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Eindhoven, 12 October 2011

Overview of Taiwan-Netherlands Economic Relations and Future Prospect. Thomas Tung, Director, Economic Division, Taipei Representative Office in the Netherlands. Eindhoven, 12 October 2011. Table of Contents Bilateral Economic & Trade Relations Similarities & Complementarities

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Eindhoven, 12 October 2011

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  1. Overview of Taiwan-Netherlands Economic Relations and Future Prospect Thomas Tung, Director, Economic Division, Taipei Representative Office in the Netherlands Eindhoven, 12 October 2011

  2. Table of Contents Bilateral Economic & Trade Relations Similarities & Complementarities Framework for Cooperation New Opportunities after ECFA Strategies for European Companies Future Prospect: Taiwan-EU ECA?

  3. 1. Bilateral Economic & Trade Relations • NL is TW’s 2nd largest trading partner in Europe • TW’s export to NL US$ 5.22 Billion (2010) • TW’s import from NL US$ 3.23 Billion (2010) • NL is TW’s 2nd largest investor(US$ 9 billion, up to 2010) • There are 160 TW companies in NL • NL and TW signed “Agreement for the Avoidance of Double Taxation” in 2001

  4. 2. Similarities & Complementarities • Similarities: • Small land size, high population density • Situated between big powers • Democratic, free & open society, rule by law • Trade tradition, export-oriented, FDI welcomed • Capable of resources integration and logistics • Dominated by SMEs • Complementarities: • NL: R&D, services, hub of western Europe • TW: manufacturing, logistics, gateway to China

  5. 3. Framework for Cooperation • Current framework: • Joint Business Council Meeting • Bilateral Agriculture Working Group • Areas of cooperation: agriculture/horticulture, water, logistics, manufacturing, financial services, etc. • New (additional) framework: • MOU on cooperation of R&D and innovation (high-tech systems & materials, green energy, life science) • EU FP7 • EU-TW ECA ?

  6. 4. New opportunities after ECFA • What is ECFA? • What are the new opportunities? • What does this mean to TW-NL business relations?

  7. A. Understanding ECFA Air Transport Sea Transport Tourism Financial Cooperation IPR Protection Standards & Accreditation Quarantine & Inspection Food Safety etc. 6 Rounds of Talks (June 2008 – Feb. 2011) ECFA 15 Agreements Future Talks (every 6 months) Expansion of ECFA, Investment Protection, Dispute Settlement, etc. Economic Cooperation Committee • ECFA(Economic Cooperation Frame- • work Agreement), effective 12/9/2010 • Trade in Goods • Trade in Services • Investment Protection & Facilitation • Early Harvest List • Economic Cooperation • Dispute Settlement • Preferential benefits (better than WTO treatment) to each other. • “Early Harvest List”: China agreed • to grant duty-free to 539 • Taiwanese products & materials, • and to open up 11 service sectors • to Taiwan. • Coverage of ECFA will be further • expanded as a result of future • talks.

  8. B. Discovering New Opportunities Taiwan ECFA (Effective on 12 Sep. 2010) China’s “The 12th Five-Year Plan” (Approved on 14 March 2011) Foreign Companies Gateway Bridge Key Economic & Income Growth (7% annually) Energy & Environment 2 Domestic Consumption (35%  40% GDP) Urbanization (47.5%  51.5%) More favorable market access to China 10 Key Service Industries1 • # Overall targets: • Energy intensity: cut energy • consumption per unit of GDP • by 16% from 2010 level • Energy consumption: cap • energy use at 4 billion tons of • coal equivalent • Non-fossil fuel: accounts • for 11.4% of primary • energy consumption • Carbon emission: cut by 17% • from 2010 level • # Main sectors: • Cleaner conventional • energy • - Renewable energy • Cleaner transportation • Electrical power infrastructure • Cleaner water • Green building Services Industries 1 (43%  47% GDP) 7 Strategic Emerging Industries 3 Clean & Green Energy 2 • # To support manufacturing • To boost employment & • domestic consumption • # Main sectors: • Financial • Supply chain logistics • Business & hi-tech services • Public healthcare • Tourism & leisure • Culture • # Share of services to GDP • will increase from 43% • now to 47% by 2015 • # 7 SEIs • Biotechnology • New energy • High-end equipment • manufacturing • - Energy conservation & • Environmentalprotection • New energy vehicles • New materials • Next generation IT • # Will account for 8% of • GDP by 2015 & 15% • by 2020 6 Emerging Industries 3 Easing up Investment & Trade Restrictions Lowering Corporate Tax (17%)

  9. Taiwan: a High-Tech Manufacturing Center & Gateway to China Cost Down (Cost Reduction) Direct Cross- Strait Links Reduction of Cross-Strait Tariffs Elimination of Non-Tariff Barriers Global Connections High-Tech R&D & Manufacturing Center Close Links to NE & SE Asia Gateway To China R&D, Design, IPR Protection Value-Added Production, Supply Chain Management Marketing, Logistics Value Up (Value Creation)

  10. Appendix: Taiwan’s Current Economic Relations with China • Taiwan has very strong trade and investment relations with China. • Bilateral Trade:US$ 152 Billion (2010); Export:Import 10:3. • Two-Way Investment: • Taiwan  China: US$ 100 Billion; more than 80,000 Taiwanese companies in China • China  Taiwan: US$ 130 Million; • China’s investment in Taiwan is subject to some restrictions. But in the long run, Taiwan will gradually relax these restrictions. (2008.8 raised ceilings for Chinese investment, 2009.6 opened 205 sectors to Chinese investment, 2011.3 opened additional 42 sectors) • Taiwanese firms play a very important role in Chinese ICT production & services sectors, thanks to Taiwan’s advantages in language, culture, location, technology, production, business models, social environment, etc. • Among top 20 exporters in China, 7 are Taiwanese firms (2009).

  11. Direct sea links with China: • Harbors opening: • 11 seaports in Taiwan • 63 seaports & river ports in China • Save NT$ 1.2 billion annually, boost logistic efficiency and create new opportunities for Taiwan’s agriculture products in China. • Direct air links with China: • Passenger schedule & charter flights: 558/week (8 airports in Taiwan, 33 airports in China) • Cargo charter flights: 48/week(2 airports in Taiwan, 6 airports in China) • Personnel & Tourist exchanges: • Cross-strait travelers: 7.85 million person-trips (15 Dec. 2008 - 21 Nov. 2010) • Chinese tourists to Taiwan: 1.189 million person-trips (2010) • “Group Tourists”: currently under quota limitation of 4,000 persons per day; • “Individual Free Travelers”: new quota of 500 per day is expected to be introduced in June 2011.

  12. C. Identifying Areas for Cooperation 0. Taiwan’s ICT or traditional industries 1. Taiwan’s “6 Emerging Industries” & “4 Emerging Intelligent Industries” 2. China’s “7 Strategic Emerging Industries (SEIs)” 6. Netherlands’“9 Major Industries”

  13. 3. Taiwan’s “10 Key Service Industries” 4. Service sectors specified in China’s “The 12th Five-Year Plan” 5. Chinese service sectors open to Taiwan under “ECFA Early-Harvest List”

  14. 5.Strategies for European Companies (1-1) Move previously low-cost production in coastal China (where labor costs are soaring up recently)to other places; or Upgrade your eastern China production to high-end manufacturing (for export & domestic consumption); Inner China (mainly for domestic consumption) But you have to watch out Chinese R&D and production capabilities, IPR protection, shortage of skill labors & power supply, and increasing labor costs. SE Asia (mainly for export) TAIWAN A better choice 1. Otherwise, you should consider Taiwan as an ideal hi-tech partner that is able to offer you a good package of advantages – R&D, IPR, production, marketing, logistics, financing, legal, etc. [quality & reliability v.s. cost ] 2. Taiwan will help you to increase chance of success and reduce the failure rate. 3. “Made in Taiwan” enjoys better reputation & confidence than “Made in China”.

  15. Appendix: Suggestions to European Companies • Do your hi-tech R&D and manufacturing in Taiwan, commercialize your innovative concept into products & services, and sell them to Chinese & global markets. • Hire and train Taiwanese people in Taiwan or China to handle business for you in China. They will help you to better integrate the resources (horizontally and/or vertically) across the strait, and to more efficiently market and deliver your products/services to Chinese and global markets.

  16. 5.Strategies for European Companies (2) Taiwan R&D, Commercialization, Design, Manufacturing, Management, Logistics, Location, Language, Culture Invest in Taiwan ! Other Countries Set up Branch or Subsidiary in TWN Operation/ R&D Center Re-export ODM/EMS Contract ECFA Joint Venture Business Alliance Bridge-Building Projects TWN-EUR Alliance M&A/Equity Purchase Ex/Import Industrial Cooperation Business Match-Making Banks & Accounting/Law/ Consulting firms Component Production Component Trade Triangular Cooperation Europe(& Japan, US) Technology, Materials & Components, Equipment, Design, Branding, Business Services China Labor, Materials, Assembly, Market Size, Distribution Channel OEM Contract Ex/Import

  17. 5. Strategies for European Companies (3) BUFFET Approach Appetizer, Main Course & Dessert. Lots of choices. Take whatever you like !

  18. 5.Strategies for European Companies (4) Models for Triangular Cooperation A few illustrative examples: Example 1 Europe equipment, materials, system design + Taiwan high-end manufacturing, cost & quality control + Chinalocal marketing, distribution channels in China Example 2 Europeproduct design+Taiwanidea testing+Chinaproduction +Europebranding, business services + Taiwanmarketing, logistics and delivery of product to other countries Example 3, 4, 5 …… This is a Buffet, so please take whatever you like the best! • Good Example of “Japan-Taiwan business alliance”: • Japanese investment in China through Taiwan (joint venture or through • subsidiary in Taiwan); already more than 400 successful cases. • Their “survival rate” (78.0%) is higher than Japanese direct investment • in China (68.4%). [source: Mizuho Bank (瑞穗銀行), Japan]

  19. Appendix:Exploring the Great Potential of China’s Services Market • Chinese “12th Five Year Plan” specified the following key service sectors China would like to develop in the future: • Financial (banking, insurance, securities) • Supply chain logistics (incl. wholesale, retail) • Business services (accounting, legal, management, advertising, etc.) • Hi-tech services (R&D, engineering, etc.) • Public healthcare • Tourism & leisure • Culture & creative (design, architecture, etc.) • Share of services to China’s GDP will grow from 43% now to 47% by 2015. This represents a promising market for service providers worldwide. • But compare with the 70%+ ratio in most industrialized countries, there is still a long way to go for China. So the future potential is tremendous.

  20. Appendix: Re-defining the Chinese Market In stead of one big China market, there are “6 tiers” of cities in China(654 in total, 44 in the first 3 tiers).Each “tier” has unique consumption pattern & distribution channel. • Up to now, most foreign companies focus only on the 1st– 3rd Tier cities (30 or 40 biggest cities). Source: IBM Institute for Business Value;Chinese National Bureau of Statistics; Global Views Monthly Magazine, Taiwan 1st Tier: Beijing, Shanghai, Guangzhou & Shenzhen; 2nd Tier: coastal provincial capitals (省會) + Chongching, Chengdu; 3rd Tier: inner provincial capitals + more affluent regional cities (地級市); 4th Tier: other regional cities; 5th Tier: more advanced county-level cities (縣級市);6th Tier: other county-level cities, counties & more affluent towns (鄉鎮)

  21. But many Taiwanese firms have successfully reached hundreds of lower-tier cities, thanks totheir language, culture & commercial skills. They are very well established in several business areas, especially in the food and retail sectors. • Taiwan offers “Quality but Affordable” goods & services to many Chinese consumers. • The opening up of Chinese service market recently (ECFA) to Taiwan (inbanking, insurance, security, accounting, transportation & logistics, engineering R&D, exhibition & conference, computer services, design, movie, hospital, etc.)is another big advantage for Taiwan. • Taiwanese firms can provide invaluable partnership to European companies.European businesses will be able to gain experiences and expertise from Taiwanese companies through deeper collaborations.

  22. 6. Future Prospect (1) - Re-examining the Current Triangular Links Missing Links/Weak Links ? 1. SMEs’direct links with China & Taiwan, or connection with China via Taiwan. 2. Big companies’connection with China through Taiwan. (They have strong direct ties with China & Taiwan already) 3. FTA between EU & Taiwan. 4.EU/NLgovernment support for SMEs to reap the benefit of greater China market. 5. Big companies’ assistanceto SMEs to tap into Taiwan/China markets. ECFA Taiwan China EU-Taiwan FTA ③ NL Business ② ① ① ① Multinationals/ Big Companies EU/NL Government ⑤ NL SMEs ④

  23. 6. Future Prospect (2) -Taiwan-EU ECA ? • Impact of Korea-EU FTA (Free Trade Agreement) on Taiwan: trade in goods (electronic & electrical, machinery, auto parts & components) & services; investment; NTM & TBT; gov’t procurement; IPR; fair competition; labor & environment; dispute settlement, etc. • Prospect of Taiwan-EU ECA (Economic Cooperation Agreement): economic benefit vs political consideration; building-block approach • Potential of Taiwan-Japan BIA (Bilateral Investment Arrangement): market opening, investment promotion & protection; strategic alliance – global supply chain & China market • Taiwan-China ECFA, Taiwan-Japan BIA, what’s next?FTA with Singapore, Philippines, Indonesia, New Zealand, India, Japan, USA, EU and others?

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