the percentage of total shares that they can own and land purchase restrictions, they use the names of local ethnic Chinese as “fake owners”.

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Taishang: A Different Kind of Ethnic Chinese Business in Southeast Asia

53

However, these private agreements are very risky, and it sometimes happens that a Taishang company or property registered in the name of a local Chinese person is appropriated. As time goes by, the “fake” cooperation model disappears as true cooperation among the Taishang gains significance. Therefore, when we talk about ethnic Chinese cultural affinity, we must distinguish between the different kinds of business networks that are formed between new Taishang and old ethnic Chinese business, which, despite conventional beliefs, are quite limited (cf. Gomes and Hsiao 2004). There are two major reasons why it is difficult for Taishang and local ethnic Chinese companies to establish business networks in Southeast Asia. First, their differing historical development paths have led them to adopt different business models. The Taishang are more familiar with industrial capitalism, which has been the development strategy adopted in postwar Taiwan. The production of the Taishang is mainly export-oriented, and emphasizes innovation, human resources, and new skills. In contrast, local Chinese business people in Southeast Asia mostly specialize in businesses that can be liquidated quickly, such as finance, trade or services, such that they can move out swiftly whenever political risks arise (Chen and Liu 1998, p. 107; Tseng 1999, p. 9). Second, the development policies of the Southeast Asian states, which emphasize attracting foreign capital for industrialization, have produced a dual economy in which foreign capital, with its abundant capital and high level of technology, dominates the export sector, whereas indigenous businesses, with less capital and lower level of technology, remain in the domestic market. This is especially prominent in Malaysia. Malaysian Chinese and indigenous companies usually have only weak links with foreign capital due to the differences in product quality, ways of doing business, and purchasing power, and are therefore

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Economic Integration and the Investment Climates in ASEAN Countries

only seldom incorporated into the production networks of foreign businesses. As a result, Taishang companies find no synergy or benefit from networking with local Chinese businesses in Southeast Asia.

Enlarging Taiwanese Business When a Taishang company starts to invest in a Southeast Asian country, it often quickly realizes that it is difficult to find a local business partner that can provide high-quality and low-price products that are delivered on time. Thus it internalizes production within the group of Taiwanese suppliers that were previously its subcontractors in Taiwan. The enlargement of the scale of operations is the most important feature of the Taishang in Southeast Asia, and is the major mechanism by which they continue to accumulate capital. Coming as they do from a semiperipheral country, the position of the Taishang in the global commodity chain constrains their overseas investment strategies, timing, and choice of location. However, when buyers in the core countries press the Taishang to reduce costs, Taishang are obliged to use overseas investment as a strategy to ward off such pressure due to the increasing cost of domestic labour and land in Taiwan. This is different from the situation with Western overseas investment, which is the result of long-term planning backed by abundant financial capital and human resources (Jou and Chen 2002). The overseas investment strategy of the Taishang has been termed a “passive and defensive globalization” strategy by Taiwanese scholars (Chen 1998; Chen and Chen 1998). To compete globally, the small- and medium-sized enterprises (SMEs) in Taiwan that produce labour-intensive products need to reduce their costs, and increasing the economies of scale to reduce unit costs is an

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Taishang: A Different Kind of Ethnic Chinese Business in Southeast Asia

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important strategy that allows them to maintain a competitive edge. Amsden and Chu (2003) contend that the core competitiveness of Taiwanese enterprises lies in their ability to swiftly expand their production capacity to a large scale, such that they can beat their competitors and consolidate their dominant position in the global commodity chain. It is cross-border investment that allows Taiwanese SMEs to increase their production scale so rapidly. In this way, a company that in Taiwan hires no more than 100 workers can expand to employ more than 1,000 workers abroad. For Taiwanese SMEs, their overseas investment experiences in Southeast Asia often turn out to be the first step toward globalizing their business. Sharing industrial zones with international brand name companies buys them a place in foreign production networks in which they supply components and intermediary goods to U.S. and Japanese transnationals. In the process, they learn new business models and practices that were absent from their domestic production experience, which enhances their production skills and ability to conduct business globally. Experiencing business enlargement and globalization in Southeast Asia helped the Taishang to set up business in China in the later stage of Taiwan’s overseas investment in the early 1990s. One of the main factors that attracts foreign capital to China is the country’s unlimited supply of cheap labour, and the mass employment of China’s domestic migrant workers in Taishang factories has helped the Taishang to achieve even better economies of scale. Indeed, with the help of subsidiaries in Southeast Asia and China, many Taishang companies have become the world’s largest producers of specific products, such as notebook computers, motherboards, and mobile phones (Jou and Chen 2002; Lin 2001).

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Economic Integration and the Investment Climates in ASEAN Countries

Until the 1980s, Taiwan mainly supplied original equipment manufacturing (OEM) industries, but has since then gradually moved to the upper scale of the global commodity chain. Many scholars have pointed out that OEM not only involves the division of labour between core and peripheral countries, but also serves as a channel through which new skills are acquired. Suppliers in the commodity chain acquire technology and managerial skills from the buyers in the core countries (Chao 1998; Cheng 1999; Cheng and Hsu 2002; Lin 2001), a trend that we also witnessed in our fieldwork research. It takes six months to two years for Taiwanese subcontractors to be accredited by buyers. During this period, engineers are stationed by the buyers in the factory to transfer the relevant skills and examine the product quality, labour processes, and factory management until the accreditation certificate is issued. The spillover effect of gaining recognition from one big buyer is that other buyers will also recognize the certificate, which allows the Taiwanese subcontractors to expand their business opportunities. For example, after one Taishang was accredited by DELL, other buyers recognized the certificate and subsequently adopted the company as a supplier. Therefore, through cross-border investment and subcontracting for core companies, the Taishang have successfully organized the economic and human resources of the host countries to promote their own productivity, extend their production scale and potential buyer pool, and consolidate their position in the global commodity chain. The Taishang can thus be said to be acting as a semi-peripheral middleman between core and peripheral economic resources. Table 2.2 presents the historical development of Taiwanese overseas investment, and clearly shows the significant move between the 1960s and the 1990s from the operation of single

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OEM

–

Source: Compiled from fieldwork data collected by the authors.

Development Stage

The United States and Europe

–

China

Securing orders Manufacturing

1960~

–

Year

Southeast Asia

Taiwan

Region

ODM

–

–

Operational HQ Securing orders R&D Overseas production coordination Manufacturing

Mid-1980s~ Operational HQ Securing orders R&D Overseas production coordination Starting to secure orders Small-scale R&D Production lines partly moved out Mass production R&D Warehouses for global logistics Global logistics management

1992~

TABLE 2.2 Regional Division of Labour in Taiwanese Transnational Companies since the 1960s

Taishang: A Different Kind of Ethnic Chinese Business in Southeast Asia 57

58

Economic Integration and the Investment Climates in ASEAN Countries

production bases in Taiwan to triangle manufacturing in several different countries. The marketing and R&D functions of the Taishang are still based in their headquarters in Taiwan, but the major production bases are now in China, along with some R&D, with many of the subsidiaries in Southeast Asia now running independent marketing, R&D, and production functions. It can be seen that this triangle is mutually supportive, and no area is left to rely on one specific market or product. The products that Taiwanese suppliers make for Western buyers are mostly labour-intensive involving medium-level technology, such as apparel, footwear, or information technology products. It is often suggested that this kind of subcontracting and the manufacturing of products that are based on low labour costs will inevitably be taken over by other countries with even lower labour costs. As one interviewee described, “It is not difficult at all to produce a keyboard. You just have to take it apart and understand its internal structure. There are very few barriers to this industry.” However, latecomers will find it hard to surmount the systematic barrier that is built up by the synergy of R&D, production procedures, economies of scale, and service provision. The Taishang understand this competitive advantage well. Such a systematic barrier began to form in the 1960s when Taiwan was incorporated by the first world into the global production chain. The production scale of the Taishang progressed from small to medium, and nowadays can be described as large, and their production capacity has become indispensable to the functioning of the global production chain. Taiwan’s semi-peripheral economy is now linked with core economies such as the United States, Europe, and Japan, a position that cannot be easily replicated by other countries.

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Another competitive advantage of the Taishang is that, because of their production scale, latecomers are not able to compete to secure orders from Western buyers. It is almost impossible for a newly established company to produce millions of keyboards or sporting shoes per month. One Taishang owner candidly stated that, “To enter this market, you need a large scale production capacity and high quality to be able to survive. It is very difficult to have such scale, such a system, and such quality when one enters the market.” Economies of scale are also important for the vertical integration of different companies into an industry. For example, mass production enables footwear producers to support upstream suppliers to develop and supply cheaper and better quality components, which in turn helps footwear producers to strengthen their competitiveness in terms of price, quality, and delivery. There are two commonly held viewpoints on Taiwan’s economic future. The first is that, because of the new international division of labour, overseas Taiwanese investment is driven by low labour costs, and thus in the future Taiwanese capital will move to lower cost destinations, just as it has done in Southeast Asia and China. Contrarily, the second thesis postulates that China’s economic development will soon allow it to replace Taiwan in the global economy. Both views can be questioned on the following grounds. First, labour costs are not the only factor influencing the overseas investment decisions of Taiwanese companies, and thus Taiwanese capital will not necessarily withdraw from Southeast Asia and transfer to China or other regions. Second, it will be difficult for China to replace Taiwan’s role in the global production chain. By coordinating different production sites in China and Southeast Asia and through their capacity to reproduce an efficient

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and market-responsive production network anywhere, the Taishang will be able to maintain their established business networks with their long-term buyers in the core countries, a position that Chinese firms are unlikely to be able to replicate in the foreseeable future. Thus, production networks based on cultural affinity with ethnic Chinese human resources and a large production capacity have ensured the competitiveness of the Taishang in the world market in the last two decades. Another important point to note is that enlargement brings about not only a change in industrial network structures, but also a change in internal managerial structures. Before transnationalization, Taiwanese companies in Taiwan were usually small- or medium-sized, each with a staff of just a few dozen workers.1 Upon their move into Southeast Asia and the mass employment of workers, these companies have found it necessary to hire more managerial staff to manage and restructure production lines, which are now totally different to those back home in Taiwan. The internal organizational structure of the Taishang companies is no longer characterized by simple boss-worker relationships, but involves more middle layers. In addition, the employment of workers of different ethnicities from the host country in the same factory has forced the Taishang to adopt new management styles and approaches.

3. Restructuring Taishang Production Relations in Southeast Asia

Mobilization of the Ethnic Chinese Managerial Class Another unique feature that distinguishes the Taishang from other transnational businesses from the core countries is that all the owners speak Mandarin Chinese or a Minnanese language, which

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helps them to build up links with overseas ethnic Chinese communities in many of the host countries in Southeast Asia. The data that we collected shows that the ethnic Chinese play an important role in the initial stages of Taishang business establishment in the region. As most Taishang cannot speak fluent English or the local language, they have to rely on local ethnic Chinese and their relatives, friends, or customers to mediate their initial investment, handle official documents, and even to help manage the company. For example, Taishang companies may need to engage with local civil servants to buy land, apply for a license to build a factory, or obtain approval for operations. These would be impossible without the help offered by the local ethnic Chinese, as they would be unable to communicate with the relevant bureaucrats and officials. To mobilize ethnic Chinese human resources, many Taishang also recruit employees from other countries in the region, such as China, Malaysia, or Singapore (Wang 2007). Ethnic Chinese of different origins usually occupy different positions in Taiwanese companies in Southeast Asia, earn different wages, and are subject to different forms of discipline from the management (Kung and Wang 2006). Southeast Asian ethnic Chinese can be considered as a kind of social resource that helps to link the Taishang with individual Southeast Asian markets. However, this does not mean that all overseas Chinese are included in this mobilization. Many scholars point out that an important characteristic of ethnic Chinese businesses in Southeast Asia is their networking activity. The Taishang initially joined these Southeast Asian ethnic Chinese networks following their mass investment in the region in the mid-1980s, but have since then gradually built up their own types of economic networks. The centre of such networks is the industrial capital of the Taishang, which they have used to mobilize

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the local ethnic Chinese networks to achieve their economic goals. In addition to providing them with employment and establishing cooperative relationships with them, the Taishang have also mobilized local ethnic Chinese managers to work for them in other Asian countries. For example, the Taiwanese company Hualong has a subsidiary in Malaysia, and when it began to invest in Vietnam, it recruited Malaysian Chinese to work in Vietnam instead of sending Taiwanese managers directly from Taiwan. These Taishang-centred networks are virtually constructed around various globalized production sites in different countries, and thus differ from the traditional trade-based Chinese networks in Southeast Asia. Taishang factories in Southeast Asia usually employ an ethnically diverse labour force. In Malaysia, for example, the three major ethnic groups — the Malays, ethnic Chinese, and ethnic Indians — habitually work together, and since the labour shortages that have occurred since 1990, have been joined by migrant workers from Bangladesh and Indonesia (Kung 2002). The situation is the same in the Taishang factories in Vietnam, where Vietnamese workers are supervised by managers from China, rather than Taiwan or Vietnam (Wang and Hsiao 2002). In this multicultural working environment, both the hierarchy of power and the division of labour are different from the norm. Table 2.3 clearly demonstrates that the employees who occupy the top positions in Taishang business are mainly Taiwanese, although in some cases in Malaysia, they are local ethnic Chinese. It is important to point out that the ethnic Chinese that occupy these important positions are not just any local Chinese, but are those who have studied in Taiwan as “Qiaosheng” [overseas Chinese students]. In contrast, most of the PRC Chinese who work for the Taishang are hired as factory heads or middle-level

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TABLE 2.3 Ethnic Division of Labour in Taishang Companies in Malaysia and Vietnam by Ethnic Group Positions in Factory

Malaysia

Vietnam

Owner and Top Managers

Taiwanese, with some local ethnic Chinese with “Taiwanese connections”

Taiwanese

Administrative Managers

Local ethnic Chinese with “Taiwanese connections”

Local ethnic Chinese, PRC Chinese professionals

Low-ranking Managers, Technicians or Supervisors

Local ethnic Chinese

PRC Chinese professionals, a few Vietnamese

Blue-collar Workers

Mainly migrant workers, some Malays

Mainly Vietnamese, some local ethnic Chinese

Source: Research data collected by the authors.

managers. Apparently, the Taishang prefer to recruit local ethnic Chinese with Taiwanese connections rather than PRC Chinese into the upper management echelons. Other ethnic Chinese who work in administrative functions normally occupy middle- to lower-level management positions in accounting, finance, or purchasing. They are usually supervised by Taiwanese senior managers, who are not necessarily familiar with how the production lines really work. As the Taishang

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need interpreters to communicate with the local workers, these local ethnic Chinese administrators become indispensable to the functioning of the production facility, and come to occupy better positions in the company than other local staff members. Again, the Taishang prefer to hire local ethnic Chinese who have studied in Taiwan for these positions if possible. One Taishang told us: The way of thinking of students who have graduated from the American or European schools is very different from ours, and the barrier does not only lie in the language. The difference may have resulted from cultural differences … There are more than twenty engineers in the technical department, and all of them graduated from Taiwanese colleges. There were once some MBA engineers who had graduated from the U.K. and the U.S.A., but they stayed here only for a short period of time. In contrast, most of the engineers who are graduates of Taiwanese universities work in our company for a long time.

Experience of living in Taiwan and familiarity with Taiwanese society and culture are the key factors that explain the popularity of Taiwanese-trained local ethnic Chinese among the Taishang in Malaysia. Most of the local ethnic Chinese engineers employed by the Taishang have lived in Taiwan for more than four years, and can easily acclimatize themselves to the work ethic that is expected, namely, to work hard and take few holidays. The importance of this first-hand knowledge learned from living in Taiwan contradicts what is postulated by the human capital theory, which depicts a person’s ability as deriving only from education and skills. If the local Taishang cannot find suitably Taiwan-connected managers, then PRC Chinese may be an alternative, especially as they cost less. The Taishang have thus generated a large ethnic

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Chinese skilled labour market in Asia. Employing staff from the PRC to work as middle-level managers has become a common human resources management practice among the Taishang in Southeast Asia, given the lower salary cost of these workers compared to Taiwanese expatriates and their language proficiency. PRC Chinese are attracted to work overseas by the higher incomes offered by the Taishang companies, and are recruited through three channels: internal corporate transfers, social networks, and placement agencies (Wang 2007). Finally, the major objective of the Taishang in Southeast Asia is to build up a production facility within as short a period of time as possible to meet their buyers’ demands for lower prices and better quality. The Taishang utilize all possible means to mobilize both local and foreign resources to achieve this objective, and in this situation the employment of local ethnic Chinese professionals is highly desirable. The hiring of ethnic Chinese by the Taishang can thus be viewed as a way of mobilizing ethnic resources.

Authoritarian Labour Control Southeast Asia is a multi-ethnic society, and most Taishang employ workers from various ethnic groups. It is this distinct situation that gives rise to another characteristic of the transnational Taishang companies: their use of an authoritarian management style to control their labour. The Taishang prefer to employ workers who will accept subordination, such as Bangladeshi migrant workers in Malaysia or female migrant workers in Vietnam and China. To keep industrial relations in check on the shop floor, the Taishang usually employ rather coercive means of disciplining workers of different origins. However, this should not be mistaken as extreme as what is depicted in the hegemonic model described by Burawoy (1985).

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The labour control practices that are imposed by the Taishang on migrant workers in Malaysia cannot be applied to local Malay workers. For example, Bangladeshi migrant workers usually have to work for more than twelve hours a day, and sixteen hours is not unheard of. They live in the factory compound, and their daily activities are under strict surveillance. If these workers cannot finish the work that is required of them in the allotted time, then the Taishang managers demand that they stay back to finish it. In contrast, Taishang or Malaysian Chinese managers must choose their words carefully when talking to or persuading local Malays or ethnic Chinese to work. Managing Bangladeshi workers “is much easier; you just push them. Just press and press. When I set them a target to achieve, well, they have to reach the goal, no matter how difficult it is.” According to one of the Taishang managers that we interviewed, such workers have to work from eight in the morning to eleven at night for the entire year, and they cannot ask for sick leave. Another Taishang boss stated even more explicitly: “I told them, ‘give me two thousand pieces tomorrow. If not, I will cancel your residence permit status and send you back’. I don’t need to remind them to work overtime. It’s enough to scare them to work hard.” Other than threatening to send the workers back home, the Taishang also manipulate the wage structure to control migrant workers. One Taishang owner described this vividly: The wage is structured into five parts: basic wage, full attendance bonus, efficiency bonus, night shift bonus and overtime work wage. Do you know how low their basic wage is? Only ten-something ringgit! If they do work hard overtime, they can earn about thirteen hundreds or more. If they do not follow, they will get no overtime work, and their monthly

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wage will be about four hundred only. How could they survive with such little money to pay their living cost, and the debt they owe at home for overseas work? I don’t fire them, nor will I send them back. After one or two months, they will come to me and ask for more work. Then, they will show their obedience to me (Kung and Wang 2006).

In Vietnam, Taishang footwear factories employ a large number of female workers, as was the case in Taiwan, South Korea and Hong Kong in the 1960s and 1970s. A clear division of labour on gender lines is practised, where the sewing, gluing, and quality control work are carried out mainly by female workers, whereas the packaging, loading, and raw materials production are undertaken by male workers. The male labour force constitutes only a small fraction of the entire workforce in the factory. The standard explanation offered by the Taishang for the “feminization” of the labour force is that the Vietnamese society is a matriarchal society; Vietnamese women have to take care of the family, and are therefore able to put up with the working pressure that is imposed on them, whereas Vietnamese men are “lazy, useless, and not able to work under stress”. However, if we look at the labour process in these Taishang factories, we find the reason to be otherwise. Female workers are preferred by the Taishang in Vietnam because they are more submissive than men to the company labour control mechanisms. Working hours in Taiwanese factories are normally long, sometimes up to twelve hours a day.2 We also found in one of the factories where we conducted interviews that workers are only allowed to go to the washroom only three times a day; they must take a card whenever they use the washroom, and only three cards are issued on a production line at any one time.

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Engaged as they are in labour-intensive industries, the Taishang try to extract maximum labour value by imposing an authoritarian management style. The enforcement of labour control in Vietnam is imposed through a clear ethnic division of labour: the top managers are Taiwanese; the professionals hired from China occupy the middle-level management positions, and the Vietnamese work on the shop floor (see Table 2.3). Many Taishang invested in the footwear industry in China in the early 1990s, thereby creating a pool of low- to middle-level managers in China trained in the Taishang way. When the Taiwanese footwear industry shifted its investment to Vietnam in the mid-1990s, these managers were later mobilized to work in Vietnam. The widely reported militarist management practices that the Taishang employed in China were therefore transplanted by the PRC Chinese managers to Vietnam. During our research, we often heard complaints from Vietnamese workers that PRC Chinese supervisors or shop floor managers shout at them or scold them. We also heard a case of a Taiwanese top manager transferred from China asking his PRC Chinese managers to get up at 4:30 a.m. to go jogging and making them line up under the scorching sun before lunch, which eventually resulted in a strike. Some Taiwanese top managers admitted that although they have refrained from using authoritarian management control in Vietnam, they still cannot stop protests by Vietnamese workers. One Taishang manager stated: It is too much of a luxury and too early to talk about [labour] human rights in Vietnam. [Sighs]. You have seen our factory, and if you go to their home you can’t imagine what it looks like. It is very ironic. We Taiwanese have already gone through this stage in the past and understand what it was. The key

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point right now is how to make everyone rich. Strong human rights [for workers] will not make a nation wealthy. They protect workers too much, and they [workers] demand their rights too much. A country with US$370 GDP per capita wants to have the same human rights as in a country with US$10,000 GDP per capita; that is not reasonable. In Vietnam, you can’t even touch Vietnamese workers, let alone abuse them.

The manager of a large Taishang sports shoes company even commented that his industry basically rests on a patriarchal form of management. Many Taiwanese managers learned to make shoes through an apprenticeship, and the only form of management that they have ever learned in Taiwan is to scold. Indeed, they equate “management” with “scolding”. When this authoritarian management style is confronted with resistance from Vietnamese workers, and male workers especially, this is countervailed by the management’s accusations against these Vietnamese men of their laziness’and their lack of interest in working hard. It is for these reasons that the conforming and docile female workers are much preferred by the Taishang for their operations in Vietnam, and this has nothing to do with the “matriarchal society” rationale. The construction of the Vietnamese society as a matriarchal society is, in fact, a “patriarchal discourse” on the part of the Taishang to enforce and maintain their labour regime.3

4. Conclusion The Taishang, as a modern capitalist development in Asia, are Taiwanese businesses that have been investing globally since the mid-1980s. Global economic change since the mid-1980s, especially after the Plaza Agreement, has forced Taiwanese companies to seek other means by which their accumulation of capital can be

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continued. Southeast Asia and the next big investment destination — China — have become strategic regions for the Taishang in pressing ahead with their global production plan. The United States is no longer the most important trade partner: it is Southeast Asia and China that have emerged as the most significant areas for the Taishang. In tracing the history of the overseas investment of the Taishang, it becomes clear that most started out as SMEs, which contradicts the commonly held belief that SMEs have insufficient capital, human resources, or management capacity to proceed with overseas investment. This “rational economic model” apparently does not apply to the Taishang SMEs after the mid1980s, who took on the mantle of overseas investment until the larger Taishang became involved in the early 1990s. This succession pattern of overseas investment is quite different from the course of U.S. or Japanese overseas investment (Hsiao and Kung 1998). The rise of the Taishang is, of course, a product of global capitalist development. As latecomers to transnational business from a semi-peripheral state, the position of the Taishang in the global division of labour is certainly different from that of transnational companies from the core states, and their paths to globalization are different. In this paper, we discussed the historical process of Taishang investment and analyse the characteristics of the Taishang’s reorganization of industrial production networks to allow expansion and the massive up-scaling of production. The Taishang also represent a form of transnational capital with a distinct cultural trait, given their cultural affinity with Chinese human resources, which has helped them to mobilize ethnic Chinese human resources all over Asia to support their production networks in various countries. An additional characteristic of the Taishang network is the coordination of a host of Taiwanese

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firms to generate the final product, which has led to the creation of Taiwanese production network enclaves that seldom cooperate with local Chinese business. These characteristics set the Taishang outside the discussions of overseas Chinese business networks in the literature. This paper also demonstrates that the mobilization of ethnic Chinese human resources and the practice of authoritarian labour control have helped the Taishang to consolidate and sustain their competitiveness in the contemporary world production system. The Taishang have undoubtedly emerged as distinct ethnic Chinese transnational business entities in the modern capitalist world. Finally, it is essential to emphasize again that the development of Taiwan’s semi-peripheral economy has resulted from the combination of economic, social, and human resources from Taiwan, Southeast Asia, and China. It is cross-boundary and truly global in nature. The ability to respond quickly to market demand, efficient and flexible production, and unique production networks all help the Taishang to remain competitive in the volatile world market. The Taishang’s role in the global production chain cannot be easily displaced by business networks from other countries, as this distinct business structure is embedded in a very complex socioeconomic context.

Notes 1.

2.

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A “large company” in the manufacturing sector, according to the definition of the Taiwanese government, is one that hires more than 200 workers. Compared to the working conditions in the Zhujiang delta in southern China, the working hours in Vietnam are significantly shorter. For further comparisons between Taiwanese factories in China and Taiwan, see Chan and Wang (2005).

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For a discussion of management practices and discourses on Vietnamese society, see Wang (2004).

References Amsden, A.H. and W.W. Chu. Beyond Late Development: Taiwan’s Upgrading Policies. Cambridge, Mass.: MIT Press, 2003. Burawoy, M. The Politics of Production: Factory Regimes under Capitalism and Socialism. London: Verso, 1985. Chan, A. and H.Z. Wang. “The Impact of the State on Workers’ Conditions — Comparing Taiwanese Factories in China and Vietnam”. Pacific Affairs 77, no. 4 (2005): 629–46. Chao, Y.W. “The Positive Effect of OEM on Taiwanese Electronic Firms” (in Chinese). Sun Yat-Sen Management Review 6, no. 4 (1998): 1113–36. Chen, T.J. “FDI by Small and Medium-Sized Enterprises form Taiwan: A Survey of Parent Firms”. Paper presented at the Workshop on Taiwan’s Small and Medium-Sized Firms’ Direct Investment in Southeast Asia at the Chung-Hua Institute for Economic Research, Taipei, 18–19 November 1994. ———. Taiwanese Firms in Southeast Asia: Networking Across Borders. Northampton, Mass.: Edward Elgar, 1998. Chen, H. and T.J. Chen. “Network Linkage and Location Choice in Foreign Direct Investment”. Journal of International Business Studies 29, no. 3 (1998): 445–68. Chen, H. and M.C. Liu. “Noneconomic Elements of Taiwan’s Foreign Direct Investment”. In Taiwanese Firms in Southeast Asia: Networking Across Borders, edited by Tain-Jy Chen. Northampton, Mass.: Edward Elgar Publishing, 1998. Chen, Y.C. “Investment and Regional Development of Newly Industrial Country: The Political Economy of Taiwanese Business in Malaysia” (in Chinese). M.A. thesis for the Graduate Institute of Building and Planning, National Taiwan University, 1997. Cheng, L.L. “The Invisible Elbow: The Semiperiphery and the

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Restructuring of International Footwear Market” (in Chinese). Taiwan: A Radical Quarterly in Social Studies 35 (1999): 1–46. Cheng, L.L. and J.Y. Hsu. “Revisiting Economic Development in Post-War Taiwan: The Dynamic Process of Geographical Industrialization”. Regional Studies 36, no. 8 (2002): 897–908. Cumings, B. “The Origins and Development of the Northeast Asian Political Economy: Industrial Sectors, Product Cycles, and Political Consequences”. International Organization 38, no. 1 (1984): 1–40. Gomes, T. and M. Hsiao H.H., eds. Chinese Business in Southeast Asia: Contesting Cultural Explanations, Researching Entrepreneurship. London: RoutledgeCurzon, 2004. ———. Chinese Enterprise, Transnationalism and Identity. London: RoutledgeCurzon, 2004. Hsiao, M.H.H. and I.C. Kung. The Business Networks between Taiwanese Business and Southeast Asian Chinese (in Chinese). PROSEA Occasional Paper No. 18. Taipei: Program for Southeast Asian Area Studies, Academia Sinica, 1998. IDIC 2002. “Taishang zai dalu touzi gaikuang” [Taiwanese Investment in China]. Access at . Jou, S.C. and D.S. Chen. “Latecomer’s Globalization: Taiwan’s Experiences in FDI and Reproduction of Territorial Production Networks in Southeast Asia” (in Chinese). In Taiwanese Business in Southeast Asia: Network, Identity and Globalization, edited by Michael Hsiao Hsin-Huang, I-Chun Kung, and Hong-Zen Wang. Taipei: AsiaPacific Research Program, Academia Sinica, 2002. Kung, I.C. “Mobilizing Chinese in Asia: Reshaping Ethnic Chinese Transnational Network through Taiwan Capital”. Paper presented at the Annual Conference on Taiwan’s Southeast Asian Area Studies, National Cheng Kung University, 24–25 April 2006. Kung, I.C. and H.Z. Wang. “Socially Constructed Ethnic Division of Labor: Labor Control in Taiwan-owned Firms in Malaysia and Vietnam”. International Sociology 21, no. 4 (2006): 580–601. Lin, C.P. “Corporate Transformation and Spatial Interaction Process of

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Taiwan Business’ Foreign Direct Investment: A Case Study of Taiwan Electronic Firms in Penang, Malaysia” (in Chinese). In Taiwanese Business in Southeast Asia: Network, Identity and Globalization, edited by Michael Hsiao Hsin-Huang, I-Chun Kung, and Hong-Zen Wang. Taipei: Asia-Pacific Research Program, Academia Sinica, 2002. Shu, M.L. Proceedings of the Conference on Taiwanese Enterprises in Southeast Asia: Experiences in Singapore, Malaysia, Indonesia, and the Philippines (in Chinese). Taipei: National Taiwan University, 2000. ———. Proceedings of the Conference on Taiwanese Enterprises in Southeast Asia: Experiences in Vietnam and Thailand (in Chinese). Taipei: National Taiwan University, 2001. Tseng, T.F. “Foreign Capital and Ethnic Relations: Taiwanese Business in Indonesia” (in Chinese). Paper presented at the Conference on Foreign Investment of Taiwanese Business: Perspectives of Economic Sociology. Department of Sociology, National Taiwan University, 9 September 1999. Wang, H.Z. “Othering Discourses, Business Practices and Local Resistance: Case Studies from Taiwanese Factories in Vietnam”. Taiwan Journal of Southeast Asian Studies 1, no. 2 (2004): 37–64. ———. “PRC Skilled Labor on the Move: Mobilizing Ethnic Resources by Taiwanese Business in Asia”. Asian Survey 48, issue 2 (2008): 265–81. Wang, H.Z. and M. Hsiao H.H. “Social Capital or Human Capital? Chinese Professionals in Overseas Taiwan Company”. Journal of Contemporary Asia 32, no. 3 (2002): 346–62.

Michael Hsiao Hsin-Huang is from Center for Asia-Pacific Area Studies, Academia Sinica; I-Chun Kung is from Graduate Institute of Southeast Asian Studies, National Chi-Nan University; and Hong-Zen Wang is from Graduate Institute of Sociology, National Sun Yat-sen University.

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3 ASEAN ECONOMIC INTEGRATION AND TAIWAN Rodolfo C. Severino

This paper seeks to give an update on the ASEAN Economic Community and to discern how Taiwanese and other foreign companies can profit from investing in or otherwise dealing with that community. ASEAN Vision 2020 of 1997 foreshadowed the aspiration for an ASEAN Economic Community without calling it that. That document declared, “We will create a stable, prosperous and highly competitive ASEAN Economic Region in which there is a free flow of goods, services and investments, a freer flow of capital, equitable economic development and reduced poverty and socio-economic disparities.” It then committed the ASEAN members to undertake a list of measures for realizing that vision. ASEAN Vision 2020 was issued by ASEAN’s leaders in December 1997, at the height of the Asian financial crisis then, and can, therefore, be said to have been an ASEAN response to that crisis. A little more than four years before, in January 1992, ASEAN had entered into an agreement to reduce tariffs on intraASEAN trade to minimal levels in agreed, scheduled and nationally legislated tranches. This was called the agreement on the Common Effective Preferential Tariff for the ASEAN Free Trade Area (CEPTAFTA). Faced with the surge of globalization, the trend towards economic regionalism in other parts of the world, and the rise of

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the continent-sized economy of China, ASEAN leaders had decided to integrate the regional economy. The next year, the ASEAN leaders adopted the Hanoi Plan of Action, in which they committed themselves in detail to the steps necessary to intensify ASEAN economic cooperation and regional economic integration. Even after ASEAN subsequently advanced the deadline for dropping tariffs on intra-ASEAN trade to minimal levels twice, the ASEAN members have largely fulfilled their tariffcutting commitments under AFTA. However, they also knew that it took more than the abolition of tariffs on intra-regional trade to integrate the regional economy. Thus, they included in the AFTA agreement the immediate abolition of quantitative restrictions on intra-ASEAN trade and the elimination of all other non-tariff barriers to such trade in most products within a certain timeframe. In 1995, aware of the expanding share of the gross domestic product that services accounted for, ASEAN committed itself to the liberalization of trade in services. In 1996, ASEAN adopted the ASEAN Industrial Cooperation (AICO) scheme, in which companies operating in two or more ASEAN countries could trade products of such operations at the AFTA end-rate. AICO is a considerably successful device for ASEAN economic integration, involving mainly wellknown Japanese companies, including Mitsubishi, Toyota, Sony, Matsushita, Denso, Honda, Nissan, Yamaha and Isuzu, but also several from Korea, the United States and Europe, like Samsung, Ford, Nestlé and Volvo — but none from Taiwan or ASEAN itself. In 1997, the ASEAN finance ministers formalized the customs code of conduct that their customs authorities had adopted in 1983 and agreed to establish common valuation systems and classifications, harmonize tariff nomenclatures, simplify and coordinate customs procedures, and cooperate in preventing smuggling and fraud. Also in 1997, aware that harmonized product

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standards are necessary for the free flow of goods within the region, ASEAN designated twenty products for standards harmonization. The next year, the association adopted a framework agreement on mutual recognition arrangements, which would do away with the need to test products in both the exporting and the importing ASEAN country. In the same year, 1998, ASEAN concluded the agreement on goods in transit. Knowing that they had to keep the momentum of regional economic integration going, the ASEAN leaders, at their summit meeting in October 2003, issued the second Bali Declaration of ASEAN Concord, in which they proclaimed their commitment to the establishment of the ASEAN Economic Community. In that community, they envisioned “ASEAN as a single market and production base, turning the diversity that characterises the region into opportunities for business complementation (and) making … ASEAN a more dynamic and stronger segment of the global supply chain”. As a “first step”, the ASEAN leaders accepted the recommendations of the High Level Task Force on ASEAN Economic Integration. Those recommendations included some specific measures — a number having been previously adopted, others being new — most of them with clear deadlines. They also proposed certain institutional mechanisms — a legal unit in the ASEAN Secretariat, a consultation mechanism within each country to solve trade and investment issues, a compliance body, and a strengthened dispute-settlement mechanism. At their next summit, in November 2004, the ASEAN leaders adopted the Vientiane Action Programme, which provided for the accelerated implementation of the integration measures in more specific terms. In November 2007, in a “blueprint” for the ASEAN Economic Community, they defined the nature of that community in terms of being, again, “a single market and production base” and a region that was competitive, equitably developed, and “fully

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integrated into the global economy”. They moved the deadline for its achievement forward from 2020 to 2015. Most building blocks for regional economic integration are, thus, in place. However, while the tariff-cutting exercise is more or less on track, the implementation of the other integration measures, while making progress, is rather slow. Non-tariff barriers to trade largely remain in place. Customs reform is proceeding unevenly among ASEAN countries. The adoption of harmonized product standards and mutual recognition arrangements for both goods and services remain limited to a small number of sectors. Trade in services is being liberalized much too slowly. The goods-in-transit agreement cannot go into operation, because political obstacles are in the way of the conclusion of the implementing agreements. Meanwhile, within the framework of free-trade-area agreements, ASEAN has entered into trade-in-goods and trade-inservices agreements with China and South Korea and has also signed a trade-in-goods agreement with India. ASEAN on the one hand and Australia and New Zealand on the other have also entered into a comprehensive economic agreement. Within a broad ASEAN-Japan framework, Japan has concluded “comprehensive economic partnership” agreements with six ASEAN countries. Apart from the details of the commitments that they embody, these arrangements signal to the international community and to the parties’ own peoples the importance that the concerned governments place on their relations and direct the attention of the business communities to the opportunities that trade and investments between their countries offer to them. What can Taiwanese companies and the Taiwan authorities do to seize the opportunities offered by an integrating ASEAN and to encourage its further integration?

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Obviously, Taiwan and ASEAN as a whole cannot enter into government-to-government commitments such as those in FTAs. However, Taiwanese companies and the Taiwan authorities can do several things. One is to examine closely the advantages that the ASEAN market offers, including tariff preferences, customs reforms, product standardization, mutual recognition arrangements, services liberalization, transportation arrangements, and so on, and take advantage of them. Taiwanese companies could seek places in the regional production chains that ASEAN’s FTAs encourage. They could consider taking part in the ASEAN Industrial Cooperation scheme, which ASEAN is seeking to keep relevant in the face of the imminent elimination of tariffs on intraASEAN trade. They could make use of the institutional mechanisms that ASEAN has put in place for the members’ compliance with their trade and investment commitments. The Taiwan authorities could encourage the Taiwanese companies in doing all this. In cases where ASEAN falls short of the degree of regional economic integration that investors and traders feel would be attractive to them, Taiwanese companies and the Taiwan authorities could exert influence, offer incentives or even apply pressure for the adoption of measures for the substantial integration of the regional economy and for the acceleration of their implementation. Taiwanese companies could get organized for this purpose. All this is premised on the fact that regional economic integration is good for Taiwanese companies as well as for ASEAN and its members.

Rodolfo C. Severino is Head of ASEAN Studies Centre, Institute of Southeast Asian Studies, Singapore.

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4 ASEAN’S BILATERAL FREE TRADE AGREEMENTS: BENEFITS AND CHALLENGES FOR THE REGION Sanchita Basu Das

1. Introduction With regionalism gaining strength, Free Trade Agreements (FTAs) have emerged to be a reality all over the world. It is seen as an action by governments to liberalize or facilitate trade and investment on a bilateral basis through detailed negotiations. In Asia, the Association of Southeast Asian Nations (ASEAN) is fast emerging as an integration hub for FTAs by forging economic ties with China, Japan, Korea, India, Australia and New Zealand. What are the perceived benefits and challenges of these FTAs and how can they be building blocks for regional integration? This paper attempts to answer these questions, starting with the need for FTAs, followed by a summary of the different types of ASEAN FTAs. It then summarizes some salient characteristics of ASEAN FTAs, followed by a discussion on perceived benefits and concerns. Subsequently, it elaborates on the implications of ASEAN FTAs on the process of economic integration in the region. Finally, it concludes by giving some policy recommendations.

2. Need for an ASEAN FTA ASEAN was getting frustrated with the slow pace of the World Trade Organization (WTO) or Doha negotiations. It was also losing

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interest with the lacklustre momentum in the Asia Pacific Economic Cooperation (APEC). At the same time, as the FTA networks were growing in the United States and the European Union, ASEAN countries feared that the success of the Euro Area and the North American Free Trade Agreement (NAFTA) might dominate the global trading system. Hence, to increase their bargaining power in the global trading arena and to compensate the lack of multilateral trade liberalization, ASEAN thought of uniting together. Secondly, the 1997–98 financial crisis taught an important lesson that ASEAN needs to strengthen economic cooperation with the neighbouring countries. The region must develop a “selfhelp” mechanism for better economic and financial management. In addition to these, changes were also happening in Asia. There is a rising concern about the competitiveness of Southeast Asian countries. Within ASEAN until 2001, AFTA was the only trade agreement involving the ten countries. However, the agreement was restricted to trade in goods and some of the older ASEAN members were not agreeable to fully comply with AFTA guidelines. While the agreement came about in 1992, it was moving very slowly as it involved a phased elimination of tariffs on intraASEAN trade. Elsewhere in Asia, economic fundamentals had been undergoing dramatic and rapid change. China, with its accession to WTO, was rapidly opening up its economy and this was giving the private sector an incentive to invest in the huge Chinese market. The economic emergence of India was putting further pressure on ASEAN economies to remain competitive in the global market and be an attractive destination for FDI. All this eventually led to the proliferation of FTA initiatives in the region.

3. FTA Initiatives by ASEAN In general, ASEAN is involved in two kinds of FTAs:

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(a) Regionwide FTAs: ASEAN embarked on bilateral trade arrangements with five major regional partners, that is, Australia and New Zealand (CER), China, India, Japan and Korea. Currently, all these agreements are at various stages of negotiation (see Table 4.1). Notably, while ASEAN has reached an agreement in principle with Japan, it has implemented FTA in goods with Korea. It has implemented an FTA in goods with China and has also signed agreements on services and investment. The group signed an agreement with Australia-New Zealand and India in 2009.

(b) Bilateral Individual ASEAN Economies FTAs: Since the 1997–98 crisis, individual ASEAN economies like Singapore and Thailand were also actively pursuing bilateral FTAs. Singapore, which is a highly trade-dependent country in ASEAN, started the process in 1999 with New Zealand and thereafter finished FTAs with Japan, Australia, the United States, Korea, India, Jordan and Panama. This was soon followed by Thailand (in 2000) and Malaysia (in 2005). These countries were actively pursuing FTAs mainly to enhance economic and strategic cooperation among “like-minded” trading partners.

4. Characteristics of ASEAN FTAs With new FTA initiatives being regularly announced by ASEAN or its individual countries, it is increasingly becoming difficult to track the exact number and features of existing and proposed agreements. Sen (2007) provides details on the progress of all the FTAs in ASEAN over the period 2001–06 (numbering about fifty) that are being proposed or are being negotiated by these countries.

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Regional

Regional

ASEAN-Japan

Regional

ASEAN-China

ASEAN-India

Scope

FTA

Framework Agreement for CEP: liberalization of trade in goods, services and investment by 2012; economic and technical cooperation in ICT, energy and SME

Framework Agreement for RTIA: FTA in goods, services and investment; broader economic cooperation

Framework Agreement for FTA: FTA for trade in goods to be realized by 2010 for ASEAN-6 and 2015 for newer members; FTA for trade in services and investment; Early Harvest Programme; cooperation in other areas

Area of Coverage

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No

No

Yes (2004)

Notified to WTO

continued on next page

Reached agreement in principle

Committed to reduce and eliminate tariffs by 2011 for ASEAN-6 and by 2016 for LDCs

EHP done on 1 January 2004, expected to complete the agreement by 2010

Expected date of Implementation

TABLE 4.1 Summary of ASEAN Regionwide FTAs ASEAN’s Bilateral Free Trade Agreements 83

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Regional

Source: Author’s compilation.

ASEAN-EU

Regional

Regional

ASEAN-Korea

ASEAN-CER

Scope

FTA FTA in goods from July 2006

Expected date of Implementation

Comprehensive

To be decided

Framework Agreement for CEP: Agreement signed in trade in goods, services and February 2009 summit investment, goal is to double trade and investment between the region by 2010

FTA for trade in goods to be realized by 2012 for ASEAN-6 and 2018 for Vietnam and 2020 for Cambodia, Laos and Myanmar, FTA for trade in services and investment

Area of Coverage

TABLE 4.1 — cont’d

No

No

No

Notified to WTO

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He observes that among all the FTA initiatives launched so far in ASEAN since 2001, the ones that have been largely implemented and are currently in force are Singapore’s FTAs (involving New Zealand, Japan, EFTA, Australia, United States, Jordan, India and Korea), ASEAN-China and ASEAN-Korea (trade in goods only) and Thailand’s FTAs (involving Bahrain, Australia and New Zealand).1 Apart from these, most of the other initiatives are either at the stage of being studied, or are being currently negotiated. The largest number of ASEAN FTAs are with the richer nations in the group. For example, Singapore has signed most of the FTAs in the region followed by Thailand. This suggests a link between FTA growth and economic prosperity. Singapore and Thailand account for 40 per cent of concluded FTAs in ASEAN. The rest rely on ASEAN FTAs, reflecting their weak resources and capacity. It is also observed that current FTA activities in ASEAN ranges from that of limited FTAs on trade in goods to that of highly comprehensive bilateral agreements, like those of Singapore, that cover trade in goods and services, investments, elimination of non-tariff barriers, besides including other complex issues of government procurement, competition policy and intellectual property protection, thus making it a “WTO-Plus” FTA. Further, varieties of Rules-of-Origins (ROOs) have been applied or are currently being negotiated across ASEAN’s FTAs. It is observed that while the value-added (VA) rule is generally applied across Singapore’s FTAs, a mix of other criteria such as the change in tariff classification (CTC) and other restrictive rules have also been applied. There is also a lot of overlap among the FTA partners of ASEAN and the individual member countries. For example, while Singapore has already implemented its agreements with New

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Zealand, Australia, India, Korea and Japan, it is also a negotiating member in ASEAN-wide FTA initiatives with these countries. Many of these agreements have been implemented or are being negotiated, without being notified to the WTO. Most of those ASEAN FTAs that have been formally notified to the WTO either under GATT Article XXIV or GATS Article V are those of Singapore’s bilateral FTAs with the developed members, viz. New Zealand, Australia, EFTA, United States, and Japan. This implies that most of ASEAN FTAs are currently unable to be screened for WTO consistency.

5. Perceived Benefits and Concerns While there is growing evidence that FTAs have been beneficial for economic development, there are growing concerns too. FTAs have to be well designed and implemented, and they also have to be supported by unilateral liberalization and important domestic economic reforms. As observed by Sally and Sen (2005), the engine of liberalization and regulatory reform by ASEAN countries has to be home-driven, with FTAs playing at best a supportive role. In general, FTAs are seen to provide a bigger market access for goods and services as a result of low tariff barriers, more investment opportunities and lower cost of doing business. For example, the ASEAN-China FTA is considered to bring in the world’s biggest free trade area embracing 1.7 billion consumers, a combined GDP of US$2 trillion, and total international trade of US$1.23 trillion. Moreover, the ASEAN-China FTA carries lot of political significance as it may allay the fear of Chinese competition. It is often argued that FTAs in ASEAN have the potential to promote regional economic development and particularly, facilitate

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newer ASEAN members in building up production networks to strengthen their economic integration within ASEAN and East Asia (Sen 2007). Again, in the case of ASEAN, although AFTA has been implemented, it is not fully functional. In this regard, comprehensive FTAs involving goods, services and investment may encourage individual ASEAN countries to undertake domestic reforms to improve their global and regional competitiveness.

TABLE 4.2 ASEAN FTAs — Benefits and Concerns Benefits

Concerns

• Bigger market access for goods and services • Political significance • Promote regional economic development and facilitate production networks • Encourage individual ASEAN member to undertake domestic reforms

• Impact on trading pattern cannot be comprehended • Variety of Rules-of-Origins • Absence of common framework between ASEAN as a region and individual ASEAN countries • Multiple hubs-and-spokes • Drain of scarce resources

Source: Author’s compilation.

Despite several benefits, it should be noted that many ASEAN+1 arrangements may pose some difficulties in terms of limited administrative and negotiating resources. A closer look at these agreements indicates that the coverage of most of these initiatives is far more comprehensive than just a free trade agreement and commit to liberalization of not only goods, but

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also services and investment. However, as most of these FTAs are still at their study or negotiation stage, it is very difficult to gauge their final content and possible impact on regional trading system. Again, although it is necessary to prevent third countries from capturing an FTA’s tariff preferences, Rules-of-Origins (ROOs) can make it difficult for businesses in the partner countries to take advantage of these preferences. In case of ASEAN agreements, with three different types of ROOs (change in tariff classification, local value content, specific product rule), it is present in all combinations. This has become an increasing concern as it raises the administrative costs. Further, as observed by Rajan and Sen (2005), with individual ASEAN members having already enforced some of their own bilateral deals with trading partners, an important issue that comes up is how these countries are supposed to treat the ASEAN-wide agreements with the same trading partners. It is yet not clear whether regional agreements would subsume these bilateral deals, therefore raising concern on their applicability and consistency in the negotiating framework. As mentioned earlier, many times FTAs in ASEAN are seen as a vehicle to promote regional economic development and may help to build up production networks by strengthening economic ties between ASEAN and East Asia. However, there are fears that multiple hubs and spokes may deter the regional economic cooperation. For example, there is no single hub for ASEAN FTAs as Singapore and Thailand are pursuing several FTA negotiations unilaterally. At the same time China and India are also creating their own FTA hubs, thus creating a “noodle-bowl” of FTAs in the Asian context (Baldwin 2006). This reduces the overall welfare impact, especially as each of them enters into a bilateral deal with the same trading partner.

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On the whole, one can say that ASEAN-wide FTAs hold major political and economic significance. Although it could divert ASEAN’s attention from the WTO, the governments are yet to realize this as a problem. Hence, for the next few years, ASEAN will continue with its bilateral trade liberalization process with its major trading partners.

6. Implications of ASEAN FTAs for Regional Economic Integration ASEAN views FTAs as an initiative that would maximize the complementarities among member countries to achieve economies of scale, and eventually become an efficient and competitive global manufacturer of products. It considers FTAs as a mechanism that will complement the ongoing integration process in ASEAN. Deeper economic integration among ASEAN while improving its competitiveness would also better its bargaining position as a FTA hub, in the existing hub-and-spokes Asian FTA network. ASEAN has therefore embarked upon the creation of an ASEAN Economic Community (AEC) by the year 2020, as envisaged by the Bali Concord II in 2003. This envisages ASEAN to develop into a common market with free trade in goods and services, and free movement of capital and labour by the year 2020, whose deadline has now been advanced to the year 2015.2 Although this is an ambitious agenda, the seriousness of ASEAN policymakers was shown when the ASEAN Charter took its final shape at the ASEAN Summit in 2007 held in Singapore. ASEAN’s FTAs, if utilized effectively and implemented properly, do have the potential to be a building block of Asian economic integration. However, in its present state, they are largely disconnected from each other, with Singapore gaining a firstmover advantage, having already implemented a number of its

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comprehensive FTAs with the major players in Asian economic integration (Japan, China, India and Korea). Apart from Singapore, none of the ASEAN members have striven to implement such comprehensive FTAs. Most of them are at the negotiating stage, and in some cases only an “Early Harvest Scheme” for tariff elimination on few selected goods. This implies that while Singapore’s FTAs may have the capacity to emerge as a building block for economic integration, that of other ASEAN members has not quite evolved that way yet. This could be due to differences in development levels with the city-state. Unlike Singapore, most of the ASEAN members have a sizeable domestic sector, and agriculture sector provides an important contribution to those economies, which leads to political sensitivities, thereby complicating the negotiations process. Furthermore, since Singapore is a city-state and the most developed member in ASEAN, it is able to negotiate complex issues of product standards, government procurement, intellectual property protection and competition policy, many of which require stringent regulatory and institutional reforms through FTAs. These issues are much more difficult to negotiate and implement in significantly populated middle-income ASEAN economies, viz. Malaysia or Thailand. Further, in the pursuit of quickly negotiating FTAs, many developing ASEAN members are ignoring unilateral liberalization and are not pursuing important domestic economic reforms which are critical for their growth prospects and to sustain competitiveness. As observed by Sally and Sen (2005), the engine of liberalization and regulatory reform by ASEAN countries has to be home-driven, with FTAs playing at best a supportive role. The above implies that ASEAN has to strengthen its efforts towards regionalism both at the bilateral and regional levels in order to play a more effective role in fostering economic integration

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both among its members and within Asia. It needs to improve its competitiveness, and therefore has to focus on domestic reforms, as well as on reducing barriers to cross-border trade and investment, with FTAs complementing it concomitantly, in the process of its deeper economic integration with the rest of Asia.

7. Conclusion Despite being a latecomer in the move towards FTAs, ASEAN is picking up quickly. Indeed there are concerns that FTAs in ASEAN may become a stumbling block towards regional economic cooperation. But there is also a possibility that the benefits from greater liberalization and stronger strategic links may override those concerns. For ASEAN, FTAs could be a useful tool for promoting economic cooperation in the region provided (a) it is well-designed and properly implemented; and (b) it is wellsupported by unilateral liberalization and important domestic economic reforms.

Notes 1.

2.

Thailand has entered into a Framework Agreement for a FTA with India in 2004, which currently involves tariff elimination only on eighty-two selected goods. Although the framework agreement indicates this FTA will be comprehensive, there has not been significant progress after the Early Harvest Scheme. This was advanced at the ASEAN Trade Ministers Meeting in May 2006 in the Philippines.

References Baldwin, R. “Managing the Noodle Bowl: The Fragility of East Asian Regionalism”. Policy Paper, Graduate Institute of International Studies, Geneva, 2006.

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Rajan, R. and R. Sen. “The New Wave of FTAs in Asia: Implications for ASEAN, China and India”. In Asian Economic Cooperation and Integration. Manila: Asian Development Bank, 2005. Sen, R. “ASEAN’s Bilateral Preferential Trade and Economic Cooperation Agreements: Evolution, Characteristics and Implications for Economic Integration”. ISEAS Working Paper in Economics and Finance, no. 1, 2007. Sally, R. and R. Sen. “Whither Trade Policies in Southeast Asia? The Wider Asian and Global Context”. ASEAN Economic Bulletin 22, no. 1 (2005): 92–115.

Sanchita Basu Das is a Visiting Research Fellow and the lead researcher for economic affairs in the ASEAN Studies Centre at the Institute of Southeast Asian Studies (ISEAS), Singapore.

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ANNEX I

International Symposium on

Economic Integration and the Investment Climates in ASEAN Countries: Perspectives from Taiwan Investors Organized by Center for Asia-Pacific Area Studies (CAPAS) RCHSS, Academia Sinica, Taiwan

ASEAN Studies Centre (ASC), ISEAS, Singapore

Taiwan Institute of Economic Research (TIER)

17 November 2008 Taipei, Taiwan

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Programme

9.00 a.m

Registration

9.20 a.m.

Opening Remarks Michael Hsiao H.H. (Executive Director, CAPAS, Academia Sinica, Taiwan) Rodolfo C. Severino (Head, ASEAN Studies Centre, ISEAS, Singapore) David Hong (President, Taiwan Institute of Economic Research, Taiwan)

9.30 a.m.

Session 1 Chairperson: Rodolfo C. Severino 1. Chao-Jen Huang (Director, Research Division of Southeast Asia, TIER, Taiwan) Taiwan and ASEAN Economic Interaction: Prospects and Opportunities 2. Hong-Zen Wang (Professor and Director, Graduate Institute of Sociology, National Sun Yat-sen University, Taiwan) Social Networks, Gender and Nationalism: Taiwan’s Research on Taishang in Southeast Asia

10.40 a.m.

Tea Break

11.00 a.m.

Session 2 Chairperson: Michael Hsiao H.H. 3. Rodolfo C. Severino ASEAN Economic Integration and Taiwan 4. Sanchita Basu Das (Visiting Research Fellow, ASEAN Studies Centre, ISEAS, Singapore) ASEAN’s Bilateral Free Trade Agreements: Benefits and Challenges for the Region Discussant: David Parsons (Executive Director, Committee on Investment and International Trade Development, KADIN, Indonesia)

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Annex I

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12.30 p.m.

Lunch

2.00 p.m.

Session 3: Taiwan Business CEO Roundtable Discussion Chairperson: David Hong Yau-Jr Liu (Associate Research Fellow, Taiwan Institute of Economic Research, Taiwan) Pao Chuan Lin (VP, Head of International Administration Department, China Trust Commercial Bank) Jiang-Jong Guo (Associate Professor, Graduate Institute of China Studies, Tamkang University, Taiwan) Jang Pao Kang (Associate Professor, National Chengchi University, Taiwan)

4.30 p.m.

Tea Break

4.50 p.m.

Session 4: Conclusion and Policy Suggestions Chairpersons: Michael Hsiao H.H. and Rodolfo C. Severino

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