5. Significance of the research
1.3 Bilateral liberalization through FTAs
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increased productivity, and efficiency. The goal of the state was achieved. But it has been overshadowed by an extremely small portion of its economy: Agriculture.
While the 2010 TPR by Taiwan made reference to multi-functionality as a reason for the protection of agriculture, the 2014 TPR goes much further, and establishes stronger ideational rationales for protecting the domestic sector, which seem to be getting a hold on Taiwanese policy. Paragraph 4.9 of the TPR starts by recognizing that Taiwan, as a net importer of food with a vulnerable agricultural sector, has always faced challenges in this sector (WTO, 2014, p. 11). It goes on to argue that Taiwan “considers that there is no “one size fits all” approach to the liberalization of agricultural trade”, thus stepping away from the internationalization of standards. It also brings up once again the concept of multifunctionality of agriculture requesting that it should be given full consideration. Finally, the same paragraph ends up by supporting the flexibilities that the DDA Agricultural Negotiations is planning to give to net food importers in their trade liberalization efforts. Once again, ideas regarding the process of liberalization are conflicting, and we can appreciate liberalization and protectionism trying to find a middle-path which would make certain levels of protection acceptable in light of a different set of values (discarding the exclusivity of efficiency).
Taiwan’s liberalization in agricultural trade in the 2001-2014 period has been questioned within and beyond the WTO. It has not followed a path even remotely close to its liberalization in other industries. And while some progress has been made in tariff barrier lifting, NTBs remain at a rather high level. These are matters that have been addressed in its bilateral liberalization process, where Taiwan has further liberalized its agriculture giving preferential treatment to a small number of partners that have achieved FTAs.
1.3 Bilateral liberalization through FTAs
Apart from the multilateral commitments, Taiwan has engaged in bilateral negotiations, which concluded in FTAs with several countries. In them, it has made concessions of preferential market access, allowing for a reciprocal preferential treatment. The agricultural sector has not been absent in these negotiations, and Taiwan’s trading partners have asked for concessions in this regard. “Negotiating FTAs will definitely require further comprehensive liberalization of both the goods and services sectors. While agriculture remains a sensitive and comparatively vulnerable sector compared with the industrial and services sectors, even with the industrial sector certain subsectors also need to engage in
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painful consensus building before the government decides to remove tariff and non-tariff protection” (Hsu T.-T. , 2012, p. 51).
Even though the agreements reached were not with Taiwan’s main trading partners, the FTAs included provisions towards market access that eased the entry of foreign agricultural products into Taiwan, thus generating liberalization in the market through bilateral agreements. The FTAs signed by Taiwan are the following:
Fig. 11. Taiwan’s FTAs Zealand is the most important agricultural partner of the list. All of them, however, included provisions for the liberalization of meat which have allowed players that are not important in meat exports to participate of Taiwan’s meat markets. In terms of tariffs these are the following:
Fig. 12 Schedule in meats of Taiwan’s FTAs
Country Preferential tariff/schedule
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These FTAs helped improve the liberalization of the Taiwanese meat markets of bovine, porcine and ovine meats mostly, and less of chicken products, since it was excluded from most negotiations. The average level of ad valorem and non ad valorem tariff rates is brought down by the preferential market access granted to these countries, in schedules that liberalize in a maximum period of 15 years.
It must be considered that, apart from New Zealand, none of the other countries that signed FTAs with Taiwan are relevant exporters of meat. Thus the preferential reduction of tariffs is not necessarily met with an increased competition within the domestic market.
Furthermore, the reduction in the most sensitive items (pork and chicken) had much longer schedules, with several items being directly excluded from the negotiations.
Taiwan’s bilateral liberalization strategy and its preferential market access were in line with its policy of bringing down tariffs. It important however to also review the SPS chapters of these FTAs to see if liberalization also followed suit in preferential access to the market for Taiwan’s FTA partners. Starting with the Panama agreement, it clearly establishes that
“Sanitary and phytosanitary measures shall not constitute a disguised restriction to trade and shall not have the purpose or effect of creating an unnecessary obstacle to trade between the Parties” (Bureau of Foreign Trade - ROC, 2004, p. 66). The agreement aims for transparency with the generation of a bilateral SPS committee, and it fixes the needs of both parties through transparency mechanisms. It goes on to establish international standards as
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the guidance for the harmonization of bilateral standards in SPS related issues. In terms of animal health, the FTA also sets the OIE standards in the recognition of disease-free zones, thus forcing both parties to comply with international standards when it comes to agricultural trade issues. More importantly, it eliminates arbitrariness from agricultural trade related issues by the imposition of several articles which will force both parties to comply. Two which should be highlighted are Articles 8.07 and 8.09; the first one sets a limit of 60 days in order for one party to answer if they believe that a measure is being taken with arbitrariness; the second one sets a maximum deadline of 100 days for the importing party to conduct inspections for the approval of exports when these are requested by the exporting party.
The format developed in the SPS chapter of the Panama-Taiwan FTA was followed in the next ones, being these highly similar to the one signed with Panama. The agreement with Guatemala highlights the same points regarding animal and human sanitary measures (food safety as a central concept, harmonization of international standards with room for the implementation of additional measures only given that there is enough scientific evidence, measures for increased transparency), since it is basically a copy of the format developed in the Panama agreement. The Nicaragua agreement also establishes very similar measurements, but it puts more emphasis on the creation of the bilateral SPS committee (which is contemplated by the other agreements as well), establishing deadlines for its creation, and delimiting its functions with more detail. In the case of Honduras and El Salvador, they signed their agreements with Taiwan in a joint manner (there is only one agreement for both countries, even though they have different tariff schedules). This agreement, however, scales back the bilateral liberalization that the first three agreements established, by putting local needs over international standards in article 8.03. The agreement does include an article on harmonization towards international standards (8.05), but the fact that it includes the right towards independent standard setting practices makes it different from the others in SPS commitments. Apart from this point, the SPS clauses agreed upon are the same as in previous FTAs.
The ANZTEC, however, is an agreement that was negotiated from scratch, without using the template that was used for previous FTAs. In all the Central American FTAs, the SPS chapter had been chapter number 8; in the ANZTEC however it is chapter number 6.
The full negotiation of the SPS chapter makes sense with New Zealand, since it is a country that has been exporting large quantities of agricultural products to Taiwan, and it hopes to keep on doing the same with assurances established in the FTA. One highly relevant point within this new agreement is established in article 6.7, when the agreement establishes that
“any determinations in relation to regionalisation, pest-free or disease-free areas, areas of low pest or disease prevalence, zoning and compartmentalisation shall be recorded in an
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implementing arrangement” (Bureau of Foreign Trade - ANZTEC, 2014, p. 47). New Zealand and Taiwan agreed to conduct bilateral consultations, and come to an agreement before any of the parties can take SPS measures regarding animal health. This certainly gives both parties a say in the implementation of domestic agricultural trade policy decisions.
Continuing with ANZTEC, there is an article within the agreement that aims to achieve equivalence between both parties in SPS measures and systems. As this research pointed out in the introduction, Taiwan has granted system certification to the meats imported from New Zealand and other developed countries, while its Central American FTA partners have not acquired such system certification (forcing each producing company and slaughter house to obtain its certification). While the Central American FTAs do have an article calling for equivalence, this has not happened, while New Zealand has achieved equivalence in SPS measures recognition. The “Equivalence” article of ANZTEC is much more detailed, and establishes a mechanism to achieve the goal, while in Central American FTAs it was basically a demonstration of good intentions rather than a specific commitment.
ANZTEC is also an agreement that looks to eliminate properly each possible arbitrariness in the implementation of SPS/TBT measures. Several paragraphs point towards this goal, and it worth mentioning here article 6.11.1: “The import checks applied to imported animals, animal products, plants and plant products or other related goods traded between the Parties shall be based on the risk associated with such importations. They shall be carried out in a manner that is least trade-restrictive and without undue delay” (Bureau of Foreign Trade - ANZTEC, 2014, p. 51). Thus the agreement makes agricultural trade much more predictable, and less prone to manipulation by the local authorities of either party by locking specific procedures through this international commitment.
Thus bilateral agreements further helped the liberalization of agricultural trade in Taiwan by granting preferential access, transparency, improved SPS/TBT measures, reduced tariffs and stronger communication channels between the parties. While the countries that signed these FTAs with Taiwan do not represent the core of agricultural trade worldwide, it is a positive sign a feasibility that Taiwan has put on the table towards further liberalization on bilateral basis of this protected sector. It also shows a clear preference on the part of Taiwan towards bilateral liberalization of agriculture rather than multilateral liberalization.
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So far this research has analysed the process of liberalization of agricultural trade that Taiwan went through from its WTO accession until the end of the year 2014. However, the results (or lack of results) of liberalization in trade have to be understood in light of the actual trade relationship between the international suppliers, the domestic suppliers and the consumer market. Thus to properly understand the phenomena, a brief market research becomes necessary, in order to be able to quantify the market itself. Changes in domestic production, and international imports, will not only allow to quantitatively understand the relevance of the phenomena, but it will also point out the trends in terms of market players and market share that are a result of liberalization. Therefore the following two sub-sections will be focused on the market itself, from a quantitative and a regulatory perspective respectively.
2.1 The meat markets
In order to understand the market, this research will look at three figures in particular, which it will analyse, regarding the HS codes to which this research refers. The first one is the total imports, the second one is the domestic production. Adding these two, and subtracting exports will give us the total market figure for each type of meat. Finally, we need to look at the origins of imports as a fundamental piece of data towards this research’s conclusions.
Taiwan imports roughly US$ 1 billion a year worth of meat products, which is even more interesting a market when we understand that the players in the market are limited, therefore competition is also quite limited. It is not as relevant as the US$ 60 billion of imports of petroleum, or even the US$ 3 billion worth of copper that the country imports yearly. The difference is that meat is mostly an end product, while the other two are inputs of production.
US$ 1 billion is an important amount for an end product, and it is well known that countries in East Asia, as net food importers, produce higher returns than other developed economies in these sectors. As a net food importer, Taiwan relies heavily on imports for such a fundamental item.
What is Taiwan importing in terms of meats? This research does not look at processed meat, and it sidelined meats that are not highly representative of the total market (such as horse meat), but it does include the most consumed fresh, chilled and frozen meats in the Taiwanese market
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Fig. 13. Imports of meat into Taiwan (US$ thousands)
YEAR 2001 2002 2003 2004 2005 2006 2007
Bovine fresh or
chilled $28,251 $27,649 $39,674 $39,011 $56,688 $50,491 $66,385 Bovine frozen $143,996 $167,572 $208,006 $182,488 $230,194 $266,583 $249,222 Swine fresh, Bovine frozen $275,979 $269,946 $357,327 $408,969 $378,508 $440,871 $478,877 Swine fresh,
TOTAL $633,924 $615,889 $796,488 $927,424 $871,239 $950,411 $1,166,091 *Source: Trade Map
As we can appreciate from Fig. 14, Taiwan imported US$ 1.16 billion worth of fresh, chilled or frozen meats on the year 2014. The year 2014 represented the first year in which Taiwan imported more than US$ 1 billion worth of meat. It represents a large growth from the year 2001, where the total amount of imported meat for the HS codes under research was US$ 240 million. Thus it is clear that foreign suppliers have achieved stronger market
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access since Taiwan’s WTO accession. Anderson’s NRA measurements therefore reflect such a situation of diminished protectionist levels, while at the same time market figures reflect an increased presence of foreign meat products.
In terms of relevance of imports, bovine meat is the most important type of imported meat, followed by poultry, pork and ovine. Bovine reached a total amount of imports US$
689 million in the year 2014, up from US$ 172 million in the year 2001. Swine and poultry imports have increased manyfold since the year 2001, even though the previous analysis of multilateral and bilateral liberalization indicated that these two types of meats are the ones where most SSG and exclusions from trade negotiations have taken place. It will be noted later on, however, that the largest worldwide exporters of pork (Germany) and poultry (Brazil) are not present in the market.
The numbers presented above, however, do not tell us the relevance of imports vis-à-vis the whole market. For that, it is important to look at Fig. 15, which indicates the domestic production for these types of meats. These figures were obtained from the Statistical Yearbook of the Republic of China, which is available only up to the year 2013 at the time of writing17. The aggregation of figures is a little bit different, since domestic statistics do not consider offal as a different item from the total meat products. These figures are the following:
Fig. 14. Domestic production of meat (US$ thousands)
Product/Year 2001 2002 2003 2004 2005
Swine $1,372,556.11 $1,426,896.98 $1,671,155.20 $1,932,907.38 $1,834,978.67 Bovine $21,211.72 $26,632.28 $38,635.69 $42,436.66 $52,672.01 Ovine $23,715.13 $26,637.79 $28,942.79 $36,377.99 $38,684.85 Poultry $945,626.67 $947,332.52 $866,506.13 $1,070,842.14 $1,283,674.53
*Source: Statistical Yearbook of the ROC
Product/Year 2006 2007 2008 2009 2010
Swine $1,703,951.84 $1,734,653.43 $2,175,783.01 $2,000,252.99 $2,244,847.99 Bovine $48,347.38 $48,607.18 $44,354.45 $44,236.26 $50,515.53 Ovine $35,708.11 $25,465.30 $27,759.81 $25,443.02 $30,206.75 Poultry $1,138,620.55 $1,211,478.78 $1,440,026.23 $1,338,676.84 $1,399,988.02
*Source: Statistical Yearbook of the ROC.
17 This section was written in August 2014.
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Product/Year 2011 2012 2013
Swine $2,252,347.36 $2,257,125.43 $2,237,072.53 Bovine $54,344.65 $67,282.70 $70,172.60 Ovine $28,415.67 $39,111.03 $38,477.10 Poultry $1,487,102.02 $1,520,183.29 $1,587,421.13
*Source: Statistical Yearbook of the ROC.
Taiwan is thus a large producer of pork and poultry, but relies heavily on imports of bovine and ovine meat. These kinds of meats require larger land endowments for an efficient production, which is a condition which Taiwan does not possess. Swine and poultry, on the other hand, can be produced efficiently with less land usage, making small family lots large enough for the production of these kinds of meats. In terms of hogs, it must be highlighted that up until the FMD outbreak in Taiwan of 1997, Taiwan was a large exporter of porcine meats (mostly to Japan), being an important player in the world’s swine market. It is an industry that Taiwan had developed largely as a consequence of the capital accumulation that occurred during the 1970s, which led the way for investment in capital intensive industries such as pork; it also developed through the change in dietary patterns of Taiwanese, looking for more protein intensive food, limiting the role of rice as a staple food and diversifying their intake patterns. The outbreak of FMD, however, decreased its level of production, bringing down the amount of hogs in Taiwan by over 40% of the existing livestock (Liu C.-W. , 2008); after it, Taiwan was never able to regain its “relevant exporter”
title, going to the point of having to import part of its total consumption from foreign markets, thus becoming a net importer.
Poultry meats are also important in Taiwan’s traditional diet, and thus the production is rather large. The growth in consumption has been matched with a growth in production plus a growth in the level of exports. However, Taiwan’s average exports for the years under analysis (US$ 9 million) are much smaller than its average imports thus making it a net importer of poultry as well, being unable to achieve self-sufficiency in any of the meats under research.
Bovine and ovine meat domestic production has been negligible in terms of total consumption for the period of research. Therefore, Taiwan is a net importer of these four types of meats. The relevance of imports vis-à-vis the domestic production varies greatly depending on which kind of meat we are discussing; the percentages of imports vis-à-vis domestic production for the years under research are the following:
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Fig. 15. Market shares of domestic and imported meats (%)18
2001 2002 2003 2004 2005 2006 2007 Domestic swine 99.33% 98.76% 97.91% 97.36% 97.94% 98.50% 98.86%
Imported swine 0.67% 1.24% 2.09% 2.64% 2.06% 1.50% 1.14%
Domestic
Bovine 10.96% 12.00% 13.49% 16.08% 15.51% 13.23% 13.35%
Imported Bovine 89.04% 88.00% 86.51% 83.92% 84.49% 86.77% 86.65%
Domestic ovine 38.39% 33.52% 36.33% 35.22% 33.93% 32.41% 27.24%
Imported ovine 61.61% 66.48% 63.67% 64.78% 66.07% 67.59% 72.76%
Domestic
poultry 98.47% 97.41% 95.76% 94.88% 93.31% 93.15% 94.32%
Imported poultry 1.53% 2.59% 4.24% 5.12% 6.69% 6.85% 5.68%
2008 2009 2010 2011 2012 2013 Domestic swine 97.71% 95.91% 96.44% 95.66% 97.64% 97.34%
Imported swine 2.29% 4.09% 3.56% 4.34% 2.36% 2.66%
Domestic
Bovine 11.06% 11.44% 9.81% 9.07% 12.04% 10.29%
Imported
Bovine 88.94% 88.56% 90.19% 90.93% 87.96% 89.71%
Domestic ovine 25.58% 30.04% 26.98% 23.60% 32.57% 34.85%
Imported ovine 74.42% 69.96% 73.02% 76.40% 67.43% 65.15%
Domestic
poultry 93.04% 93.55% 91.52% 91.26% 88.82% 90.85%
Imported
poultry 6.96% 6.45% 8.48% 8.74% 11.18% 9.15%
Even though swine meat is where imports are less relevant, according to Anderson and Nelgen’s (2012) NRA measurements, this is the meat sector where Taiwan imposes the least amount of protection, and we can see (Fig. 1) that it is also the item where the largest amount of countries have achieved market access. By contrast, poultry products show higher levels of protection in a market which is still largely dominated by domestic production.
It is possible to infer that Taiwan’s swine production remains competitive vis-à-vis imports, while poultry products require more protection in order to remain competitive, since the market share of domestic production is on a clear downwards trend.
For bovine and ovine products, the market shares are rather stable, and largely dominated by imports. As mentioned earlier, limited land endowments will affect the productivity of ruminants, while it is not as important for non-ruminants. Therefore domestic production will not be able to compete on an open market with imports. Even slight openings
18 The market shares of imports are actually a little bit larger, since offal cannot be disaggregated for domestic production.
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in the market can produce a massive inflow of foreign goods, since the price differences are
in the market can produce a massive inflow of foreign goods, since the price differences are