US-Taiwan Free Trade Agreement

Tracking news and information about the proposed US-Taiwan Free Trade Agreement (FTA)

Friday, August 17, 2007

US-Taiwan FTA overdue: report

Thursday, August 16, 2007

Free Trade with Taiwan Is Long Overdue

Thursday, August 09, 2007

Hand-tool Makers in Taiwan Besieged by Signing of Free Trade Agreements

CENS.com – The Taiwan Economic News

The free trade agreement (FTA) that the United States signed with South Korea in April further opens the American market to Korean exports, including hand tools, and imposes additional pressure on Taiwan`s tool manufacturers. The island`s tool makers feel more threatened, however, by a similar agreement between the Southeast Asian nations and China that is scheduled to take effect in 2010.

According to market researchers at the government-funded Metal Industries Research and Development Center (MIRDC), the U.S. is the biggest market for hand tools made in Taiwan, South Korea, and China. South Korea`s manufacturers have a 5% share of the American market, vs. 35% for Taiwan and 38% for China.

The MIRDC analysts believe that even if the U.S. should grant a zero import tariff for South Korean tools, it would make little difference because of the high unit prices of South Korean products: US$18-20 per kilogram, compared with just US$5-6 for Taiwan and US$2.5-3 for China.

With 30 years of development in the U.S. market, Taiwanese makers of wrenches, pliers, and numerous other steel tools such as screwdrivers enjoy a share of the market there that ranges from 20% to 50%.

MIRDC specialists are very concerned, however, about the upcoming FTA between China and the Association of Southeast Asian Nations (ASEAN). One of them, F.J. Chen, fears that China will soon capture much of Taiwan`s market in that area, and urges the government of Taiwan to negotiate tariff reductions with the island`s trading partners based on the model of the World Trade Organization talks on Market Access for Non-Agricultural Goods.

Mainland China unseated Taiwan as the world`s largest hand-tool exporter in 2003 with overseas sales worth US$1.38 billion, accounting for 18.3% of the US$7.6 billion worth of hand tools exported by he world`s top-10 exporters that year. At the same time Taiwan`s exports dropped to US$1.29 million, for a 17.1% share. The top 10 are China, Taiwan, Germany, the U.S., France, Britain, Italy, Sweden, Japan, and the Netherlands.

Taiwan`s hand-tool makers hope that digitization will help them keep ahead of competitors in China. This picture shows the core of Taiwan`s digital gauge, including a control printed circuit board, MEMS sensor, and LCD display.

Declining U.S. Ratio

The U.S. is the world`s biggest tool importer, buying imports worth US$2.1 billion in 2005. Until 2003, that is where 40% to 45% of Taiwan`s exports went; last year, though, the ratio dropped to 33.1% because of increased exports to mainland China.

Ms. Chen says that the U.S. hand-tool market surged in 2003, due partly to increased demand for house refurbishing. The more than 200 million vehicles on American streets and roads also drove up the demand for repair and maintenance tools. "In the past," Chen notes in a study of the subject, "professional tools were the main items in the U.S. hand-tool market. In recent years there have been increased sales of end-user tools as a result of the do-it-yourself trend, along with the economic recovery. The need among end users for ergonomic tools is especially striking."

But Chinese sales have overtaken those of Taiwanese tools in the U.S. and also Germany, the largest market in Europe, where Chinese tools account for 22% of the market. China has also become a big exporter to Taiwan, having replaced Japan as the island`s biggest source of tools with 47% of total sales.

The mainland is also threatening Taiwan in smaller markets. Its exports of hand tools to Britain amounted to US$81 million last year, compared with US$78 million for Taiwan. Also in 2006, China shipped US$65 million worth of tools to Japan (compared to Taiwan`s US$73 million), US$52 million worth to Canada (compared to US$64 million for Taiwan), and US$28 million worth to Australia (compared to US$40 million for Taiwan).

During the four-year period ending in 2005, shipments by the world`s top-10 exporting countries grew at a compound annual growth rate (CAGR) averaging 6.3%. Mainland China`s CAGR was high above the average, at 20.2%, while Taiwan`s was below it, at 4.9%, according to the Industrial Technology Intelligence Service of the Ministry of Economic Affairs, which tracks domestic industries.

The unit prices of China`s products have climbed along with its exports. The average export unit price was US$4.7 kilogram last year, up from just US$1.83 in 2003. Unit prices of Taiwan`s exports are also up, from US$4.86 per kilogram in 2003 to US$6 today. For high-end suppliers like Germany, Australia, Switzerland, and Japan, unit prices are above US$15 per kilogram.

Alliance for Hand-tool Progress

To keep ahead of China in both quality and value, six Taiwanese hand-tool makers have entered into an alliance with the island`s China Steel Corp. (CSC), under which they recently introduced four new products with a quality that is claimed to be as good as those made in Europe and the U.S. in both torque and anti-friction performance. The CSC predicts that these four tools-a high-torque socket, thin-wall socket, durable scissors, and durable pliers-will add NT$720 million (US$22.7 million at NT$33:US$1) to Taiwan`s annual hand-tool sales.

The CSC also plans to enter into another alliance this June for the development of high-end metal materials and saw processing technology in cooperation with five local hand-tool makers as well as the MIDRC and National Cheng Kung University.

One major breakthrough made by local hand-tool makers is the digitization of their products. A group of them has worked with the Mechanical Industry Research Laboratories (MIRL), a unit of the government-backed Industrial Technology Research Institute (ITRI), on a nail-sized digital gauge that incorporates a micro-electromechanical system (MEMS) with sensing and data-processing capabilities and digital-display technology.

That alliance grew into a joint venture named the Eclat-Torq Technology Co., which began pilot production late last year and achieved a monthly production volume of 10,000 units early this year. In early 2007 the company landed NT$20 million (US$606,000) worth of orders from European and American buyers for 6,000 tools equipped with the intelligent gauge.

Li Ming-hua, the company`s general manager and a former MIRL project manager, says that the gauge is able to precisely measure a variety of things including torque force, tension force, temperature, and even the calories a user consumes on the job.

Tai Yucheng, executive secretary of the Medical and Surgical Instruments Project Office of the MIDRC, suggests that local hand-tool makers should move quickly into the production of medical and surgical tools so as to boost the value of their products. He predicts that the production value of the domestic medical and surgical tools industry will grow from NT$7.7 billion (US$233 million) in 2005 to NT$10 billion (US$303 million) in 2011.

The executive secretary says that Taiwan`s advantage in the development of medical and surgical tools include its integrated metalworking industrial infrastructure, abundant capital, and the strong willingness of tool manufacturers to expand into this new field. However, the island has a shortage of large medical-equipment suppliers that would be able to funnel locally made tools into the marketing systems of major international brands. In addition, local makers of surgical tools focus too much on low-end products, forcing them to engage in cutthroat price competition.

(by Ken Liu)