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Number 669, April 2002 by Johnson Louie |
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General Information
Legal Cluster Bio-Geographic Cluster Trade Cluster Environment Cluster Other Clusters |
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Number 669, April 2002 by Johnson Louie |
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General Information
Legal Cluster Bio-Geographic Cluster Trade Cluster Environment Cluster Other Clusters |
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I. Identification
1. The Issue
As part of Taiwan's ascension to the WTO, the government is required to remove subsidies, which will increase the price of rice wine by five times. Also, the government will no longer enjoy the monopoly on rice wine production and distribution, long considered a major ingredient in Taiwanese cooking. The product is under the regulation of the Taiwan Tobacco and Wine Board (TTWB), an agency of the Ministry of Economic Affairs. Even though consumers in Taiwan do not consider rice wine as an alcoholic beverage, it is still subjected to be subsidy-free to maintain fair competition under WTO agreements. One thing is certain; rice wine consumers in Taiwan will feel an incremental increase in the price. The Taiwan market might soon find competing brands of rice wine, possibly from Mainland China, as both trading partners must give each other equal access under WTO rules. This will add a new dimension to the growing China-Taiwan economic relations.
2. Description
As part of Taiwan's WTO ascension agreement, the island is forced to give up its decades old monopoly on tobacco and wine products, as well as its 50-year old restrictions on Taiwan investments in Mainland China. The agreement will open competition among various domestic and international manufacturers, especially the agricultural sector, a traditionally protective part of the economy. It is feared that the removal of protective barriers and reduction in tariffs will open up the floodgate of cheaper goods from the mainland, risking the loss of thousands of jobs. This sector of the economy has greater cultural and political significance than others.
The Taiwan government, itself, will start feeling competitive pressures from domestic and foreign alcohol beverage producers. The breakup of the government's monopoly on alcohol production has allowed Sincere Foodstuff Enterprise Co. to introduce locally produced rice wine in March. The "Hua Shan" brand is expected to be priced very competitively with the Red Label brand. It is also introducing a milder version called "Milu Water" for mothers after giving birth to be consumed in conjunction with other nutritious foods to encourage a speedy recovery.
Some in Taiwan are formulating plans to market rice wine with salt added to
make a distinction between rice wine as an alcoholic beverage and cooking ingredient
in hopes of evading the WTO measures. To find more cost-effective easy to satisfy
the demands for rice wine, a Taiwan celebrity has spent NT$ 20 million to develop
a 'rice wine desalinator'. Salted rice-wine, mainly for cooking purposes, is
a lot cheaper than unsalted, pure rice wine. It is hope that the rice wine desalinator
could meet the needs of Taiwan consumers by turning the cheaper salted variety
to unsalted rice wine. There is generally a preference for pure rice wine. Even
though the desalinator is priced at NT$ 68,000 each, as shown in the table below,
it might be advantageous to purchase the machine due to the disparity in prices
between the two varieties of rice wine.
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Rice Wine (Red-Label Brand)
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Price per bottle before WTO entry
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Price per bottle after WTO entry
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Unsalted (40% proof)
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N/A
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NT$180
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Unsalted (20% proof)
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NT$21
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NT$130
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Salted (40% proof)
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NT$44
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NT$64
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Salted (20% proof)
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NT$24
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NT$48
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Although the pressures on the Taiwan government to scrap its monopoly on tobacco
and wine products are a result of the island's membership into the WTO, trivial
trade regulations emanated from the organization's headquarters in Geneva, Switzerland
are having an impact in kitchens all across Taiwan. For example, Bei Hong-jou,
a housewife in Taiwan uses rice wine to add flavor to popular dishes such as
ginger duck, sesame oil chicken, as well as a main ingredient in medicinal and
herbal tonics. Mothers after giving birth consume rice wine as part of a special
herbal soup that encourages a speedy recovery. The news of the impending increase
in the price of rice wine by 500% has sent her and many other housewives to
buy up abundant supplies before the price increase takes into effect on January
1, 2002. She is expected to pay NT$ 130 per bottle, from the original price
of NT$21 each, when her supply of Red-Label rice wine runs out. Even though
the use of rice wine for recreational drinking purposes is only at 1.7% of the
total alcoholic beverage consumption in Taiwan, as stated by Cheng Hsiung-chu,
director general of the TTWB, WTO does not make any distinction between the
use of alcohol for cooking and drinking. Either way, the removal of the state
monopoly, as demanded by the WTO, will be felt in the budgets of every household
in Taiwan. It remains to be seen whether the astronomical rise in rice wine
prices would change the way the Taiwanese cook. Many housewives are considering
limiting the amount of rice wine to purchase or switching to the cheaper salted
kind.
3. Related Cases JAPRICE--Japan's
Rice Imports and Economic and Environmental Relations
KORRICE--Korean Rice Imports and Culture
PORK--Korean Pork Imports and Barriers to Trade
4. Author and Date:
Johnson Louie, April 2002
5. Discourse and Status:
With Taiwan's entry into the WTO in January 2002, various agreements negotiated
in the Uruguay Round will have an impact on Taipei's economic rules and regulations.
The most relevant agreements are:
1. Agreement on Agriculture Agreement on Agriculture
Since Taiwan entered into the WTO as a customs territory at the developing
country level, it has to replace all of its quotas into tariffs, with an average
tariff reduction of all agricultural products by 24% and a minimum cut per product
by 10% within 10 years of its ascension. Abiding by the agreement, Taiwan has
to mark two-thirds of all agricultural products for tariff reduction within
the time frame. The measure that will impact Taiwan the most is the markdown
of the values of subsidies and subsidized quantities by 24% and 14%, respectively.
Also, the total aggregate measure of support (AMS) has to decrease by 13%. This
will have a tremendous political bearing because the Taiwanese agricultural
sector is extremely politically influential.
Agreement on the Implementation of Article VI
Although this is still speculative at this point, the lifting of restrictions
on imported rice wine, mainly from China, may cause a possible trade tensions
between the two sides if China attempted to cut Taiwan's competition in its
domestic market by "dumping" its rice wine, owing to the lower labor and material
costs on the mainland. China's possible actions in this area could cause anti-dumping
measures to be invoked by Taiwan, if it is deemed injurious to Taiwan's economy.
Agreement on Subsidies and Countervailing Measures
This is probably the most relevant to the rice wine case study because it is
the removal of the subsidy on rice wine before Taiwan's ascension to the WTO
that led to a five-fold increase in the price. Before, rice wine production
and sale were totally subsidized by the government. Under this agreement, no
member is allowed to enact subsidies that give its domestic products advantage
over others. The agreement identifies three types of subsidies: "prohibited,"
"actionable," and "non-actionable." In Taiwan's case, "prohibited" and "non-actionable"
subsidies are the most relevant. The former is used to favor the consumption
of domestic goods over imported ones, and the latter to provide assistance to
the production of domestic goods by a series of laws. Abiding by the agreement,
it must gradually remove all subsidies within eight years. This will open competition
for rice wine, plus other alcolholic beverages from domestic and foreign producers.
Agreement on Safeguard
Under the old GATT agreement, a "safeguard" action is a form of protection
for specific domestic industry from an unforeseen increase in imports of any
product, causing, or likely to cause, serious injury to the industry. Although
still speculative at this point, if cheap Chinese rice wine were perceived to
be undercutting the Taiwanese rice wine industry, it may take political actions
to declare it worthy of "safeguard" measures. The WTO agreement stipulates that
"safeguard" must be removed within eight years of a member's entry. A government
may enact it temporary if competition of a certain product is putting the life
of a certain industry at risk. It remains to be seen whether the threat to Taiwanese
taste buds and rice wine consumers posed by cheaper Chinese rice wine would
lead the government to take such drastic measures, unless Taiwan's politicians
think that rice wine and the people's taste buds are national security issues.
6. Forum and Scope: WTO and multilateral
7. Decision Breadth: all members of the WTO
II. Legal Clusters
2. Agreement on Implementation of Article VI (Anti-dumping)
3. Agreement on Subsidies and Countervailing Measures
4. Agreement on Safeguards
9. Geographic Locations
a. Geographic Domain: Asia
b. Geographic Site: East Asia
c. Geographic Impact: Taiwan
10. Sub-National Factors: No
11. Type of Habitat: Tropical
12. Type of Measure: Tariffs
Rice and rice products are ban for entry into Taiwan. However, upon its ascension
to the WTO, Taiwan has to establish Tariff Rate Quota (tariffication) for many
products previously banned for entry-including rice and rice products. Tariffs
on agricultural products are higher than industrial goods, owing to the strong
domestic opposition to tariff reductions in food products. In 1998, Taiwan was
forced to lower tariffs on 15 agricultural items as part of WTO ascension agreements
with countries, including the U.S. The average nominal tariff rate on food items
is 20.02%. The tariff rate on agricultural products is scheduled to be lowered
form 20.02% to 14.01% this year as part of the WTO agreement. A subsequent U.S.-Taiwan
WTO pre-ascension agreement reduced tariffs on an additional 33 agricultural
items, with a target of 100 items marked for tariff reductions by 2004.
13. Direct v. Indirect Impacts: Direct
14. Relation of Trade Measure to Environmental Impact
a. Directly Related to Product: Yes
b. Indirectly Related to Product: Yes
c. Not Related to Product: No
d. Related to Process: Yes
15. Trade Product Identification: Rice wine
16. Economic Data (N/A)
17. Impact of Trade Restriction: High
18. Industry Sector: Food
19. Exporters and Importers: Taiwan and China
20. Environmental Problem Type: Habitat
21. Name, Type, and Diversity of Species
22. Resource Impact and Effect: Low and structure
23. Urgency and Lifetime: Low and hundreds of years
24. Substitutes: Like products
25. Culture: Yes
26. Trans-Boundary Issues: No
27. Rights: No
28. Relevant Literature (articles accessed in Lexis-Nexis)
"Rice Wine Giving Industry Red Face, New Crackdown Urged," China
Post, November 22, 2001.
8. Legal Standing: treaty and
organization
III. Geographic Clusters
IV. Trade Clusters
V. Environment Clusters
VI. Other Factors
Mark Landler, "Change Ahead As Taiwan Enters W.T.O." The New York Times, November 9, 2001.
"TTWB to Take Measures to Cope with Post-WTO Rice Wine Price Hike," China Post, November 14, 2001.
Mure Dickie, "Wine Rationing Gives Taiwan Taste of Open Market," Financial Times (London), November 20, 2001.
Henry Chu, "Taiwan's Tempest in a Rice Wine Bottle," Los Angeles Times, December 16, 2001.
"Retailers Worry Demand Will Fall After Rice Wine Price Hike," China Post, January 2, 2002.
Lawrence Chung, "WTO Entry Could Change the Way Taiwanese Cook," The Straits Times (Singapore), January 3, 2002.
"War Comes to Taiwan's Liquor Market," Taiwan Economic Times, March 8, 2002.
"New Desalinator Should Improve Overall Quality of Red-Label Wine," China Post, January 10, 2002.
Photographs courtesy of the Government of Taiwan
4/2002