During an interview on June 19 with US Forbes magazine, President Ma Ying-jeou discussed such issues as the Cross-Strait Trade in Services Agreement, the development of the financial services industry in Taiwan, trade liberalization policies, the situation in East Asia, and Taiwan-US relations.
A transcript of the interview follows:
Q1. What has happened to the Cross-Strait Trade in Services Agreement? It seems that this is something that will liberalize business and create new opportunities, but it seems to be sidetracked.
A: With regard to student protests over the Cross-Strait Trade in Services Agreement in March of this year, the students claimed that the signing and review of the agreement were not transparent, and were not conducted in accordance with relevant procedures. They also expressed concern with regard to Taiwan's engagement with mainland China, and demanded that the agreement be withdrawn. These were the most direct reasons for the student protests of March.
However, the two reasons they had for opposing the agreement were not grounded in fact. Before the agreement was signed on June 21 of last year, the Ministry of Economic Affairs (MOEA) had held 110 rounds of consultations with representatives from 46 services industry trade associations, which were attended by 264 people. In other words, this process was not conducted behind closed doors. In addition, the MOEA and the Mainland Affairs Council (MAC) made three official reports to the Legislative Yuan. After the agreement was signed, it was submitted to the Legislative Yuan, which held 20 public hearings. And the MOEA organized 144 seminars for the private sector, which were attended by more than 7,900 people. In fact, by the time the legislative review of the agreement started in March, it had gone through the most open and transparent process in ROC constitutional history. For example, some of the public hearings in the Legislative Yuan lasted a whole day. Nevertheless, the students believed that the process was not transparent enough. They kept saying that the process was conducted behind closed doors, but this clearly had no basis in fact.
Legislative review of the agreement at that time was still taking place in committee. In committee meetings chaired by members of the Democratic Progressive Party (DPP), members of the ruling Kuomintang (KMT) were not given the chance to speak. And in committee meetings chaired by KMT members, DPP legislators occupied the podium and prevented the KMT chairperson from presiding over the meeting. The proceedings in these committee meetings were thus rather chaotic. Therefore, the KMT chair announced that the committees had completed their work and the agreement would be sent to a full sittings of the Legislative Yuan. This was interpreted by some as a move to pass the agreement. In fact, it had not been passed and had not even left the Legislative Yuan, but this misunderstanding had already taken hold, with people believing that the KMT was using this tactic to forcefully push the agreement through the legislature. This misunderstanding among the students was the main reason behind their occupation of the Legislative Yuan.
The first demand made by the students following their occupation of the Legislative Yuan was that the agreement should be reviewed and voted on article by article. This was already the consensus between the DPP and the KMT, and the KMT therefore immediately agreed to this demand. The students also demanded an oversight act for agreements between Taiwan and mainland China, so as to supervise related procedures. The KMT also consented to this demand. However, the KMT did not consent to the students' demand that the article-by-article review of the agreement should only be conducted after the oversight act had been passed. The KMT believed that these two processes should proceed at the same time.
The Executive Yuan sent a draft oversight act to the Legislative Yuan in April, but over these past two months the DPP has continued to occupy the podium to prevent this act from being reviewed by the legislature article-by-article. This is currently the main problem. The DPP has occupied the podium of the Legislative Yuan on 43 occasions, a historic record. The problem is thus not a lack of willingness on our part to communicate, but the obstructionism of a minority who resort to tactics such as occupying the podium when they believe their position is not supported by the legislature, preventing many important bills from moving forward. This is the major challenge Taiwan's democracy faces at this moment.
Q2. Why is the trade in services agreement important to Taiwan and how does it fit in with the larger economic policies you have pursued in your administration?
A: Before I assumed office, many of our trade partners in Asia had begun to pursue free trade agreements (FTA), and we were already lagging behind. Therefore, after I took office, we quickly signed the Cross-Straits Economic Cooperation Framework Agreement (ECFA) with our largest trade partner, mainland China, in June 2010. ECFA included an early harvest list, which only covered six percent of goods and a small percentage of services. Import tariffs have already been eliminated for this six percent of goods. However, as its name indicates, ECFA only offers a general framework that covers trade in goods and services, as well as dispute settlement. The trade in services agreement is an extension of ECFA. We are also discussing a trade in goods agreement with mainland China, but this will take longer as it covers 7,000 to 8,000 items. The trade in services agreement is thus important because it is part of ECFA.
Moreover, Taiwan's services industry has developed rapidly, and currently accounts for 70 percent of our nation's GDP. However, exports of our services industry have been very limited. In this regard, we lag behind not only service-oriented economies such as Singapore and Hong Kong, but also the Republic of Korea and Japan. We therefore hope to help our services industry grow further. According to forecasts by the Chung-Hua Institution for Economic Research, Taiwan's service exports to mainland China will see an increase of 37 percent following the signing of the trade in services agreement, a considerable figure. This can help us expand our trade in services, and is the first major benefit of the agreement.
Secondly, as part of our efforts to sign more economic cooperation agreements, we hope to negotiate bilateral pacts with other countries and also take part in such multilateral mechanisms as the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP). We therefore have to demonstrate our commitment to trade liberalization, and signing the trade in services agreement is part of this.
Q3. Why have Taiwan's service exports fallen behind Hong Kong and Singapore?
A: In the past, our services industry was mainly focused on the domestic market, and our exports consisted primarily of goods. Over the past 10 years, however, we have come to realize that our services industry also has significant export potential.
Over the past decade, our services industry has started to make significant inroads in the mainland China market. For example, more than 2,000 companies from Taiwan's food and beverage industry have established a presence in mainland China, operating 50 different brands. Another example is laundry services. In Taiwan these are mainly small-scale companies, but the company Elephant King, not well known inside Taiwan, has operated on the mainland for 10 years and become one of the 10 largest franchise chain stores there. Therefore, there are tremendous opportunities in ethnic Chinese markets for Taiwan businesses, which possess great entrepreneurial spirit and advanced operational skills.
Or look at the entry of Starbucks in Taiwan, which stimulated the emergence of many domestic coffee chains. Meanwhile, the company 85°C has 340 stores in Taiwan, as well as close to 400 on the mainland, and has also expanded to the US, Australia, and Hong Kong. The mainland China market can thus serve as an excellent training ground for our service businesses.
In addition, the trade in services agreement also enables Taiwan e-commerce and gaming software companies to develop the mainland China market. For example, we have successfully negotiated a concession to allow our e-commerce companies to operate in Fujian province and acquire equity stakes of up to 55% in local mainland enterprises, giving Taiwan companies control and allowing them to develop their own brands. This is very important to our e-commerce firms.
As for online gaming companies, through negotiations we have obtained a pledge that applications for permission to sell their products on the mainland will be processed within two months. This marks an important step forward, because in the past these application procedures could take one to two years. Having ensured that their product applications can be processed within two months, the business development of these companies has been given a significant boost.
Furthermore, the economic development of certain regions in mainland China is very similar to that of Taiwan, namely, they are moving from a focus on goods to an emphasis on the development of the services industry. In accordance with its 12th five-year plan, mainland China wants to increase the share of services in its GDP from the current 46 percent to 55 percent, or even higher, which presents great opportunities for Taiwan.
Therefore, with Taiwan's domestic market already saturated, moving to mainland China will help our services industry grow and expand to Southeast Asia, Europe, and North America.
Q4. So the new part that would benefit businesses as a result of formalizing the trade in services agreement would be in e-commerce?
A: Yes, and also the financial services industry. If Taiwan service companies set up operations in mainland China and expand their business, they will still give back to Taiwan. For example, 85°C has decided to set up a training center in Taiwan, offering thousands of job opportunities. These people will be sent to the company's overseas locations. Even when they expand overseas, Taiwan service companies will continue to contribute to our country.
Q5. If you do win approval of this pact, what vision do you have for the financial services industry for Taiwan three to five years from now?
A: Our financial services industry is an important part of our entire service sector. Basically, there are five approaches we can take. The first is to incorporate it into our free economic pilot zones (FEPZs). The second is to continue opening up our market and deregulating. We are currently discussing opening up 26 items. The third is to put our future focus of development on Asia. Asia currently accounts for 36% of global GDP, but according to projections by the Asian Development Bank, this will grow to 50 percent by 2050. So Asia's growth will continue and will be impressive. Thus, we will regard Asia as our major market. The fourth is we hope to promote financial import substitution. In other words, for services originally handled by foreign financial institutions, we want domestic firms to be able to take on the business and conduct the transactions in Taiwan. This will allow our financial services sector to grow considerably. In the past, our financial sector was relatively conservative. However, in recent years it has actively expanded its business beyond Taiwan, and the government should help our financial firms find opportunities to expand. The fifth approach is to help our banks take advantage of the business opportunities connected with the Internet. In the past, financial institutions were about brick-and-mortar operations; now online marketing is replacing traditional methods. So, we are revising regulations regarding electronic payments and settlements to help develop our electronic banking.
Although the trade in services agreement is only an agreement with mainland China, with it we can help service providers seize upon opportunities for expansion.
Q6. For a long time the banking industry and the financial services industry in Taiwan have been viewed as bearing the burden of government ownership that has tended to result in more conservative management and less risk taking and inhibiting overall growth of the sector. If you do open up to mainland rivals or others, is there a risk that without change of the ownership of Taiwan's own financial institutions, that these companies that have already failed to compete internationally will lose out?
A: This is an area in which the government has been planning reforms for several years. We are encouraging consolidation of the state-owned banks and are reducing the regulatory restrictions to allow them greater competitiveness.
In this field, there are in fact different opinions in the financial sector and the legislature, but the overall direction is toward opening up, since the competition will not be with our own domestic banks, but with foreign banks. There has recently been much talk of "competing in the Asia Cup," that is to say, establish a strong position for ourselves in the financial world of Asia. For us, this is a big challenge, because this sector was not very open in the past. And this is also why we want to incorporate the financial services sector into our FEPZs.
In these zones, there will be fewer regulatory restrictions and a greater degree of market opening because these are experimental zones or pilot zones. If this is done well, we can expand them to cover the entire country. So these pilot zones represent the start of a new era, not only for financial services, but also other sectors, including the internationalized health industry and value-added agriculture.
In other words, if Taiwan wants to really liberalize, it cannot be done in one fell swoop. We hope to do it step by step, starting with the pilot zones, and then gradually expand. That way, we can make steady progress and be more successful.
We are preparing to open up 26 items in the financial sector. In fact, through the end of April this year, regarding the items already opened up, the profits of our domestic banks have risen by 21 percent, and the portion of profits involving international finance has grown by 56 percent. These figures are quite impressive.
Q7. Is it possible that selling some shares in these banks to other parties would be something you would see as helpful? For instance, if these guangu (government-held shares) were sold to private-sector investors, to foreign banks, to mainland banks, would that be something you think would be helpful to increase the efficiency and overall competitiveness of these institutions?
A: Our Ministry of Finance has been considering this issue, but the time is not right yet. In fact, the state-owned banking area is one candidate for market liberalization and deregulation, but it is even more important to address other aspects of liberalization. With more liberalization, there will gradually be results. As I understand it, the MOF is continually reviewing the situation. Reforms in these areas have been recommended by many people. We hope that within three to five years, the MOF and the Cabinet-level Financial Supervisory Commission can spur financial industry consolidation, so that three to five banks can grow into regionally significant financial institutions that can compete in Asia. This is our goal.
Q8. What will happen if the trade in services agreement does not pass?
A: In fact, at the outset, many public opinion polls indicated lower public support for the agreement than opposition to it. However, after two or three months, the situation changed. Currently, support for it has pulled even with or even surpassed opposition to it. With increasing discussion, people have discovered that it is not some fearful creature.
For example, those who originally opposed it stressed that the agreement would trigger a large influx of workers from mainland China, which would affect the employment opportunities for our own labor force. But after our explanation, the public has come to understand that we have not opened up access to laborers from mainland China. The personnel that will be allowed in from mainland China are mostly at the managerial level. Of the 64 sectors opened to mainland China, 27 have already been opened up for two to five years. As of the start of this year, 495 businesses from mainland China had come to Taiwan, but they brought only 264 managers with them, which is less than two people per enterprise. Yet, they have hired 9,624 Taiwan workers. In other words, for every manager or family member they have brought in, they have created jobs for 36 workers in Taiwan.
Q9. So this is an interesting misperception, yet we can see all the impact that it created on Taiwan's international image, with the legislature being occupied as it had. When you look back, is there anything along the way of introducing the agreement that you would do differently? As the leader of the nation, what lessons have you learned from this?
A: That is a good question, because the challenges encountered by the trade in services agreement stem in part from the misunderstandings that I just mentioned. But in addition, very importantly, they were also due to the doubts and fears many people in Taiwan have about mainland China. This mindset has caused many things, which originally were not problems at all, to suddenly be spoken of as scary.
In the future, with similar agreements, when we promote them, we must explain them to the public sooner, more broadly and more carefully, and we must foster a healthy and balanced attitude toward mainland China. It cannot be that every time mainland China is encountered, the association is that it is "scary" or "malicious." In fact, there is only a 180-km wide Taiwan Strait between us; we cannot ignore mainland China's existence. We cannot avoid interacting with them just because there has been no change in their military deployment in relation to Taiwan. Over the past ten-plus years, the period in which trade and investment with mainland China grew the fastest was the period when the DPP was in power.
You might not know that during the eight years that the DPP was in power, from 2000 to 2008, our trade with mainland China grew 2.8 times, and our investment in mainland China grew 3.8 times. Our exports to mainland China in 2000 were 24 percent of our total exports; by 2008, their proportion had grown to 40 percent. Over the last six years, it has in fact dropped to 39 percent. In other words, during the time the KMT has been in power, the proportion of exports to mainland China has not grown, but has actually fallen slightly, because our exports to other regions (such as Southeast Asia, for example) have grown. We know that we must not put all our eggs in one basket, so we have been putting some eggs in other baskets to gradually distribute them. During our administration it has become a more balanced strategy. In other words, our trade with mainland China may have grown in absolute value, but as a proportion of total trade, it has decreased.
Q10. The debate on the trade in services agreement has underscored deep-rooted concern among people in Taiwan about the preservation of Taiwan's institutions and the social systems here. What should mainland China be doing to facilitate the agreement and address some of the concerns that exist in Taiwan's society?
A: The trade in services agreement itself contains articles that address many of the concerns that people in Taiwan have raised. For example, Article 8 addresses emergency consultations: Where one of the parties has been harmed by the agreement, it may call for emergency talks and adopt emergency actions. Article 11, meanwhile, provides for exceptions for such things as national security. Article 23 concerns revisions. These mechanisms are contained in the agreement itself. Aside from this, we have a set of oversight regulations governing mainland investment in Taiwan. We have regulated cross-strait trade very tightly over the past few years. While wholesale and retail operations were opened up, publishing was not.
Q11. Mainland China is talking about how the 1.3 billion mainland Chinese people should be involved in deciding Taiwan's future. There has been a strong response to this in Taiwan. Do you have any suggestions for mainland China to improve its image in a way that would facilitate the trade in services agreement, or broader relations with Taiwan?
A: I think you pointed to an excellent example. The statement by the spokesperson of mainland China's Taiwan Affairs Office concerning the determination of Taiwan's future elicited a very negative reaction here in Taiwan. This, I think, is a highly sensitive topic, but they seem not to understand that. They stated their traditional position, without understanding that, for Taiwan, this is unacceptable. So even though mainland China has invested a great deal of time and money into researching Taiwan—their organizations often send people to Taiwan—they still need a more in-depth understanding of these issues, and to figure out how to handle them so that mainland China is not seen as a threat to Taiwan. This is not an impossible task, but they need to do more.
Q12. So now what're you going to do about the trade in services agreement? What's your next step?
A: The Legislative Yuan is currently holding an extraordinary session. Our priority is to secure passage of the Special Act for Free Economic Pilot Zones be reviewed, as this will provide a legal basis for doing things which cannot now be done that will attract foreign and domestic investment and get the pilot zones started. We have already begun implementing those measures that do not require legal changes, but the remainder awaits action by the Legislative Yuan. The act for oversight of cross-strait agreements should put people at ease, for when we sign pacts in the future with the mainland, this will be done in line with this act. Some articles put forth by opposition parties and students, however, including one requiring that all previously signed agreements be sent back to the Legislative Yuan for review in line with the act, may not be feasible. This will all be hashed out in the Legislative Yuan. Concerning the trade in services agreement, the many rounds of debate and protest, including the occupation of the Legislative Yuan, have allowed everyone to get a better understanding of what is good for Taiwan about the agreement. The United States and Singapore, among other countries, have wondered why Taiwan does not pass this agreement. Opponents here believe the agreement would affect our economy, employment, and national security. But most of their concerns are simply misunderstandings. Through clearer explanation and, perhaps, with time, I believe people will come to understand and accept the agreement. Recent polls show that people have come to a better understanding than they had in the past.
Q13. Recently in Singapore, there has been quite a bit of debate on security issues and quite a bit of concern around Southeast Asia about China's action in Vietnam and elsewhere. What do you make of all of that?
A: The situation in East Asia of late has made people feel that tensions have been rising. However, I believe that the chance of direct conflict in either East Asia or Southeast Asia is slim, because Asia, at present, is a major engine of global economic growth. All countries hope that economic growth will increase national power and personal wealth, and so will not seek conflict. I think this situation is quite different to that in Ukraine or the Middle East.
Q14. What would you say is the proper role for the US in the region at this time, and what do you make of the US so-called pivot?
A: The US rebalance to Asia is, to many Asian nations, seen as something basically acceptable. Because these countries rely heavily on the US for their security, but are also very willing to deal with mainland China for economic reasons. So they hope to find a balance point between the US and mainland China. As long as this works well, it is a net positive for the region.
Q15. The TPP push seems to have lost a little momentum in the States. This was getting a lot of attention in the US, but some opinion is that domestic politics may be getting in the way of the TPP. What is the outlook for that broader agreement, do you think and what's the outlook for TPP's advance?
A: We have always hoped to be involved in the second round of TPP negotiations. This will not, however, preclude our continued negotiations on bilateral economic cooperation agreements with individual TPP members. In other words, we are seeking multilateral and bilateral agreements simultaneously as both are important to us. It is possible that the US administration will not get fast track authorization from the Congress to pursue the TPP this year given the upcoming mid-term elections, but I believe it is important to the US in the long term. This is true from the economic and strategic perspectives.
Q16. How would you like to see Taiwan-US relations advance during the remainder of your term?
A: Since I took office, Taiwan and the US have re-established mutual trust at high levels of government, a key policy goal. We have solid communications channels with the US, and have pursued a low-key, surprise-free approach to handling issues of mutual concern. Today, we enjoy the best relations since the breaking of diplomatic ties. On the security front, we have purchased defensive weaponry. Economically, we have held talks on a bilateral investment agreement, and we have been added to the US Visa Waiver Program. This has made relations perhaps even stronger than before the breaking of diplomatic ties. This was an important goal of ours. That we have solid communications channels has allowed us to talk about and resolve issues before they grow too big. This year, which happens to be the 35th anniversary of the passage of the Taiwan Relations Act, things are well in the relationship.
Q17. What is the outlook for the year-end elections, Mr. Chairman?
A: The year-end elections are a major challenge. These are local elections, so the role of the central government is mostly related to the overall environment. Our economy has been improving for the past five months, with the unemployment rate having fallen to below 4 percent. In the past six years, some 627,000 jobs have been created. Estimated GDP growth for this year has been put at 2.98 percent by our Directorate-General of Budget, Accounting and Statistics, and at over 3 percent by most international organizations. Economic indicators have flashed "green" for the past three months, which is positive, while our stock market has shown the best performance over the past five months of any of the Asian Tigers. Industrial growth, export orders and the purchasing managers' index are all rising. It looks as if the economy will be good through year's end.
In any election, the candidate is key. While the overall environment cannot be discounted, the question is whether the candidate can garner support. We will do our best. I'm very confident. It's a tough call to say how the election will turn out. Some candidates have not been decided upon yet, but we believe our people are strong.
Q18. When will the passage of the trade in services agreement be formalized? This year?
A: The Legislative Yuan's extraordinary session is still underway. Should nothing happen this session, it's possible the legislature will hold another extraordinary session. So it's not clear at present, but we are preparing ourselves as best we can. It probably won't be passed in the current session. During this extraordinary session the legislature is dealing with vetting candidates for the Control Yuan and Examination Yuan and the bill on the free economic pilot zones, so it will probably be difficult to get the services pact on the agenda during this session. And the legislature has yet to decide whether it wants to hold a second extraordinary session.