10 May 2019 Taiwan Legal Update: US-China Trade Dispute and Welcoming Businesses Back To Taiwan
US-China Trade Dispute and its impact on the Taiwanese economy
As talks between Beijing and Washington continued beyond the initial deadline of 10th May, the US raised tariffs to 25% from 10% on goods from China. China retaliated with “deep regrets” and later introduced “necessary countermeasures” in the form of $60 billion tariffs on American products from June 1st 2019.
Concerns regarding the potential impact of this dispute stem from Taiwan’s export-oriented oriented economy. Exports account for around 70% of total GDP and its composition has changed from predominantly agricultural commodities to industrial goods (now 98%) during the past 40 years.
The main exports products are:
1.Electronics (33.1% of total)
- Information, communication and audio-video products (10.8%), base metals (8.8%)
- Plastics & rubber (7.1%)
- Machinery (7.5 %).
Taiwan’s main exports partners are China and Hong Kong (40% of total), ASEAN countries (18.3%), USA (12%), Europe (9%) and Japan (7%).
The Ministry of Finance on Tuesday (7th May) released its preliminary statistics on import and export trade data for April. Exports fell 3.3% from last year to USS$25.83 billion, with exports to Taiwan’s major trading partners ASEAN, China, Japan, and the European Union declining 9.3%, 8.8%, 5.7%, and 5.3% respectively, as reported by CNA.
On the other hand, US export numbers have seen a yearly increased of 21.5%. This is a potential incentive to Taiwanese companies returning their overseas supply chains to Taiwan.
On Friday 10th May, President Tsai Ing-wen encouraged such businesses to return to Taiwan. She also insisted that Taiwan’s ”economic fundamentals” are secure enough to withstand the impact of this trade dispute.
As the goods covered by the current U.S tariffs do not include Taiwan’s main export products, the impact is expected to be limited. Taiwan’s clothing, shoe and textile manufacturers are unlikely to be affected by these new tariffs because of the recent move to South East Asian countries, prior to the trade war, according to the ITRI.
The potential impact on the Taiwanese economy is likely to stem from the proposed tariffs on electronics. On Monday, the US released a new list of US$300 billion worth of Chinese products, including information technology and communications products, which it threatened with tariffs of 25%. The Taiwan World Trade Organization and Regional Trade Agreements Center of the Chung Hua Institution for Economic Research have warned that the effects on telecommunications companies will be “grimmer” than the first round of U.S. tariffs on US$200 billion worth of Chinese goods last year. China-based Taiwanese manufacturers such as Hon Hai are likely to be the first to suffer if the trade dispute exacerbates. This list targets products spread over 3,805 categories in Taiwan’s largest export markets.
Potential risks decrease if the Trade War does not escalate. The potential impact on US electronics and agricultural produce and the upcoming election will encourage U.S President Donald Trump to end the trade war as promptly.
Welcoming Overseas Taiwanese Businesses back to Taiwan”
The Executive Yuan is promoting a three-year (2019-2021) plan to encourage overseas Taiwanese businesses to return and invest in Taiwan. It is expected to add over 27,000 new jobs for the local market, according to the Ministry of Economic Affairs. The “Action Plan for Welcoming Overseas Taiwanese Businesses to Return to Invest in Taiwan” implements a customized single-window service regarding land, water and electricity, manpower, taxation and capital. The Plan will drive joint development of local industries and restructure industrial supply chains, so as to ensure Taiwan’s future industrial competitiveness and boost economic growth.
The key elements of the plan are:
- Customized single-window service
The InvesTaiwan Service Center of the Ministry of Economic Affairs serves as the single-window service, providing dedicated customized service and shortening administrative procedures, and facilitating speedy returns.
- Integrated implementation of five main strategies
The Plan integrates the resources of different ministries and implements five strategies of:
- Satisfying land acquisition
- Providing ample industrial human resources
- Facilitating swift access to financing
- Ensuring stable water and electricity supplies
- Offering dedicated tax services.
The contents and contact information for the five strategies are as follows:
(1) Satisfying land acquisition
- Providing rent concessions: Providing rent-free benefits for the first two years after a company sets up operations in industrial zones developed by the Ministry of Economic Affairs.
- Enhancing land use efficiency: In accordance with the Program for the three-dimensional Renewal Development of Urban Industrial Zone, the floor area ratio of existing urban planning zone will be increased to speed up the renewal and three-dimensional development of industrial zones.
- Providing guidance for the plant expansion of registered business: Registered businesses who have plant expansion needs will be given guidance in accordance with existing regulations
- Expanding industrial-use land: Expansion of science park industrial land will be promoted, and the establishment of industrial parks by local governments is also encouraged with subsidies provided from the Forward-looking Infrastructure Development Program
- Inventorying land supply: At present around 435 hectares of industrial land can be supplied immediately according to an inventory carried out by the Ministry of Economic Affairs and Ministry of Science and Technology; industrial land supply will be increased by an estimated 873 hectares from 2019 to 2021.
(2) Providing ample industrial human resources
- Application principle: Priority will be given to the promotion of domestic labour employment, supplemented by foreign workers.
- Providing Reemployment Subsidy, Employers’ Hiring Subsidy and Award, and Cross-area Employment Allowances to assist labour to find jobs and enterprises meet their needs for manpower.
- In accordance with the existing mechanism, enterprises will be assisted to carry out internal transfers or recruitment of professional talent from China.
- Foreign workers recruitment measures: When Taiwanese companies establish a new factory or expansion of an existing factory reach a certain scale, investment amount exceeds a certain level and the number of employees recruited meets a certain threshold, they can apply prior-approval for the recruitment of foreign workers, which will be exempt from periodic inspections within one year; and the allocation rate for foreign workers can be increased a further 10%. However, the overall rate should not exceed 40%.
(3) Facilitating swift access to financing
- Allocated amount: NT$20 billion provided from the funds of banks.
- Lending scope: Construction of factory and related facilities, purchase of equipment, and medium-term operating capital.
- Lending rate: No higher than the postal savings fund listed two-year time deposit interest rate plus 0.5% annual floating interest.
- Lending period: No longer than a maximum of 10 years (including a maximum of three years ‘grace period.)
(4) Ensuring stable water and electricity supplies
- Dedicated staff will assist in accelerating the application of water use plan to ensure that the water needed for industrial investment is flawless; management work for various aspects of water resources construction will be actively carried out at the same time.
- Through a single window and project control, the obtaining of electricity supply will be speeded up; generator unit operation and maintenance will also be strengthened to maintain stable electricity supply.
(5) Offering dedicated tax services
- The Ministry of Finance’s taxation bureaus in each area will establish a contact window that will provide taxation regulation consultation for returning Taiwanese companies.
- If the consultation cases involve the scope of individual case fact-finding, the National Taxation Bureaus will establish a dedicated task force for consultation with the companies and effectively clear up doubts about tax regulations.
At the start of the year, the government set a goal to attract NT$250 billion from such firms returning to the country. In a video released by the MOEA, President Tsai Ing-Wen announced the new target of NT$500 billion, after nearly NT$280 billion worth of investments were pledged as of yesterday, according to the Ministry of Economic Affairs. The five latest companies are expected to invest close to NT$40 billion and create more than 4,000 new jobs.
Among them, Univacco plans to expand its production scale in Taiwan with an initial investment of NT$800 million. That will create 35 domestic job opportunities. Sheen World Technology Corp. is also set to invest over NT$3.5 billion in Taiwan, despite being affected by the US-China trade dispute. The company will open new facilities in Tainan to create 469 new jobs and will actively invest in the development of environmentally friendly materials.
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