Japan and Taiwan in a New EraPossible Effects and Influence toward its RelationshipPublished 2013 by Ocean Policy Research Foundation, Tokyo, JapanPublisher: Yoshio KONOcean Policy Research Foundationhttps://www.spf.org/en/Toranomon 35 Mori Bldg., 3-4-10 Toranomon, Minato-ku Tokyo 105-0001 JapanTel: +81-3-5404-6828 Fax: +81-3-5404-6800ⒸOcean Policy Research Foundation 2013ⒸProspect Foundation 2013All rights are reserved.First PrintingISBN978-4-88404-297-4Japan and Taiwan in a New Era:Possible Effects and Influences toward its RelationshipPrefaceShinichi Kitaoka ................................................................................ 3Louis Wen-Hua Tzen ......................................................................... 5IntroductionMasahiro Akiyama ............................................................................ 9Bih-Jaw Lin ..................................................................................... 121. Viewpoint from an Economic PerspectiveA Taiwanese view: Mignonne Man-jung Chan ............................... 17A Japanese view: Motoshige Itoh ................................................... 382. Viewpoint from a Domestic Politics PerspectiveA Japanese view: Shinichi Kitaoka ................................................. 51A Taiwanese view: Ming Lee .......................................................... 603. Viewpoint from an International Surroundings’ Perspective(1) A Focus on ChinaA Japanese view: Masayuki Masuda .............................................. 81A Taiwanese view: Chien-Min Chao .............................................. 91(2) A Focus on the United StatesA Taiwanese view: Yeh-Chung Lu ................................................ 102A Japanese view: Yasuhiro Matsuda ............................................. 118(3) A Focus on Security IssuesA Japanese view: Noboru Yamaguchi ........................................... 137A Taiwanese view: Bih-Jaw Lin.................................................... 149ConclusionTuan-Yao Cheng ............................................................................ 163Yasuhiro Matsuda .......................................................................... 1673PrefaceThe most surprising phenomenon not only in the Asia-Pacific region but also in the worldtoday is without doubt the rapid rise of China. The economic size of China is 4 times what it wasjust 10 years ago. Its influence in the international economy, politics, military, and culture hasexpanded accordingly.However, the most remarkable aspect about the rise of China is not its size or the rapidityof its growth, but the manner in which China asserts itself. In 2008, China responded vehementlyto criticism made against it by the international community over its suppression of the Tibetanuprisings. It was completely different from its response to criticism made against it by the westernpowers over the Tiananmen incident in 1989.In 2010, China defended the DPRK when an ROK naval vessel was torpedoed and sunkallegedly by a DPRK submarine in March and when the DPRK bombed the Yeonpyeong Island andkilled several people of the ROK, including civilians, in November. China also blocked the UnitedNations Security Council from adopting a resolution to criticize the DPRK when it carried out amissile test in 2011.There have also been aggressive efforts to expand both into the Eastern Chinese Sea andSouthern Chinese Sea. In the Eastern Chinese Sea, China sent its fishing fleet to the Senkaku(Diaoyu) islands, which belong to Japan, and strongly criticized Japan when it apprehended thecaptain of a boat in 2010. In the second Senkaku case, in 2012, the Chinese government allowedpeople to attack Japanese cars, stores, and factories when the Noda government transferred theproperty right of one of the Senkaku islands from a Japanese citizen to the government.No countries are more affected by these activities than Japan and Taiwan. The twocountries have responded, quite naturally, both by engaging and hedging.The Economic Cooperation Framework Agreement (ECFA), signed between China and－ 3 －4Taiwan in June 2010, after one year’s negotiation, was a remarkable decision to cope with the rise ofChina. Taiwan decided to rely more on China economically, but, at the same time, to expand itscooperation with other countries in order to secure a wider diplomatic space.In Japan, under the newly created DPJ government, a new Defense Policy Outline wasadopted in December 2010. It was an effort to focus on the China threat more directly. It shouldbe noted that it was adopted by the DPJ, which had been thought to be less committed to theUS-Japan security treaty and defense policy in general. In other words, the China threat is nowshared by the major parties and most of the people in Japan.This February, Prime Minister Shinzo Abe announced that Japan would participate in thenegotiation of the Transpacific Partnership (TPP). It is not only an economic framework but also apolitical one because it tries to strengthen the ties among those countries that are concerned about therapid rise of China.The Senkaku issue is a very difficult and complicated one. Taiwan claims that it belongsto Taiwan and China supports the position of Taiwan. In that sense, Taiwan and China are on thesame side. However, what China is doing is challenging the status quo by force. If Chinasucceeds in changing the status quo by force and the international community accepts it, what willbe the future of Taiwan?This dialogue between Japan and Taiwan was conducted in such a period. At theconclusion of this period, Xi Jinping was elected as the new leader of China. It is too early topredict China’s foreign policy under Xi. However, it is essential to examine the past several yearsto understand the complicated relationship in East Asia. I hope this report might be of some use inthat regard.Shinichi KitaokaPresident, International University of Japan－ 4 －5PrefaceIn recent years, the Asia Pacific region has undergone significant changes.First and foremost, we have witnessed the rapid rise of China as a great power. This newfactor is of high strategic importance to Asia-Pacific nations as it may shape the future developmentof international relations in the region.Secondly, Obama’s policy of “rebalancing” signifies that the United States is determined torefocus her attention on the Asia Pacific region. It is worthwhile devoting further analysis to thestrategic implications of this policy.Thirdly, in spite of enjoying relative peace and stability, the region is still plagued bymounting tensions in certain areas, especially in the South China and East China Seas. In addition,the Korean Peninsula is far from being peaceful. North Korea’s determined attempt to developnuclear arms and ballistic missiles has become a strategic nightmare that haunts northeast Asia.Fourthly, in recent years tension across the Taiwan Strait has relaxed considerably. Webelieve that such a positive development is conducive to regional peace and stability.Fifthly, the recent leadership changes in the two Koreas, Russia, Japan and China havetriggered speculation on the implications for the future development of the region.Last but not least, non-traditional security issues such as terrorism, extreme climate change,energy shortage, and water scarcity have increasingly become matters of great concern for mostcountries in the region.It is against this regional strategic panorama that the Prospect Foundation is keen to conducttrack-two dialogue with leading think-tanks of the Asia Pacific region with a view to betteranalyzing the ever changing situation. Since 2009, the Prospect Foundation and Japan’s Ocean－ 5 －6Policy Research Foundation have started to co-organize “The Taiwan-Japan Strategic Dialogue forthe New Era” on a half-yearly basis. So far eight rounds of Dialogue have been held. Eminentscholars and experts from both countries were invited to discuss a myriad of issues, includingregional security, regional economic integration, cross-strait relations, domestic affairs in Japan andTaiwan as well as bilateral relations between the two countries. We are grateful to the scholars foractively participating in the Dialogue and generously sharing with us their insights on thesewide-ranging issues. We would also like to thank the participants for taking extra time to put theirideas into words and contribute to this final report. We are confident that the eight rounds ofDialogue have not only deepened our knowledge of the new dynamics of development in the AsiaPacific region, but have also helped enhance mutual understanding between the Republic of Chinaand Japan.Finally, we would like to express our heartfelt appreciation to Dr. Yohei Sasakawa,Chairman of The Nippon Foundation, Mr. Masahiro Akiyama, President of the Tokyo Foundation,and Dr. Shinichi Kitaoka, President of the International University of Japan for their unswervingsupport throughout the years. Without their consistent efforts, “The Taiwan-Japan StrategicDialogue for the New Era” would not have been so successful.Louis TzenChairman, Prospect Foundation－ 6 －Introduction－ 7 －－ 8 －9Masahiro AKIYAMAPresident, Tokyo FoundationSenior Advisor, Ocean Policy Research FoundationThe Japan-Taiwan Strategic Dialogue for the New Era was launched four years ago. Inthe absence of official relations, diplomatic dialogue was limited. On the other hand, Japan-Taiwanrelations have become important for both sides politically as well as economically. A need was feltfor a forum where experts on policy-making gathered from both sides and exchanged opinionsfreely.We have had seven dialogues since then, with two meetings being held every year, eachside hosting one meeting per year. Now we hold our final meeting, which discuss a plan to publisha report based on our discussions and to offer an outlook for Japan-Taiwan relations.We have maintained more or less the same agenda for each dialogue, exchangingviewpoints from four angles, as follows: from an economic perspective in Session I, from a domesticpolitics perspective in Session II, from an international relations perspective, focusing on US andother regional security concerns, in Session III, and from the perspective of relations with China inSession IV.We have discussed the possible effects and influences of these elements on Japan andTaiwan, and, of course, focused on exploring possible areas of enhanced cooperation between us.The political economies of Japan, Taiwan, and the United States were adversely impactedby the Lehman shock of 2008. At the same time, we have also benefitted economically from arising China. Japan has suffered through prolonged deflation, while the United States has facedsevere financial problems. Even China now faces difficulties in the face of a slowdown of itseconomy and the many problems resulting from high growth.Amid moves toward economic integration in the Asia region, the conclusion of theEconomic Cooperation Framework Agreement between Taiwan and China has drawn muchattention from the viewpoint of political economy. The ECFA reflects and is expected to promotegood relations between Taiwan and China although some have pointed a concern about thepossibility of political integration.Regarding Japan-Taiwan economic relations, the ECFA should have a substantial impact on－ 9 －10Japan-Taiwan ties, which could also affect Japan-China economic interaction. For us, the politicaldimensions of ECFA have reinforced the importance of the economic relationship between Japanand Taiwan.We have discussed the internal affairs and political situation of each country at everymeeting. In Japan, the prime minister has changed every year since the Democratic Party of Japantook office in 2009. The change in government has affected not only domestic policy but alsoexternal policy. DPJ administrations mishandled the country’s external policy, most notably theJapan-US relationships. And Sino-Japan relations deteriorated rapidly over the problem of theSenkaku Islands/Diaoyutai.We also discussed the political situation in Taiwan, including President Ma Ying-jeou’sre-election in 2012. Japan was initially concerned about the Ma administration’s policy towardJapan, but we subsequently learned that President Ma was very much interested in promoting goodrelations with Japan. Conversely, we became concerned about the Japanese government’s lack ofinterest in maintaining close ties with Taipei. Fortunately, good relations between Taiwan andJapan have not been affected by the change in government, and I am very grateful for the verygenerous donation from Taiwan in the wake of the Great East Japan Earthquake of March 2011.With regard to the Senkaku/Daioyutai issue, I think it is regrettable that Japanese government hasshowed little interest in the East China Sea Peace Initiative advanced by President Ma.In 2012, we followed the national elections and leadership changes in Taiwan and Japan, aswell as in the United States and China. We have new leaders in Japan and China, while presidentswere reelected in Taiwan and the US. We discussed whether the external policies of these countrieswould change and what new policies they would propose for Asia. Early this year, US PresidentObama was inaugurated for a second term, Japanese Prime Minister Abe launched his secondcabinet with an economic revitalization policy called Abenomics. In China Xi Jinping hasofficially started his presidency.When we think of Japan-Taiwan relations, we have to consider the foreign policies of boththe US and China. Japan and Taiwan recognize the importance of US engagement in the East Asiaregion. We welcome the US pivot to Asia which means the US rebalance toward the Asia Pacificregion, as China has become assertive against relevant countries over conflicts in the South ChinaSea. We also have to realize the rise of China in a military arena.－ 10 －11With regard to Cross Strait relations, we have learned of the latest developments throughour discussions. I believe that we share the view that US engagement in the region is welcome forJapan, Taiwan, and ASEAN member states, who are concerned about and feel a need to standtogether against the China. At the same time, the Japanese side learned of differences betweenTaiwan and Japan on relations with China and also realized the necessity of maintaining strong tieswith each other despite our differences.This report includes 10 papers written by core members of each side.Professor Yasuhiro Matsuda concludes as follows: The decades-long uninterruptedinteractions between Japan and Taiwan have played a key role prior to the recent constructivedevelopment. They have long cherished unofficial relations. A sound relationship across theTaiwan Strait has a noticeable impact on the advancement of pragmatic ties between Japan andTaiwan, and indirectly helps Japan and Taiwan come to build a political relations in an unofficialroute.We can see the deepened pragmatic relations between Japan and Taiwan in the new era. Iappreciate it if you understand the importance of Japan-Taiwan relations and expect the future of therelations through this report.－ 11 －13Bih-Jaw LIN, Ph.D.Professor and Vice-President, National Chengchi UniversityThe policy communities between Taiwan and Japan have met quite often and discussedvarious kinds of issues that affect the interest of the two countries and the region as a whole.Foreign policy of the United States and the rise of China have attracted most of the attention over therecent past. As Taiwan’s democratization proceeds and cross-strait relations evolve, naturally, thepolicy communities of both sides face a new policy agenda and so many issues both in theory andpolicy need to be candidly discussed. It is a typical learning process, mutually beneficial andpolitically relevant. We are not certain that every meeting or dialogue has achieved its initialobjectives, because there is a natural limitation to any academic or policy dialogue, particularlywhen the issue of national interest and security is involved. This has become so common in theindustrial democracies and even more so in the interactive process between the policy communitiesof the United States, former Soviet Union and other countries. Some of the constraints are deeplyrooted in epistemology, ideology and culture, but some are purely political barriers. Taiwan andJapan do not have diplomatic ties and this unique relationship has provided both opportunities andlimitations for the policy communities of the two sides to use and ponder.In terms of opportunities, the lack of diplomatic relations has made it possible andnecessary for the two countries to explore other alternate channels of communication and dialogue.As today’s foreign policy issues have become more and more interdisciplinary, the regularbureaucratic process requires all kinds of professional analyses and policy recommendations. Theprocess of agenda-setting has become long and complicated. As the media has also tries its best toshape the policy-making, the needs for transparency, communications and mutual –learning are tooevident to ignore. The policy experts normally do not have the administrative burden and otherconstraints to limit the scope of their change of opinions. What is more, they can test the limit ofpolicy acceptance between the two governments and, then, draw a road map more close to theexpectations and realities.In terms of limitations, we have to realize that the foreign policy issues are essentially amatter of national interests. Some of the issues require assistance from the academics, but it is theduty or the portfolio for the practitioners to handle them. It is a long process, involving the－ 12 －14administration, the national congress and, sometimes, the military to complete the job. There arenot simply the issues of academic debate or the application of different theories, but a question ofmajor policy-making under the constitution. No matter how good intention and special knowledgeall these experts demonstrate, the policy- makers at the different levels have the power and authorityto decide. As the case of foreign and defense policies of the United States demonstrated in the past,the role of the policy community has increased, but it is up to the top policy-makers to make the finaldecisions. In the case of Taiwan-Japan policy dialogue, the limitations are even greater, becausethe lack of diplomatic ties has seriously reduced the scale and scope of accessibility of informationand the actual content of discussions. It is inevitable that the process of communication willbecome a routine round of comparing notes and repeating the official lines that are familiar to all theexperts. Even so, the human contact is beneficial to the research of mutual foreign policies and theactual conduct of foreign relations. As the system of the revolving doors has become so commonin most of the industrial democracies, the human connections do help any administration and thesecommunications, networks and connections need time to foster, particular when all the experts areout of the government.The dialogue that we started was firstly with Professor Tomoyuki Kojima of KeioUniversity and, then, Professor Shinichi Kitaoka of the University of Tokyo in Japan. They invitedother experts to attend. Chairman Louis Wen-hua Tzen, Professor Philip Yang of National TaiwanUniversity and I served as the counterparts in Taiwan. The dialogue’s agenda was jointly set by thetwo sides to cover global and regional trends and issues as well as national issues. Most of Japanparticipants master the Mandarin surprisingly and that facilitates the process of discussion. Englishis also used when required. It is become a shared norm and practice among the participants thatattention will be placed on the policy rather than the theory. Therefore, most of discussion hasconsidered the policy’s options, implications, cost and benefit, and the likely domestic, regional andglobal responses. The policy’s background notes were extremely useful for the participants,because the systems and Taiwan and Japan have similarities and differences. The part ofdifferences was the key area that all the participants looked for answers.How to maintain a stable Western Pacific was and still is the major purpose of thisintellectual interaction. In order to achieve this goal, the participants need to discuss the roles of theUnited States, Japan, China, Korea, Russia, Taiwan and the ASEAN countries. India, Australia,－ 13 －15Canada and the European Union come into this political landscape. Japan-China, Cross-Strait andJapan-Taiwan relations have dominated the discussions. The pivotal role of the United Statesnaturally serves as the linchpin, but the participants have tried to be independent, non-partisan andpractical. They did not elaborate too much on international theories, although they were and stillare the best in the field. Knowing their positions and the nature of “the Track II Dialogue”, theyshowed such a frank, candid and open attitude that combined to make every meeting intellectuallyrewarding. How to make all of their ideas practically relevant and operational remains to be seen.Since all participants only represent themselves as a policy expert, there is no need to makea disclaimer that this volume does not express the official viewpoints of Taiwan and Japan.However, we do hope that the volume will stimulate further research, help clarify some of the greyareas and provide the alternate thinking for the policy-makers. Finally, this volume will pay a veryspecial tribute to Professor Tomoyuki Kojima. We all remember his hardworking, dedication andcontribution to international studies and peace. Without his initiatives and efforts, this dialoguewould not have been possible.－ 14 －1. Viewpoint from an Economic Perspective－ 15 －19A Taiwanese ViewTaiwan Economic Relations in the Global & Regional LandscapeMignonne Man-Jung CHAN, Ph.D.Adjunct Associate Professor, National Chengchi UniversityThis paper is a collection of three presentations made during the past two years on theoccasion of Japan-Taiwan Dialogue. The key contents of this paper include: (1) RecentDevelopment in the Global and Regional Economic Dynamic: Managing Contentions in G20 andBeyond; (2) Challenges in the Asia-Pacific: “Asia-Only” vis-à-vis “Trans Pacific” Integration; (3)ECFA and the Cross-Strait Relations; and (4) Impacts on Taiwan-Japan Relations.1. Recent Development in the Global & Regional Economic Dynamics: ManagingContentions in G20 and BeyondSince the financial crisis triggered by the U.S. Subprime Mortgage and the bankruptcy ofLehman Brothers, the global and regional economic landscape has been marked by instability interms of revisiting the conventional growth model, the turbulent currency war, and globalgovernance. It is evident that IMF’s ability to monitor monetary policies and the spill-over effectson the rest of the world is in question, WTO’s impasse on negotiating the Doha Development Roundlingers on, UNFCCC’s discontent over treatment of climate change remains, and resourcenationalism is on the rise.In the heated debates in G20 since the U.S. financial crisis in the 4th quarter of 2008focuses mainly on how the world should manage “global imbalance” and “structural reform”, theconcerns derived from two dimensions:(1) Imbalance out of financial crisis: foreign investment flows into the U.S., and the AmericanQuantitative Easing policy and the low interest rates would further encouragespeculative investment towards the newly emerging economies.(2) Protracted protectionism due to increasing U.S. debts and high unemployment rates.Whereas the Europe Union has been facing the challenge of recovering from the sovereigndebt crises of Portugal, Italy, Greece, Spain, and Ireland since 2009, Asia has become the key target－ 17 －20for “balancing” global imbalance, given Asia’s enormous foreign reserves. The key targets includetrade balance and RMB appreciation. Nevertheless, China in G20 insisted that neither would RMBappreciation change the Chinese saving habit, nor would China’s 2.8 trillion foreign reservesbecome a target for review. The four emerging economies of BRIC stood together, and Argentina’sCentral Bank also maintained that “the accumulation of foreign reserves is the best insurance for selfprotection.”With Japan’s triple calamities of earthquake, tsunami, and nuclear radioactive leak in 2010,as well as the widespread unstable situations in North Africa, the world will make concerted effortsto consolidate Japan’s earlier recovery and reconstruction as well as peace and stability in NorthAfrica. The global supply chain and resource mobilization should be sustained at their optimalfunctionality.2. Challenges in the Asia-Pacific: “Asia-Only” vis-à-vis “Trans Pacific” IntegrationIn the Asia-Pacific region, there are basically two paralleled competing approaches toeconomic integration, as indicated in Figure 1. One track stems from ASEAN-centered schemesoriginated with “Asia Only” members, but then given the geopolitical importance of other players,especially with the recent Korea Peninsula tension, and the perceived “overly assertive” China in theregion, there seems to be an inclination, though an immature consensus, to break away the originated“Asia Only” insistence. This track includes AFTA (ASEAN Free Trade Agreement), “ASEAN +3” (ASEAN plus China, Japan, and Korea), “ASEAN + 6” (ASEAN plus 3 plus Australia, NewZealand, and India), and East Asia Summit (also known as “ASEAN + 8”; ASEAN + 6 + the UnitedStates and Russia). Later on, a more open-ended term “ASEAN ++” was summed up as “RegionalComprehensive Economic Partnership (RCEP)”.Another track has turned to be more U.S.-led, trans-Pacific based, high-quality claimed, andyet-to-expand for significance TPP (Trans Pacific Partnership). So far, the 11 negotiating membersinclude the original Pacific 4 (Brunei, Chile, New Zealand and Singapore) plus Australia, the U.S.,Peru, Viet Nam, Malaysia, Canada, and Mexico. Japan has committed to be part of TPP, but yet todecide when to join the negotiation. TPP is geared up along with the U.S. proclaim of“rebalancing” and “pivoting” in Asia. The strategic posture of competitive liberalization is at playwith these two tracks of FTA in the making, as the bicycle theory has it in that the paddles ought to－ 18 －21be strived forward lest the momentum of liberalization vanishes as the bicycle falls withoutpaddling.Figure 1: Asian Regional Integration: Competitive LiberalizationChina’s growing economic prowess has become more evident when the U.S. and EUmarkets are stagnant whereas China is overtaking the U.K., Germany, and Japan sequentially andbecomes the second largest global economy, and holds about a quarter of the U.S. treasury bond.Aside from some welcoming gestures for China’s growing status and some public decorum for the“equal partner”, the ambivalence attitudes towards China’s rise from all major power quarters hasalso been evident. News stories never fail to deliver sequels on economic spates over unfair trade,currency exchange and investment on various sovereign wealth funds, etc. Furthermore, cybersecurity, territorial disputes and maritime maneuvering have continued to stage the regionalspotlights.Despite the fact that no major powers seem to be happy over the term of “G2” inhighlighting the importance of the U.S. and the PRC in the world stage, we are certainly witnessing－ 19 －22an era where the Sino-US relations take the central stage in any international negotiations andconsensus-building efforts. President Obama has announced that the Sino-U.S. relationship is theworld’s most important bilateral relations. No doubt, the twice-a-year bilateral Strategic andEconomic Dialogues (S&ED) earmarked the pre-stage for further multilateral negotiations, be it theUnited Nations Framework Convention on Climate Change (UNFCCC), the G20, or the IMF, etc.The issues of concern at the S&ED include, among others, energy security, climate change, globaleconomy, the U.S. deficit and the weak dollars, the Reminbi under-valuation, and militarycooperation, etc.Figure 2: G2 Interplay of Hard & Soft PowersAs the arbitrary value assignments in Figure 2 indicate, the interplay of the U.S. andthe PRC could have created different dimension of power play in the geopolitical fabrics inAsia. The Figure is merely to showcase the multi-faceted outcome of the dynamic G2positioning in the region.－ 20 －23Chart 1: “ASEAN + X” and PotentialNegative Impacts on Taiwan (Source: CIER)Total - 213 - 7,470 - 7,890Others - 670 - 3,360 - 3,380Auto Parts - 10 - 120 - 150Petro-chemical - 910 - 1,610 - 1,740Textile - 540 - 2,380 - 2,620ASEAN + 3 ASEAN + 6(2012?)ASEAN + 1(effective 2010)Unit:US$million3. ECFA and the Cross-Strait Relations(3.1) ECFA: Urgency, Key Timelines & Special Features;(3.1.1) Why the UrgencyWhen President Ma Ying Jeou of the Republic of China carried the mandates from theTaiwanese people and took office on the 20th of May, 2008, there were mounting challenges fromwithin and from without. In order to ensure economic security, a measured dose of liberalization ina given time is essential. On the one hand, the private sector innovative competitiveness could notbe stifled; on the other hand, the public sector ought to safeguard economic growth and social equityby formulating comprehensive policies, lest the changing phenomena or the external shocks shouldwork to our detriment.Domestically, to reverse the economic fortune and upgrade Taiwan’s competitiveness aswell as to institutionalize the cross-strait economic relations was in urgent command. Additionally,the natural disasters of flood and landslides in 2009 ignited the cabinet re-shuttling, and offered aharsh lesson for us to tighten up emergency preparedness.Internationally, the ripple effects created by the U.S. Subprime Mortgage crisis triggeredglobal financial crisis, and lingered along during the first two years of President Ma’s leadership.Taiwanese companies who were present at nearly every stage of the technology supply chain felt inparticularly the pain of global economic downturn. As a result, Taiwan’s economy shrank by 10%at the beginning of 2009. Managing the economic under stress is of particular challenge.Starting 2010 when the “ASEAN+China” FTA took effect, there was a strong sense ofalarm in Taiwan regarding the potentialnegative impacts on Taiwan’s industries withASEAN+China, ASEAN +3 (ASEAN + China+ Japan + Korea is planned to be effective in2012), and an envisaged “ASEAN+6” (seeChart 1).－ 21 －24Chart 2: Taiwan’s Export Portfolio29%16%4% 7%13%13%6%12% ChinaASEAN 6 +VJapanKoreaOther AsianUSEUOthersSource: Foreign Trade CouncilChart 3: Cross-strait Trade: Growing TradeSurplus for TaiwanChart 4: Export Portfolio with FTAPartnersCountry Ration (Export to FTA Partners/Total Export)South Korea 37.8％Japan 16.3％ASEAN 31.7％Taiwan 1％（Latin America）+4.9％（when ECFA Early Harvest iseffective)2010/6/28 Economic DailyAsia constitutes 69% of Taiwan’s export portfolio (see Chart 2), and the trade surplus withthe Mainland China is undoubted on the rise, only with a slight stall during the 2009 financial crisis(see Chart 3).Furthermore, Taiwan’s current FTApartners in Latin America constitutes merely1% of our total export, which is in sharpcontrast to the other regional economies’situations. (See Chart 4).(3.1.2) Reversal of Fortune, Management of Crises, and Upgrade of Taiwan’s CompetitivenessIt was since the 1990s that the Taiwanese companies have pursuit outward investment inChina, many surpassed their foreign rivals as early movers. Before President Ma took office, thegeneral climate of political uncertainty and the economic rollercoaster often added to businesssector’s frustration and vulnerability. As the Financial Times reported, for many of the more than60,000 Taiwanese companies in China, their growth had been constrained by Taiwan’s governmentpolicies—most notable being a cap on mainland investment at 40 per cent of a company’s net worth.The earlier restricted rules led to corporate innovative approach to skirting such rules inorder to expand their potential China market. Companies such as Hon Hai, the world’s biggestelectronic manufacturing services company, and Master Kong, which stakes half of China’s instant－ 22 －25noodle market, to list their Chinese business in Hong Kong to skirt such rules. Uni-President,Taiwan’s biggest food company, lamented at the time, that it could not expand its operation andbypass the best window of opportunity. As to the high-tech industries, Taiwan’s crown exporters,there were even more stringent restrictions earlier. Three quotas were under fierce competitionamong Taiwan’s semiconductor companies to build less-advanced 8-inch wafer fabrication plants inChina.During the disastrous typhoon on the 8th August in 2009, the casualty of 678 death and 33wounded, agro-business loss, and infrastructure damage have added to the economic distress ignitedby the global recession. Nevertheless, the government rendered financial assistance and institutedshopping coupons in order to stimulate the economy in line with the global solutions to economicstress.Taiwan’s tourism and airlines sectors have reaped benefits from the boom in cross-straittourism. China Airlines, Taiwan’s flag carrier, increased profits of 122 per cent in 2010, whilehotels in leading tourism destinations were often fully booked. Mainland visitors, includingtourists and business travelers, account for a quarter of all visitors to the island.However, the economic benefits of Chinese tourism will not be maximized until this Junewhen China allows individual travelers to go to Taiwan instead of forcing tourists intotightly-scheduled packaged tours.Table 5 illustrates the breathtaking efforts during the past 3 years and the outcome of thoseefforts.Table 1: Statistics on Taiwan’s Economic Growth: 2008-2011 (Source：Executive Yuan)Year 2008 2009 2010 NotesGDP Growth Rate 0.73％ -1.93％ 10.82％ 2011(estimated) : 5.04％GDP （NT$ trillion） 13.1 12.8 14.2 2011 (estimated) : NT$14.9 trillionGDP Per Capita（US$） 17,399 16,353 18,603 2011 (estimated) : US$ 20,848Unemploy-ment Rate 4.14％ 5.85％ 5.21％ 2011.01~03: average unemployment rate is 4.60％Foreign Reserves（US$ billion）2,917.07 3,481.98 3,820.05 As of March 2011: US$392.6 billion－ 23 －26Chart 5: Early Harvest: tariff/timelineItemTaiwan’s Export to Mainland Mainland’s Export to Taiwan2009Mainland Tariff(%)# Itemsfor zerotariffProfitfromreducedtariff(bn NT$)2009TaiwanTariff(％）# Itemsfor zerotariffProfitfromreducedtariff (bnNT$）2011 < 5％ 72 14.1 < 2.5％ 67 1.92012 5-15％ 437 15.32.5-7.5％186 1.52013 > 15％ 30 0.16 > 7.5％ 14 0.06# items for zerotariff539 267Profit fromreduced tariff（bn US$）13.8 2.86Source: Economic Daily 2010/6/30(3.1.3) Key TimelinesECFA was signed on 29 June 2010 in Chonquing by Mr. Jiang Pin-kung, the chairman ofTaiwan's Strait Exchange Foundation (SEF) and Mr. Chen Yunlin, President of the Association forRelations Across the Taiwan Strait (ARATS). Taiwan’s Legislative Yuan is expected to completeby mid-August two statue review sessions under four principles—namely, (1) Q&A with thePremier; (2) provisional review; (3) package approval; and (4) annexed resolution. The fourprinciples are meant to ensure transparency and accountability.After the completion of Legislativeapproval, the early harvest section of ECFAis to be effective starting January 2011 (seeChart 5). There will be sequential regularnegotiations by phases. As President Madeclared, the next “Golden decade” isenvisaged to be one of reaping harvests bykeeping “flowers-blooming on all fronts.”(3.1.4) Special Features of the ECFA NegotiationsA. Wide Scope of Coverage: There are 16 provisions in ECFA with five Annexes. The scope ofcoverage includes: trade in goods and services; investment protection, IPR protection, economiccooperation, early harvest, dispute settlement, and safeguard clause.B. Upgrading of Rank-and-File Contacts in Consultation Process: In the course of variousconsultations, the official contacts have been elevated to the Vice-Ministerial level.C. Better Comprehension of Taiwan’s Political Dynamics: Both sides across the Taiwan Straitshave had firmer grips with Taiwan’s domestic political fabrics. Taiwan’s government hasdeliberated strenuous efforts in communication drives in order to dissipate fears and oppositions.President Ma, after several turn-down attempts to conduct bipartisan discussion, boldly took up theopposition leader Madam Tsai Ying-wen’s initiative for a public debate on ECFA. President Ma nodoubt was on top of all details and make people see better the importance of ECFA for Taiwan.D. Historic Landmark for the Signing of ECFA: Chong-qing is the venue where the CCP-KMTnegotiation last broke down during the civil war period. It is therefore by definition a historic－ 24 －27Chart 6: Potential Winning IndustriesSteel 8% 68.9Oil & Coal 8% 61.5Petro- 15% 290ChemicalMachinery 14% 280.7Textile 16% 93.5Total Amount(bn/NT$)Growth rateSource: CIERlandmark as the venue for inking ECFA, be it by design or by accident.E. A “Quick-Easy-Few” Approach to Early Harvest: There were good-will gestures from bothsides to create a favorable ambience so as to add weights in confidence building.F. Achieving Relative Proportional Equilibrium for Concession: Given the disparity in resourceendowment and potential market size, no exact proportional equilibrium is intended. Only relativeproportional equilibrium is orchestrated in good faith so as to avoid potential deadlocks.(3.1.5) ECFA: “Catalyst” but “Not a Cure-All” for TaiwanFollowing 14 agreements signed with the Mainland China earlier, ECFA serves as a catalystto normalize the cross-strait trade and investment relations. Mainland China is Taiwan’s largestsource of trade surplus and biggest destination of foreign investment. ECFA reverses the pastmisguided policies of “No Haste, Be Patient”, and “Effective Management, ActiveLiberalization”-turned “Active Management, Effective Liberalization”. ECFA will recall run-awaycross-strait investment by turning “one-way, indirect and societal” into “two-way, direct andinstitutionalized”. ECFA will be “a vitamin” to domestic economic growth. With ECFA, Taiwanwill be better position in globalization without being marginalized. With ECFA, Taiwan will alsolive up to its name as a “responsible stakeholder” without upsetting regional stability.However, ECFA is not a Cure-All. Somefeasibility study with the G-Tap modeling pointsto positive impacts for Taiwan: 1.72% surge inGDP growth, creation of 260,000 jobs, and somepotential winning sectors in textile, machinery,petrochemical, oil & coal, and steel industries (seeChart 6).Competition in global market is beyond reduction of transaction costs in tariff and non-tariffitems alone. One knows well that the static simulations do not guarantee volatile dynamics in thereal world. The volatile dynamics will hinge upon the following:(1) Whether the government could perform effective industrial restructuring;(2) Whether industries could re-position themselves in the emerging China market and globalsupply value chains by creating product differentiation and desirable value;－ 25 －28(3) Whether timely corporate strategic alliance could be forge with innovation and specialbranding in a competitive global marketplace;(4) Whether people in Taiwan are well prepared for adaptive and innovative ways ofemployment;(5) Whether Taiwan could also sign FTAs with other key partners; and Whether Taiwan coulddivert risks in terms of national security, for instance, investment oversight in vitalindustries.(3.1.6) ECFA: Deepening Cross-Strait Economic Relations with Mutual BenefitsECFA is not only a catalyst for Taiwan, but also a positive scorecard for the Mainland China.ECFA adds values to China’s experimental development model of “threading through water bytouching the rocks” (摸石過河). ECFA will also speed up the development pace with two-wayflows of goods, capital and tourists, and enhance Taiwan’s contributions to the mainland’s export,such as the case of IT industry. Furthermore, the mainland’s good-will gestures in ECFA’s earlyharvest, as a starter, imply China’s willingness to forsake contentions, address Taiwan’s key concerns,and forge win-win for all.ECFA will better integrate the cross-strait economic relations into the global supply chain.Mainland China and Taiwan will soon establish a Cross-Strait Economic Council so as to keep themomentum for post-ECFA elaboration. Both sides will need to ensure implementation of earlyharvest by amending relevant legal framework, and to enhance training of bureaucrats for realizationof favorite treatments. Governments also need to help facilitate corporate strategic alliance andimplement structural change.The challenges ahead remains to be: whether and how social and cultural exchange willbring about good- will across the strait. Will people-to-people interaction add value to domesticconsensus for further elaboration? Will cultural exchange switch the unpleasant condescendence ofone another’s seemingly extraordinary behaviors and gear towards accepting diversity and furthertaken the path not taken, such as renaissance of traditional Chinese culture and value system? Willthe post-ECFA social interaction facilitate indispensable conditions for future political dialogue?－ 26 －29(3.2) Institutionalization of the Cross-Strait Relations and Incremental Approach to FurtherIntegration in the RegionIn lieu of the fact that the ASEAN-China FTA was about to become effective in early 2010,and lest that sequential more outward relocation of Taiwan’s companies into ASEAN territories,ECFA was signed on 29th June, and effective as of 12 September in 2009. President Ma maintainedthat a deal with China will even things out by reducing tariffs on Taiwanese exports to the Mainlandand clear the path for agreements with other Asian nations too scared to offer bilateral deals to Taipei.China will cut import tariffs on $13.84bn worth of items including petrochemicals and vehicle parts,and Taiwan will cut tariffs on $3bn worth of goods including parts for baby strollers and bicycles, andraw materials for textiles.The Early Harvest provisions are being implemented starting January of 2010. Moreagreements such as investment protection and dispute settlement are in the pipeline for furthernegotiation. During the past three years, Ma administration has signed ECFA and 15 agreements.In recent visits, Chinese companies’ shopping lists ranged from $4.4bn for flat screen TV panels to166 tonnes of fruit and 300 tonnes of tea. With the Early Harvest provision in place, China isremoving tariffs on more than 500 products from Taiwan to the benefit of the island’s bicycle,petrochemicals and machinery industriesTable 2: Taiwan’s Trade Statistics: 2008-2012（Sources: Council of Foreign Trade & the Mainland Affairs Council）Unit: US$ billion 2008 2009 2010 2011 2012Taiwan’s Total Global Trade 496.07 378.04 525.83 589.69 571.78Taiwan’s Total Export 255.63 203.67 274.60 308.25 301.08Taiwan’s Total Import 240.44 174.37 251.23 281.44 270.71Cross-Strait Trade Volume 98.28 78.67 112.89 127.56 121.64% to Total Global Trade 19.8％ 20.8％ 21.5％ 21.6% 21.3%Taiwan’s Export to China 66.88 54.25 76.94 83.96 80.73% to Taiwan’s Total Export 26.1％ 26.6％ 28％ 27.2% 26.8%Taiwan’s Import from MainlandChina31.39 24.42 35.95 43.60 40.91% to Taiwan’s Total Import 13％ 14％ 14.3％ 15.5% 15.1%－ 27 －30While Taiwanese businessmen have long invested in China, Chinese investment wasforbidden in Taiwan until the first-ever round of opening in 2009. Even then, the liberalization waslimited to just 99 sectors, and led to only $137m of Chinese investment into Taiwan, versus acumulative total of more than $200bn of Taiwanese investment into China. In the post ECFA era,Investment bankers are also looking forward to mergers and acquisition opportunities that may wellbe unlocked when the effects of ECFA usher in a more liberal cross-strait investment atmosphere.However, Taiwan remains cautious in evaluating cross-strait business dealing. There havebeen some aborted cases, such China Mobile’s plan to taking 12% stake of the Far Eastone, andAIG’s attempt to sell its Taiwan life insurance unit to Hong-Kong based consortium. Nevertheless,there are some rare examples of companies from Taiwan and China cooperating overseas, which inthe past has been largely restricted to offshore oil drilling. For instance, Taiwan’s China Steel andChina’s Baosteel are planning to invest jointly in overseas iron ore mines.In late 2008, there was some reverse investment by some Taiwanese companies in China.However, in 2009 and 2010, the FDI to Taiwan has not improved. Policies were revised during thepast three years to attract foreign investments, the highlights include the accession to the WTO’sGovernment Procurement Agreement, and visiting campaigns by high government officials aroundthe globe to attract foreign investment. The cross-strait direct flights and lifting restriction onMainland tourists, income tax reform and inherence tax reductions, China investment liberalization,and the singing of the cross-strait Economic Cooperation Framework Agreement (ECFA) are allefforts to improve foreign direct investment in Taiwan.Table 3: Taiwan’s Statistics on Investment: 2008~2012 (Source: MoFA, MoEA, and MAC)Unit: US$ billion 2008 2009 2010 2011 2012Total FDI in Taiwan 8.24 4.80 3.81 4.96 5.56Mainland Chiina’s Investment in Taiwan -- 0.037 0.094 0.043 0.32Taiwan’s Outbound FDI (excluding inChina)4.47 3.01 2.82 3.70 8.10Taiwan’s Investment in China 9.84 6.06 12.23 13.10 10.92－ 28 －31Chart 7: ASEAN + China (2010):Changing Trade PortfolioAverage tariff Rate:ASEAN export toChina9.8% 0.1%Average tariff rate:China export toASEAN12.8% 0.6% (ASEAN6)12.8% 5.6% (ASEAN4)China’s total exportto ASEAN(2010/01~05)US$52.7 bn & 46.1% increase;(China’s exports to the EU & US grow37.4% & 24.7%)China’s total importfrom ASEAN(2010/01~05)US$59.1 bn & 70.1% increase;(China’s imports from the EU & USgrow 57.7% & 42.5%)Source: Ministry of Commerce of PRCChart 8: China’s Imports Growth Rates:ASEAN vis-à-vis TaiwanItem(2010/01~05)ASEAN TaiwanTotal Market Share 11.1% (70.2% growth) 8.6% (66.7% growth)Electric machinery 61.4% 59.5%Plastic products 47.6% 44.9%Organic chemicals 95.7% 85.4%steels 45.8% 5.6%Coppers & products 72.2% 68.3%P.E. fibers 40.9% 13.5%Minerals fuels 120.2% 10.9%Optical products 92.8% 122.9%Machine tools 53.7% 120.3%Non-organicchemicals50.8% 58.5%Source: Ministry of Commerce of PRC(3.3) Implications of ECFA for Regional Economic Integration(3.3.1) Enhancing Regional IndustrialCompetitivenessAs described earlier, starting 2010, Chinaand ASEAN are implementing the bilateral FTA.With the exceptional favorite treatments for theASEAN’s four (Viet Nam, Lao, Cambodia, andMyanmar), average tariff is nearly zero for bilateraltrade (see Chart 7).With ECFA in place, China’s import fromTaiwan starting 2011 will even surge to the alreadycompetitive growth rate vis-à-vis that of ASEAN(see Chart 8). This does not have to be a zero-sumgame, and it is all the more conducive for Taiwan tobe linked into the regional integration efforts.The ECFA early harvest for 2011~2013may well serve as a springboard for regional economies to join hands with Taiwan in somecompetitive industries and venture into the China market. Further cross-fertilization of ECFA andASEAN+China FTAs may well weave into a broader building block for regional integration. It isalso high time for harmonizing the rules of origin, and forging strategic alliance for some nicheproducts and services. For sure, it could be a win-win-win fanfare for all.Taiwan’s competitiveness scorecard has made a landmark impression as Table 4 indicates.President Ma’s 3-year scorecard is remarkable due to unprecedented breakthrough in the cross-straitrelations, prudent economic management under stress, and continuous efforts in expanding theglobal reach. In celebration of the third year inauguration, President Ma deserves rounds ofapplaud, and public support would only encourage more of government morale in launch yet anotherhigher scores.－ 29 －32Table 4: Taiwan’s Competitiveness Ranking in the WorldInternational Institution/OrganizationTotalcountriesTai-wan US Japan KoreaSingaporeHongKongChinaIMD: World Competitivenessin 2012─issued in 2012587(↓1)2(↓1)27(↓1)22(same)4(↓1)1(same)23(↓4)WEF: Global CompetitivenessIndex in 2012─issued in Sep.,201214213(same)7(↓2)10(↓1)19(↑5)2(same)9(↑2)29(↓3)BERI: InvestmentEnvironment Assessment in2012─issued in Dec., 2012504(same)13(↑1)16(↓3)18(same)1(same)None13(↑1)WEF: Network ReadinessIndex in 2012─issued in 201213811(↓5)8(↓3)18(↑1)12(↓2)2(same)13(↓1)51(↓15)Heritage Foundation: Index ofEconomic Freedom in 2012─issued in Jan., 201218318(↑7)10(↓1)22(↓2)31(↑4)2(same)1(same)138(↓3)World Bank: Easy of DoingBusiness in 2012─issued in Jun., 201218316(↑9)4(same)24(↓4)8(same)1(same)2(same)91(same)(3.3.2) Managing Post-ECFA Three-Way Chess Game:The challenge for Taiwan in the post-ECFA phase is to well manage a “three-way chessgame”, as President Ma put it. Given this volatile juncture of ECFA dynamics, we need to manageexpectations from three fronts:(1) Challenges from Domestic Polity: The Ma administration will have to sustain the ongoingefforts and ensure that people understand the concerted efforts via transparency andaccountability. The government will also need to pave way for further cross-straitdialogues with consensus building.(2) Challenges from Mainland China: The Ma administration will need to ensure that theMainland is all the more in gear to reality-reckoning, and cope with the Mainland’sexpected sequential “non-economic” dialogues. Taiwan ought to exert influence on Chinaso that China could come to grip with reality and set realistic and cohesive pace of change.(3) Challenges from the International Community: ECFA is a necessary but not sufficientcondition for Taiwan to sign free trade agreements (FTAs) with our trade partners. We－ 30 －33need to convey the justification for more FTAs as “inspiring, reasonable and legal” underthe framework of WTO. We are here for gaming win-win-win phenomena, but notinterested in zero-sum game in the post-ECFA era.(3.3.3) Optimizing the Rising China’s OpportunitiesWith Asia remains to be the engine of growth around the global platform, China’s 12thFive-Year Plan (2011-2015) highlighted her attempts to ease the double-digit growth, open moredomestic market, enhance services industry. Taiwan's "golden decade" blueprint (2011-2020) hassome overlapping interests and both sides seem ready to further improve economic cooperation andseek common development and prosperity. The Ma Administration has initiated 6 Newly EmergingIndustries in Taiwan, namely biotech, eco-tourism, green energy, Medicare, organic farming, culturalinnovation. Furthermore, 4 intelligence industries are promoted, namely, cloud computing, smartelectronic automobiles, IPR commercialization, and smart green buildings. Taiwan's Ministry ofEconomic Affairs has proposed allowing Chinese investment of up to 10 per cent in Taiwanesetechnology companies, and up to 50 per cent in new technology-sector joint ventures.Taiwan, with the leadership of President Ma Ying-Jeou, has made unilateral commitment topeace and prosperity since Ma’s declaration on “Three Nos—No Unification, No Independence, NoUse of Force” policy. The bilateral cross-strait economic agreement, Economic CooperationFramework Agreement (ECFA), has served as a catalyst to regional integration and a model forconflict resolution. KIEP, a South Korean think tank, has advised that ROK quickly negotiate withChina on an FTA in its post-ECFA evaluation. ECFA will bring along more opportunities forTaiwan to be linked to regional integration schemes, including the yet-another-step of the Agreementof Singapore and Taiwan Economic Partnership (ASTEP), and a possible revitalization ofU.S.-Taiwan Trade and Investment Framework Agreement (TIFA).On the multilateral front, Taiwan cherishes Asia-Pacific Economic Cooperation (APEC)and World Trade Organization (WTO) memberships. In APEC, “Chinese Taipei” has made andpromoted several initiatives, including APEC Digital Opportunity Centers, One Village One Product,SME Risk Management Center, and APEC Typhoon Center, etc. This year, Taipei will continue tocollaborate with like-minded partners, and support the host, the U.S., for some initiatives.In order to ensure economic security in a turbulent and interconnected world, a measured－ 31 －34dose of liberalization is essential. Taiwan, like other economies, must act quickly to keep up withemerging trends, but must also undertake prudent cost-benefit analysis. On the one hand, theinnovative competitiveness of the private sector must not be stifled; on the other hand, the publicsector must promote economic growth and social equity by formulating comprehensive policies,including structural reform, lest changing circumstances or external shocks work to our detriment.In a globalized world, economies will neither be spared the ripple effects of others, nor can theyescape the responsibilities of being a stakeholder in the global community.The Ma Ying-jeou administration has identified six emerging industries in Taiwan―namelybiotech, eco-tourism, green energy, medical and healthcare, organic farming, and culturalinnovation―for which the government and private enterprises are seeking to boost competitivenessthrough a variety of means such as innovation and branding. In addition, four intelligenceindustries are to be promoted―cloud computing, smart electronic automobiles, IPRcommercialization, and smart green buildings. The government plans to develop new visions andforward-looking policies in these industries. Development in these areas will forge structuralchange for economic growth, which will in turn contribute to the much-needed innovative andsustainable growth.But these efforts to strengthen certain key industries could not exist in a vacuum, andinteraction with the outside world is necessary. As late as 2009, Taiwan faced at least four specificexternal challenges to its competitiveness: (1) a relative lack of institutionalized trading mechanismswith mainland China, which is Taiwan’s neighbor, the home of more and more of its manufacturing,and a giant potential market; (2) the volatile financial situations and depressed economic climate inthe United States and Europe; (3) a lack of free trade agreements with most economies; and (4)perceived political opposition from China to establishing such agreements with third parties.In order to solve or mitigate these challenges, and to both enhance opportunities fornear-term trade and boost mid-term international competitiveness, the Ma administration pursued anEconomic Cooperation Framework Agreement (ECFA) with China. The ECFA was signed on June29, 2009 and became effective as of September 12 of that year. The Early Harvest provisions are tobe completed in three years starting in January 2010; China is removing tariffs on more than 500products from Taiwan to the benefit of the island’s bicycle, petrochemicals and machinery industries.China will cut import tariffs on $13.84 billion worth of items including petrochemicals and vehicle－ 32 －35parts, and Taiwan will cut tariffs on $3 billion worth of goods including parts for baby strollers andbicycles, and raw materials for textiles. This year more segments of ECFA, including goods andservices, investment protection and dispute settlement are in the pipeline for further negotiation.Open sky (for air transport liberalization) and cloud valley (for high-tech information networkclustering) are also identified as items of future collaboration.Taiwan has been actively seeking bilateral economic cooperation pacts with other like-mindedpartners, including a revival of Trade and Investment Framework Agreement (TIFA) talks with theUnited States and a possible FTA with the European Union (termed as Trade Enhancement Measuresby the European Chamber of Commerce). Sequentially, Singapore and Taiwan have initiated thenegotiation of ASTEP (Agreement of Singapore-Taiwan Economic Partnership). Japan and Taiwansigned a landmark investment pact in September 2011. Feasibility studies on cooperation orpartnership agreements with the potential partners of the Philippines, Indonesia, and India are nowbeing undertaken. Other economies in the region, notably South Korea, are pursuing andimplementing trade liberalization agreements; if Taiwan is excluded from broader regional economicintegration, trade and investment will be diverted away from it.Table 5, below, illustrate Taiwan’s changing trade and investment portfolios with keypartners and reflect the shifting global economic landscape.Table 5:Taiwan's Trade Relations with Key Partners: 2008-20122008 2009 2010 2011 2012Partner Total Export Import Total Export Import Total Export Import Total Export Import Total Export ImportPRC 98.3 66.9 31.4 78.6 54.2 24.4 112.8 76.9 35.9 127.5 83.9 43.6 121.6 80.7 40.9ASEAN 64.6 38.9 25.7 50.4 30.6 19.8 70.8 42 28.8 84.3 51.5 32.8 88.1 56.5 31.6Japan 64 17.5 46.5 50.7 14.5 36.2 69.9 18 51.9 70.4 18.2 52.2 66.4 18.8 47.5US 57.1 30.8 26.3 41.7 23.6 18.1 56.8 31.4 25.4 62.1 36.3 25.7 56.5 32.9 23.6EU 47.6 28 19.6 37 21.3 15.7 48.6 27.3 21.3 52.5 28.5 24 48.7 26.2 22.5Singapore 16.5 11.7 4.8 13.4 8.6 4.8 19.7 12.1 7.6 24.8 16.9 7.9 28.1 20 8.1India 5.3 3 2.3 4.1 2.5 1.6 6.4 3.6 2.8 7.5 4.4 3.1 6 3.4 2.6Source:Bureau of Trade, MoEA / Unit: US$billion－ 33 －36(3.4) Taiwan’s Roles in Regional Integration: Opportunity and ChallengesTaiwan has always been in a delicate position in the U.S.-China-Taiwan triangular relations.Instead of taking side on the camp of “China as a Threat” or “China as an Opportunity”, Taiwanshould serve as a catalyst for China’s evolving development. In the debate of shifting paradigm,Taiwan need not take side, and should cheer every developing country on, in its own chosendevelopment path. Taiwan could be constructive by providing its own experience in sorting out itsown development path in the fabrics of political, legal, economic, and social development. As theworld’s 18th largest economy and as the guardian of Chinese traditional culture, Taiwan has a lot tooffer in the wake of global re-balancing and structural reform.President Ma’s cross-strait policy of “sideline confrontation, create win-win” has taken usas far as the implementation of the early harvest provisions in ECFA (Economic CooperationFramework Agreement). ECFA could well serve as catalyst for deepening regional economicintegration, intensify the regional supply chains, and contribute to regional peace and prosperity.In APEC, Taiwan should and will continue to be an active participant in the process bybeing a collaborator of initiatives and focus on promoting economic cooperation. Taiwan willcontinue to collaborate with the U.S., China, Japan and all other like-minded APEC partners inprojects such as SME Crisis Management Center, Emergency Preparedness, and Green Building andLow-Carbon City, etc. Taiwan should also be aspired to extend the benefits of ECFA to others byjoining other regional economic integration schemes, including RCEP, TPP, and the ConcertedUnilateralism of APEC.4. Impacts on Taiwan-Japan RelationsJapan and Taiwan, under President Ma’s administration, are experiencing the best everbilateral relations since 1972 when Japan established formal relations with the People’s Republic ofChina and severed official relations with Taiwan. Japan’s investment in Taiwan exceeded US$444million in 2011. For the first three quarters of 2012, Japan’s investment in Taiwan has climaxed thepast 5 years. According to the Investment Commission of Taiwan’s Ministry of Economic Affairs,Taiwanese total investment in Japanese companies reached US$250 million in 2011, six times morethan a year earlier. This accounted for nearly 7 percent of Taiwan’s total foreign investment, whichis the highest on record－ 34 －37Tokyo and Taipei signed an investment pact in September 2011, which paves an importantfoundation for a future free trade agreement. Sequentially, an aviation pact was followed, andthereby restrictions were lifted on flight numbers, destination and airlines operating these routes.Furthermore, a Memorandum of Understanding was inked to speed up patent applications. Inaddition, an industrial cooperation accord is on the pipeline for conclusion.The key factors that contribute to the closer Japan-Taiwan bilateral relations include:(1) Taiwan as a world leader in high-tech manufacture: Taiwan’s production facilities,infrastructure and a skilled workforce are all well in place.(2) Taiwan’s proximity to Japan geographically and sentimentally: Taiwan’s location is not onlynear to Japan, but also to China’s vast market for Japanese goods. Taiwan’s past history underJapan’s relative benign colonial rule adapted to Japanese culture –- including gourmet cuisine,trendy fashion, hot-spring resorts, management style, and top-notched services, etc.(3) Taiwan’s improved relations with the mainland China: Economic Cooperation FrameworkAgreement (ECFA), signed in 2010, The trade pact contains the early harvest provisions thatbenefit Taiwan’s export to China, and also benefit Japanese firms in Taiwan. The scope of theinvestment protection agreement with China, signed in August 2012, covers investmentsoriginate in Taiwan, including Japan-Taiwan joint partnership.(4) Japan-Taiwan Joint Collaboration in China: A survey research report by Nomura ResearchInstitute estimates that Japanese business are 10 percent more likely to be successful in China ifthey collaborate with a Taiwanese firm than if they go alone; that is the probability ratio forsuccess is 78 percent, as opposed to 68 percent.(5) Taiwan’s Merger Fever with Japanese Companies: Taiwan ranked No. 2 in 2011, next only tothe U.S., for mergers & acquisitions (M&A) with Japanese business. They driving force forthe M&A is acquisition of Japanese technology, and consolidating relationship with thecustomers.In addition, Japanese relations with Taiwan are marred with little of the historical animositythat exists with China. The anti-Japanese sentiments that erupted across China over theJapan-administered Senkakus, over which Beijing claims sovereignty, is just the latest expression offeelings that have remained raw following Japan's brutal wartime invasion and occupation of itsgiant neighbor. However, Taiwanese fishermen’s demonstration of discontent has been obvious－ 35 －38over the restriction imposed by Japan on the fishing zone.Furthermore, Taiwan is keen on forging industry strategic alliance with Japan. The sixapproaches to Japan-Taiwan industry cooperation include:(1) consolidating industry collaboration network schemes;(2) collaborating Japan’s human resource network;(3) nurturing large-scale business cooperation;(4) focusing on key industries;(5) connecting local industry clustering; and(6) integrating intra-governmental resources.Figure 3:Trade Relations with Partners: 2011 (Source: Bureau of Trade, MoEA)In conclusion, to understand the potential of Japan-Taiwan strengthening bilateral relations,just any other bilateral relations, one needs to revisit the current global, regional, andcountry-specific circumstances. The challenging questions for us in the context of global andregional geo-politics and geo-economics are: (1) how do we cope with a resurgent China under PRC?(2) how do we manage the resource competition with PRC’s pursuit of industrialization just as－ 36 －39others before? (3) how do we forge win-win-win rather than zero-sum game in the mutuallyindependent world? The comprehensive understanding would then put into perspective where theconcerned parties stand, and where maximizing mutual benefits in the case of Taiwan-Japanrelations could be further pursued in a sustainable and long-lasting fashion.－ 37 －41A Japanese ViewMotoshige ITOH, Ph.D.Professor, University of TokyoPresident, National Institute for Research AdvancementSuppose that, in the turn of the century, you listed 30 countries in the order of the size ofGDP and counted the number of the countries that were not in any regional trade agreements.There were only four countries. They were Japan, Taiwan, China and Korea. This fact showsthat East Asia countries were far behind the world trend of regional trade agreements.The picture has changed drastically since there. Suddenly, these four countries startedrushing for trade agreements with their trade partners. Korea is most aggressive and has alreadyconclude