Transcript: Seminar "FTAs and the Case for Taiwan" on Apr 13 at GWU

A friend forwarded me this transcript of a recent seminar at GWU, where I did my masters. It's too long for me to comment meaningfully on, so enjoy.......informative and excellent questions at the end.

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A transcript of the seminar "FTAs and the Case for Taiwan" on Apr 13 at GWU

Opening Remarks: David Tawei Lee; Representative, Taipei Economic and Cultural Representative Office in the United States

First, I'd like to thank the Sigur Center for Asian Studies & the George Washington University for sponsoring such a good event on Taiwan and FTAs. I very much appreciate the efforts of the Sigur Center for lining up distinguished group of scholars on this issue. We will all benefit from the wisdom and expertise of the panelists. Since ‘79, when we lost formal diplomatic ties with US, however, I think many fronts the two countries maintain may close connections. On the political and security fronts, we can be categorized as an ally. On the economic front, we are enjoy an even closer, intertwined relationship—a partnership between out two countries. Taiwan is the number eighth largest trading partner with the US. Bilateral trade is currently US$56.9bn. (more stats).

As I recall vividly, upon reporting to this position in 2004, rice, pharmaceuticals, and IPR were all significant issues. Thanks to efforts in Taipei and in Washington we welcomed our Minister of Economic Affairs to talk with her counterparts in US government in December, 2004. As we approached the summer of 2005, I had lunch with my counterpart in the USTR. We discussed how we had almost exhausted our remaining issues; that they had been mostly resolved. I asked if that was good news bad news—we've lost most of our issues.

I'm a government official paid by taxpayers. I need to do something. I need new issues, looking to a new phase of TIFA talks in Taipei. We have high hopes that, through the TIFA talks, we will have further accomplishments in bilateral trade. After the TIFA talks, we will be better able to upgrade our issues. Looking to the US ITC survey report issued two years ago: if our two governments sign a FTA, US exports will climb 16%. In some sectors, even further—trade in auto parts, autos, foodstuffs like rice, fish, will all increase more than 100%. This is very encouraging economic news for all, these future benefits for our two countries. However, our government is very realistic. Negotiating a FTA is very tedious and can take many years to negotiate successfully. On the Taiwan side, our government and business are still in the process of preparaing for this approach. Once it is launched, it will be comprehensive, working with business, academia, and grassroots organizations. I am looking forward to hearing you today and working today towards increasing the public partnership with US and the ROC Taiwan.

Panel I: The Path to FTAs: Economic & Political Factors

Panel I: Michael Moore, Professor of Economics and International Affairs, GWU
Thanks for having me here this afternoon. I'm a trade economist, not a specialist on Taiwan. So, I'll start with general overview of how the US has picked its contemporary FTA partners, especially in Bush admin. There are very striking patterns of recent US –FTAS—the number has exploded. In 200, pre-Bush, the US had four FTAs: Israel, Canada, Mexico, and Jordan. The US has long been primarily a proponent of the multilateral approach to free trade—with the GATT, etc. The commitment to that multilateral approach is reflected in the small number of FTAs with close allies like Israel, and neighbors like Canada and Mexico. In the Bush years, however, a number of initiatives have been completed: Chile, Singapore, Morocco, Peru, and the CAFTA-Dominican Republic, This is already more FTAs than had ever been initiated by the US prior to 2000. The US also as number of continuing negotiations currently underway. These include recently, South Korea, the United Arab Emirates (a little complicated right now by the Dubai ports deal), Panama, and the Southern Country customs union. Clearly, these include a wide range of countries. These are poor, developed, all over the map. Notable countries that are not here: the EU, Japan, Taiwan, China, India—a number of countries with great potential and importance to the US economy. The US has chosen to launch FTAs wit some and not others. Not because other countries are not interested. Mostly, representatives from these countries are interested. But the USTR and US government then point out the comprehensive nature of US FTAs. They involve goods, like manufacturing and agriculture. These areas of trade, in some ways are the easier to deal with. Everyone understands protective tariff and nontariff barriers. Although things like sugar and rice are important politically, negotiations are fairly straightforward. Services are very complicated to negotiate. It's hard to measure the restriction of accounting services. It's a matter of access and enforcement of access. Intellectual Property Rights are also very important. US does TRIPS PLUS – increased IPA commitments countries need to follow do before engaging in a US FTA. Investment and Finance issues are also important. Disputes over FDA, arbitration systems are needed to provide security of countries and investing firms. While the Bush stances on labor and environment are not always popular in Congress, are still important; countries have to enforce their own laws. Current FTAs do not include US provisions on labor or environmental (e.g., child labor, max pollution). If Democrats were in power, this might be different. That's the nature of these agreements. When someone shows up and says I want an FTA, the Egyptians for example, US will give them the book – that's the agreement, with all the many specific laws and statues. It's very, very complicated. When a country wants to do this, it needs to understand the full complexity of the process.

How Bush picks partners—Economic potential. In some ways this is a narrow definition—how much would economic activity increase in the two countries? The US is also still thinking multilaterally: looking at this agreement and how it affects the ongoing DOHA round at WTO—this must be taken into account. Readiness is also a key factor—is the trading partner ready to implement the agreement? Countries need to be comprehensive and ready now. Foreign policy concerns are crucial. Oman, for example, is not at head of list economic potential, but increased commerce in the Middle East is crucial to US in current troubled times. Foreign economic and broad policy interest is important and Congressional support is also vital. Both houses must agree by majority vote.

For Taiwan, vocal support exists in Congress, but Trade Promotion Support is running out in 2007. The Administration will need to get Congressional approval again. Taiwan's rank in list of FTA benefits: #12. Even more detailed, there have been estimates on what impact a US-Taiwan FTA would have. Pretty trivial for US in terms. Bigger for Taiwan. Typical; big country, small impact—small country, big impact.

1 issue I have from an economics perspective is trade diversion. Increased trade from US is a cost to country (Taiwan) engaging in FTA. From an economics standpoint, this is a problem with all FTAs. There is, however, clear econ potential with US-Taiwan FTA, particularly on Taiwan. Clear Congressional support must be made clear. But for political decisions, it could be very difficult. In conclusion, FTA is very complicated, and only launched when it can be completed in time to garner Congressional support for the agreement. I am very much looking forward to hearing what other panelists have to say.

Panel I: Frances Zwenig, Counselor, US-ASEAN Business Council
It occurred to me since I've been working on Thailand and Taiwan issues, that when they are being dealt with at the same time, that proponents of both should take a map to ensure Congress members know which you're talking about. Further, I recommend to you that you get copies of 2 CRS reports Nov 4 2005 (Taiwan Accession to WTO) and Jan 17 2005 (Free Trade). Disclamers: I am not trade law expert, though I have worked on Hill and with US-ASEAN business council. I see myself today as a Resource person. I am currently working on Thai, Malay and Singaporean FTAs. I'll be sharing expertise and posing some questions.

Right now, US dictated by current version of TPA passed by only one vote and will expire in 2007. That's a very narrow window and full plate for USTR. Review of process: TPA authority agreement to launch, the Administration must notify Congress, allows 90days consultation. Next, letter from USTR goes to head of houses, outline benefits and sensitive issues. Taiwan for example: IPR, telecom, pharmaceuticals environment, and labor. Negotiations occur, Continue with countries and congress. The completed agreement is presented to congress under TPA – expedited and non-amendable (this is key). Likelihood of new ones between now and end of TPA? Let's review what USTR's already got on its plate:

Thailand FTA (on life support already) case study example what not to do. FTA proponents in Thailand let anti-FTA forces out a head and framed debate before the current political crisis. Signed Peru FTA. Others as well (Columbia) not yet passed. Announced Korea and Malaysia negotiations. USTR thinking about Malaysia pressure on Thailand, though will not admit it. USTR need to wrap up PNTR for Russia and Vietnam. USTR will try to renew PNTR before it expires again. HUGE workload for small agency (of workaholics). Congressional workload also a factor. See Vitetam—if bilateral is not agreed upon very quickly, Congress will not here it before recess. In September, legislative days are limited and trade will take a backseat to other legislation, particularly since elections are coming—no trade issues near to elections. So, a very narrow window.

Trade writ large: Dubai ports, outsourcing, CNOOC bid for Unocal. Not much enlightened debate in contemporary US. Not going to change anytime soon. Unlikely the USTR will take on any more this year, and less likely to undertake any more anytime soom. If Democrats gain in elections? Near term, more antitrade. CW this year is that TPA will not be passed again. Hard to get it by the one vote. Chances not much better next spring. Creative minds must look for other ways (they are out there) to look for ways to strengthen economic and trade links between countries.

Panel I: Greg Mastel, Principal, Miller & Chevalier
As the third panelist, lots of stuff has been covered already. Tend to not be as unique so I'll try to hit other topics. I was chief Senate staff person on Intl Trade for last round TPA negotiation on Hill. At that point Democrats were in charge. Important to note: Congress is not as hostile to FTAs as CW might suggest. We've heard about explosion of FTAs—US phenomenon, but also global phenomenon as well, with 250 regional FTAs registered with WTO. 130 since 1995 – this volume indicates a global phenomenon. Not counting the approximately 100+ FTA-type agreements not listed by the WTO. Before 2002, US has four FTAs with politically & economically important partners. FTAs were a rarely used tool. Took off after 2002, with Chile, Singapore, Australia, CAFTA, Bahrain, etc wrapped and approved. Columbia, Oman, Peru, are negotiated but not before Congress). Negotiating authority runs out soon, and still out there are Thailand, S. Korea, etc. Not getting done before this extension of PTA. Why so many going on now? A number of main driving reasons: FTAs are achievable. While there are real advantages to global agreements, those can get hard to do with 150+ countries. FTAs are easier to deal with and get negotiated. See recent WTO negotiations. FTAs have real positive US economic and political incentives. Tactical reasons for pursuing FTAs: first, as WTO negotiating leverage. While the WTO is better – larger group of countries, bigger economic bang, wow to get those countries to move forward on sensitive sectors, etc. Theory of liberalization , if the US can't proceed with WTO, use FTAs to broker new agreements, setting precedent and pressures other countries. The fear of being left behind and locked out is crucial. More willing to participate in the WTO if there's an example in the region. Rep Thomas of House Ways and Means recently said Only FTAs, ban WTO! Perhaps for public consumption… but an example of why FTAs are pursued by US.

US also wants to keep markets open to US firms. Need to maintain access to key markets. With China increasingly aggressive in Asia, and the ASEAN countries the US worried of closure of Asian markets of they are not active in the region.

Congressional support for FTAs. Congress' CW is critical of FTAs, but this doesn't hold up when one looks at the votes. FTA votes are not that close usually. Fast track TPA, however, was very close in the House. But that's about legislative authority—Congress is worried about giving up its authority. Not about trade, about keeping Congressional prerogatives of power. Division of power, etc. The NAFTA debate had impact on US re: the benefits of free trade. CAFTA too. Regardless, there is usually good bipartisan support for FTAs. The TPA passed originally, and there's good base for bipartisan consensus. TPA versus FTA is key issue here.

Future US FTAs. Negotions with 10 countries underway, but TPA expires in 2007. To get in this round, move quick! At most parties have months, even a year. Getting to the point when quickness is key. A lot of this is political authority issues. Need to get this stuff done in the next year? Hard to predict what Congress will do, political dynamics are fluid. Bush could get through before with a more Democratic Senate. Still true today. Environment & Labor are also key issues, but still most key issues are political power ones. Popular countries could be passed quickly. Not as sure that the current fast track is the last we get. Possible to get new fast track or new TPA. Even if no, more FTAs after. This is not a drop dead date!

Refocusing strategy. In my personal view, the problems thus far under Bush are not looking at economically significant FTAs—more good for US, bigger econ impact. Unlike CAFTA (sound like NAFTA—mistake). FTAs that benefit the US are more likely to pass. US export biggest markets: Canada, Mexico, Japan, (pol imperatives) China (not ready) EU member states (EU not politically likely—WTO can do it, why in FTA?), that leaves: S Korea and Taiwan. SK already in the neg. Taiwan already a better sell, many hurdles have already been resolved.

Tactically, how to kep strong foothold in Asia. EU locking us out of markets? Bigger worry is China locking us out. Taiwan & SK have important tactical advantages. Professor Moore said political problems have prevented FTA with Taiwan. Isconcern of PRC enough to keep Taiwan off the table. I say no. Possible FTAs in future, what are US long-term interests, where should FTAs be? Keep access to key markets, impetus to WTO negotiations. Thus FTAs will continue to be important, and Taiwan an important issue in that.

Q&A:
Alasdair Bowie, GWU: On Greg Mastel's comment that Taiwan already having reached compromise on many issues. What are the benefits of concluding an FTA with Taiwan, then? Might they be less than if they'd started from zero? Have we minimized benefits of concluding an FTA? Moore: Technically, due to modeling of our study, these technical issues are not affecting those rankings. On the broader point about there being alternative ways of getting econ benefits of FTAs with out the finalizing legal structure is the most important issue. Clearly, most impotant reason for having a FTA with US is the stamp of approval – a trustworthy partner, particularly important on investment side. Many countries already have broad access to US under WTO etc, but the investment chapter is very, very important. If a country already has access to US, and feels comfortable, the benefits have been realized. FTA gives permanence to the benefits. 6-month abrogation clause. Potential loss of econ benefits without FTA.

Lisa Cheung, Sumitomo: Japan FTA not viable in Congress? Mastel: My sense echoes the problems of the 1980s. Japan is a very hard sell to Congress, the auto, steel etc. industries would have issues. Japan itself also doesn't have desires for it strong enough. It has a web of its own FTAs, and is a developed country already. US agriculture would also be concerned for concrete gains as well as auto steel looking at concrete losses. Hard sell bilaterally. 2 estimates done on Taiwan benefits regarding IPR and Agriculture, Taiwan needs to actually pursue WTO regulations. How to advise Taiwan? More difficult. Zweing: On Japan, there is talk,. in preamble to joint statement urging formal exploratory talks. Some in Japan and at Japanese embassy. Context of FTAs within WTO. Var. debate in congress, all 26 current US FTAs combined 12% of free trade issues. Doha takes care of 96%. Focus on that intstead?

Jay Liu: Intl. Assessment and Security Center: From a Foreign Policy perspective, might the Taiwan FTA be a problem b/c of PRC. There are actually increased benefit to US b/c China is trying to isolate ROC. Make it less likely that Taiwan can maintain econ. growth. Mastel: I do agree, actually. Cite article on analysis of what's going on in Asia. Long term concern for US, Asia is bigger role. This could be bad news for US leadership role in region and economic power. Asia trade is important to US, a necessity to Taiwan. China is more aggressive. APEC group also seems to be marginalized by dev of China.

Pricilla Hoffman, DOS: degree of US biz support? No groundswell for US biz in Taiwan or here, for an FTA. Mastel: The next panel will better address that. I think that my experience with US biz is that FTAs are good. My sense is though, how to deal with PRC is also key to biz interest. China question plays role in future plans. Not in keeping with econ realities. That said, some significant US interest in Taiwan FTA.

Eric Smith, UP copyright: strongly in support to Taiwan FTA, reluctance on part of some b/c of China to voice support.

Crocker, Byrd: PNTR on Russia? Zwenig: It's pretty bleak. I don't work Russia, but I read about it. The deteriorating political relations between US and Russia imperils PNTR for Russia. Russians have not done what they need to do. PNTR is not protected, no mandate for expeditious ness. Could be loaded up with freedoms and such. Floor people look at that and say oh my goodness. It's problematic at this point.

Alasdair Bowie, GWU: Follow up to Zwenig – laying political ground for FTAs what are your lessons from Thailand? Zwenig: from beginning, HIV/AIDS drugs and pharmaceuticals would be a problem. Thailand, like S. Africa, is on the forefront of making drugs available and a leader on dealing with HIV/AIDS. US legislators started talking about this with NGOs, they said, poor people weren't going to be able to afford drugs. No one said “no, that's not right.” (they are protected. Drug companies supplied info reassuring them, but the Thai government dropped the ball. Ministries never had mandate to solve issues, e.g. customs – keeps getting worse. E.g. new airport Ex/Im problems too, DHL/FEDEX. No leadership to stop trade thwarting policy. Early harvest agreement with China, allowing Chinese agriculture. Goods to come into N Thai duty free—cheap onion and garlic wiped out Northern Thai farmers. Very sour taste in Thai's mouths and Thai govt. didn't doing much. Now AMCHAM Bangkok reaching out to expand, but it was up to American companies to make the sale of the FTA. Thai government unable to deal.

Nadia Chao, Liberty Times: China as assembly center for goods: if US does FTA and other bilateral trade would it impact trade deficit US-China? Mastel: In terms of overall trade deficit, not sure what FTA would do. What is important, though, is the multibillion dollar increase in US Exports if a Taiwan FTA is inked. Overall impact of US-China trade deficit is beyond scope of Taiwan FTA…. Currency and other markets etc. play a big role in that. It's not necessarily a most important priority for setting FTA choices.

Taiwanese American Assoc: Assessment of US level of support for FTA with Taiwan? Zwenig: I'm not able to answer. I have noticed, though, that labor issues have been improved in Taiwan, on the Hill, Taiwan labor was not a big issue. Every country is on the list of labor, but not as much as, say, the CAFTA countries.

Panel II: The Case for Taiwan
Panel II: Francis Liang, Director, Economic Division, TECRO
Thank you for that kind introduction and for arranging this opportunity to talk about a FTA with Taiwan. We have laid the groundwork and established the environment for FTA negotiations, so I don't have to spend too much time on that general subject. If you are interested, I have my presentation ready outside, including Taiwan's economic profile in general. I will move on to potential benefits of a Taiwan US FTA. Then, what is most important, is that Tawian is a strong FTA partner. Taiwan is ready to partner. As you know, Taiwan has transformed itself from agricultural nation to one of most developed in the world, and a APEC and WTO member. Some figures of Taiwan's econ dev: Per cap 15,000US, Foreign trade 471USD. 15th largest in world. 4.2bn FDI, foreign 253bn. Keep relatively low unemployment rate 4.1%. That's what happened in past and brought Taiwan to its current status. What's in the future? 1. Tech innovation, 2. investment environment 3. growth competitiveness.

WEF say Taiwan's tech innovation is #3 in world. Investment enviro #5. Growth competitiveness #5 in world. #3 in Asia for potential profit opportunities. This is why, though cheap labor no longer available, and labor intensive industry leaving, more and more tech companies are looking to Taiwan to set up R&D facilities in Taiwan. Taiwan is good mix for US trading partner and a staunch ally in Asia.

FTA developments in East Asia: Taiwan has signed 2 FTAs (with Guatemala and Panama) and is pursuing others, particularly with the US, because the US is traditionally a big trading partner. We have seen cooperation between our two business communities, and we need to help them become more competitive in the region. When we negotiated our FTAs, we look at US FTAs as an example. When we are to negotiate with US, the texts will have been reviewed—we are more ready than others to begin negotiations based on the criteria of US FTA partners. As a GAO report states, there are six of such criteria: readiness, econ benefit, benefit for broader trade liberalization strategy, compatibility with US, congressional support, business support, and long term benefit. Taiwan is a ready and able partner for US FTA by these criteria.

As you've heard, a few of the current US FTA countries are having their domestic problems – on life support, as Ms. Zwenig said. The current efforts from Taiwan to pursue a US FTA are supported by both the ruling party and opposition party—there is very strong bipartisan support for signing an FTA with US. This is a very very important factor. Both parties realize that our economic future is in many ways tied to our overall trade and economic relations with the US. The second point is since joining the WTO in 2002, Taiwan has undertaking many liberalization efforts already. A catch-22? Per the earlier question, if we resolved these issues, will benefits be smaller? Not at all. We all know FTA is WTO-PLUS. Just WTO is only WTO-compliant. By WTO rules, outside WTO MFN rules, Taiwan can offer special treatment with FTA to the US. As mentioned, we've already dealt with many bilateral issues .We reopened market to US beef, for example.

Economic benefits to US from FTA with Taiwan, 8th global trading partner. From two studies by ITC etc that FTA US exports will up 3.4bn dollars with FTA, and US commercial gains for US exporters even larger. 6.4bn dollars—commercial benefits could look small since US is so big, but we must look at things in perspective. A Taiwan FTA offers larger benefits than all other countries that US has already signed or is pursuing FTAs with. Within the top ten for US mfg goods: Taiwan does not have an FTA, while all others who do not have FTAs have significant issues preventing freer trade (Japan, China, EU). Taiwan is only one with a liberalized trade regime and wanting an FTA without one.

Broader Trade Lib strategy—Taiwan's role in expanding WTO free trade. Taiwan has supported many US stances in the DOHA round, eg. NAMA, And zero point zero sectoral eliminations. Taiwan also has high compatibility with US industrial goods. Many US companies have est. in Taiwan. 28 R&D centers from US companies have been established. For example, in flat panel LCD industry, Taiwan will surpass Korea this year, with 44% of the US market. Corning is a partner, and recently opened a second R&D center in Taiwan. This represents the largest single investment in Corning's 100+ year history. They are assured that their position will be protected at head of flat panel LCD industry. Reintroduced Congressional resolution this year, with 30 members signed on, and Baucus submitted the joint proposition for FTA with Taiwan. Also, wide support from the business sector. Leave to Rupert to discuss…

There has also been wide support from many state govts, national assoc. sec of state. 19 State senates and assemblies have passed resolutions to support US-Taiwan FTA. Growth in trade with Asia remains very strong. In 2005 two-way trade US-Asia = 1/3 US trade. (US-EU onfiltered= 1/5). Asia is important, most important for US trade policy. Taiwan plays an important part in that region and allows for the building links in region. Both are WTO members, and have pursued total trade lib and showed sincerity by resolving telecom, beef, and IPR issues—support from IPR alliance of US is without reservation. Reason we think its important to build stronger partnership. Taiwan is already one of US most important trade partners. An FTA would nurture these ties. It is time to move towards next stage in our relationship, an FTA with Taiwan and the United States.

Panel II: Rupert Hammond-Chambers, President, US-Taiwan Business Council

I wish to echo the last significant thing that Francis said. There is indeed business support for a US-Taiwan FTA in the US, it may not be loud enough yet, but I do want to push back on those who say otherwise. Even looking at an ITA report on FTA from 3 years ago, 300+ US firms stepped forward even then. Though there are still barriers. I want to talk about the Taiwan China relationship and economic marginalization, and legacies of US-Taiwan relations. Debate on Taiwan-China is a global debate: how to deal with China as an economic power? Disquiet over outsourcing, reliance on China for goods and services, etc. Manufacturing is centered in China and creating a great deal of unease. X-Straits relations have had highs and lows, but Taiwan's burgeoning presence in China and flow of investment bespeak great levels of integration. 100bn+? in China, and 2-way trade will surpass 80bn this year. Much of this is extralegal as far as Taiwan is concerned due to legacy restrictions. Currently, these are an important tool for Taiwanese government. Taiwan China relations have been particularly challenging over the past 3 years. As with all relationship problems, there's plenty of responsibility to go around. China's political maneuvering seeks to divide Taiwan's polity in two while maintaining the flow of investment. Other dynamics include Taiwan threatened militarily, and politically, (isolation). Can't invest anywhere else besides the mainland, and thus the tensions increase.

US-S Korea FTA, very important step for the US. Equally so for the Malaysia FTA. Korea looking to sign other FTAs in region. US acts as a hedge to Korean economy, and protection from Chinese domination. Taiwan, however, can't sign FTAs with regional partners. Taiwan's exclusion from regional economic agreements is undermining its power economically. We are all vested as representatives of industry in Taiwan's continued growth and opportunity, bilateral/multilateral regional integration, and bringing Taiwan in from the outside. How else can the bns of US dollars invested in Taiwan be recouped? They want a vibrant Taiwan. The critical dimension here is US leadership, US must want agreement—it should, otherwise China will continue to marginalize Tawian, Taiwan will be weaker—economically, strategically, etc. I wanted to share something: of greater to concern to Taiwan are regional trade agreements that include China but not Taiwan. Negative welfare effects would be 1.1% of GDP for Taiwan per annum. US FTAS with other major econ consequences with Taiwan, could compel competitive liberalization. Taiwan has been unable to do so thanks to China's marginalization.

Bush noted in Kyoto that Taiwan moved towards democracy and capitalism and is now a most important trade partner. Taiwan is global powerhouse and for it to be excluded from FTAs, marginalizes Taiwan and US interests. Invested resources—see Corning. Taiwan needs to remain competitive. Need an FTA. US is hugely vested in both Chinese and Taiwan econ health. Manage tensions and growth. Robust defense obligation… Taiwan-China, Taiwan-US. All in US best interest b/c of tension reduction. Due to the unified front strategy of China, Taiwan's deteriorating economic opportunities. New game in town is FTAs and they're growing rapidly. Regional, multi, and bi. Taiwan needs to participate in that for US interests in a healthy Taiwan. Crucial to US interests, are Taiwan's crucial places in the global supply chain, etc. Need that chain to evolve in a positive direction. Not to be subject to trade diversion, Global economy is vested in having both sides of this issue. US could provide a steadying hand and suppor the status quo by increasing FTAs in region.

Panel II: M.T. “Terry” Cooke, Founder and CEO, GC3 Strategy, LLC
Apologies for being late. Philly is great, except for Amtrak. Sorry.

For 2 reasons, both of which are sound, I'll take a modest approach. To make time for Q&A, and since I'm at a disadvantage having missed what the experts have said, and, following the rhythm of the day, no numbing detail. It's always a pleasure to follow Rupert. I've had numerous occasions to share podium with him. While Rupert zooms out, I focus on policy/micro stuff primarily from research interviewing Taiwan IT CEOs getting a feel for dynamics of IT sector development across the Strait. It is important to understand the development of this dynamic. Given importance of Taiwan globally, vital to look at role of FTA and IT.

I'd like to touch on each of 5 decades to give sense of deeply rooted, broad and powerful place Taiwan has within the global IT supply chain. Its strength even post “.com” collapse and the rise of the DPP indicate how little the direction & momentum were effected by political factors—in fact this development has accelerated despite X-Strait integration issues. There are three very broad criteria of evaluating FTA use and I'll quickly use them in the IT supply chain ouvre.

Taiwan's main feature from a specialized IT perspective (historically and in present) is while there has been some degree of integration of var. sectors, it has been accelerating in force X-Straits, despite fundamental political change. E.g. notebook computers, Overall, this integration is an enduring and gathering force. 70s: period of creation of electronic research orgs in Taiwan. RCA, C-mos circuits, etc. Success with close cooperation. 80s: the creation of UMC, TSMC: two entities the culmination of private sector and government joint effort, through Shinju Science-based industry park. 90s: support industries for Tawian's PC and chip firms. Up & downstream support gave Taiwan the edge it needed to compete and win in global markets. 80s 90s, IT golden years, manufacturing meshed with better capital accumulation, unlocked growth and effortless manufacturing-focused innovation. (interesting angle: issue of where future innovation will come from to drive Taiwan's cont. econ growth.. Taiwan model innovated at manufacturing level… now, with it leaving Taiwan, where's the development impetus going to come from? How vital an FTA is to supporting that innovation). In terms of last 5 years, note four trends and 3 indicators to give a sense of this dynamic.

Trends:

Effects of global economy

Multiaterality of Taiwan/China econ (WTO)

China as low cost shop floor

Taiwan: KMT-DPP change
March 2004 election-how little DPP rule/policy had fundamentally deflected the direction or pace of integration of IT X-straits. 2000 vs 2004, 2000 parity. 2004, China doubled exports from Taiwan. There is a growing asymmetry between China and Taiwan. China is now more important to Taiwan than vice versa. Issue of the best-guess estimates of Tawain's FDI stake in Mainland. Official ests. at 7-8%, true share 20-22.5% for roundtrip money and investment via Caribbean islands. Just short of HK and is significantly ahead of EU, US, Japan. These years accelerated IT links between Taiwan and China, despite differing policy environments.

The 4 Criteria (applied vis IT)
Further US trade agenda? Clearly, Taiwan's IT sector is not a big factor. Major lack of alignment on Tawian US at Doha are on agriculture, not IT.

Braadness of domestic Support. Rupert said this. I'd echo. More support that expected, a funny example of why it's less vocal—mayor of top 20 US city touring China, nationwide visit on CCTV said, welcome to invest in Dallas, named Foxcon perfect company (Foxcon is Taiwanese).Mistake! Frequently at C-bit show, enthusiasm of China pavilion doubled etc, but actual count of companies, generally, 70-80% at Cbit are Taiwan equity owned firms in Chinese pav. Taiwan is support for entire ecology of EU, US, Chinese branded IT firms. Level of contribution is not clear.

Contrib. to Bilateral free trade principles etc. Not a spokesman anymore, but broadly speaking, there were some service related issues and telecom, e-commerce, but these are being addressed, handled, and managed, through the annual commercial negoations process and are very minor irritants.

Election cycles, etc. 1st panel?
Final tech issue in connection of an FTA, when one takes the assertion that tight integration of IT space between China and Taiwan. Hard to separate Taiwanese component from China component of value…In conclusion, the IT global supply chain, joint interests of Tawian and US, OEM ODM partners in innovation and strategic aspects of integration into Chinese econ, and the stability it brings. Taiwan is only country in Asia without supporting web of FTAs… success of Beijing's marginalization campaign. Knock-on effect of Taiwan FTA could benefit of economic concern to US. Global supply chain performance and values that underly that performance.

Q&A
Melissa Coil Sandham International: Where innovation might come from? Taiwan's government role in becoming R&D innovation hub? Liang: As I explained we do not have cheap land, labor, production resources, but we have high quality human resources, it is part of government policy to transform Taiwan into a knowledge based econ. 70% of GDP comes from Service sector. Many R&D centers have been established in Taiwan, as evidenced by Terry's talk of IT development. Investing more in R&D. e.g. IT supply chain. 73% of notebook computers are made by Tawianese companies. 79% PDAs are made by Taiwanese companies—carry big names, but made by Taiwan in China, with the R&D in Taiwan itself. Concentrating on marketing and logistics management as well as R&D—the future value of Taiwanese innovation. Cooke: 3 theories on how to keep Taiwan at the forefront- 1. Replicate Shinju—parks! Hardware solution… easy to make science parks… everyone can do that now… enough to keep Taiwan in front? 2. More R&D dollars (OEM model – low margin low RD) dilemma – its like prospecting for oil – lots of shallow wells or one deep well, hard to know where money should go, shouldn't be Taiwan's only horse. 3. Human brains – high quality of Taiwan workforce and corporate front office capabilities of Taiwan's business community. E.g. TSMC they invented the entire concept of what foundry production is, shifting entire industry from manufacturing model to high margin service-focused model. Most spectacular example, by no means the only example. Liang: It's the entrepreneurial spirit. Nothing can stop them. This is a very important factor. Hammond-Chambers: Why relate FTA between legacy relationships benefits are factor of Taiwan's entrepreneurial spirit etc. What's the next killer app? Regardless, Taiwan has--in last 10-15 year--been critical partner in creating deploying, ALL the major IT applications that have been hugely successful. If Taiwan is marginalized, we lose out to, on down the line if Taiwan is marginalized.

GWU student: seems that FTA between US and Taiwan benefits companies with established relations with Taiwan, what about cos with no interests in Taiwan: Hammond-Chambers: A good question, why go there now? IP as we move in to knowledge-based economy, globally, IP development and protection becomes key to a nations wealth, you'll see the importance of IPR protection in attracting industries. Clustering—need for security. China does not have panel industry yet, it will, but good government, qualified people, IPR protections… Flat panel industry did NOT go to China for these reasons. These reasons will keep attracting high-end manufacturing and development. TC: Eg DELL, at the consumer level, many benefit from products at consumer level, also huge service components. Could not have happened without Taiwan components. Dell is good at getting to US Markets. With lowering prices, increasing goodness. Dell is out of manufacturing, its skill is managing info on US market and gave it to Taiwan, saying lighter faster stronger better, and Taiwan does it. If Taiwan US connection would atrophy, all that would be damaged. Liang: A terry explained, Taiwan used to be manufacturing, now in design, MS, Intel Dell, etc, Taiwan companies have capabilities to turn US ideas into products (maybe the actual manufacturing is elsewhere, but RD is in Taiwan.

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