RP to gain from Taiwan-China agreement, says MECO chief

MANILA, Philippines - The Philippines offers a compelling case as an investment destination for Taiwanese companies and will continue to capture more than its fair share of investments and job orders from one of the region’s top IT centers in the long-term, the chief of the Manila Economic and Cultural Office (MECO) in Taipei predicted.

MECO managing director and resident representative Antonio Basilio brushed aside predictions that the recently signed cross-strait economic pact between Taiwan and China would endanger the Philippines’ status as a top destination for Taiwanese investments and a key source of highly skilled and productive workers for Taiwan companies.

“The Economic Cooperation Framework Agreement (ECFA) will eliminate most tariffs on goods traded between China and Taiwan, except on many agricultural products. The ECFA will benefit Taiwan in several ways,” Basilio said.

Anxiety over rising costs in China however, have made Taiwanese locators, particularly those in the low- to medium-tech and labor-intensive industries, to either pull out of China or seriously consider relocating their operations to investor-friendly and lower-cost manufacturing hubs like the Philippines, he continued.

Taiwanese entrepreneurs in China have been discouraged by higher taxation and by a new labor law, introduced in mid-2007, which makes it harder to fire workers while boosting social security and severance payouts.

According to Citi Investment Research, China’s labor law has caused many Taiwanese companies to close, not only due to the direct cost of compliance, but also because “their suppliers, which tend to be smaller companies, were shutting down, causing the cost of materials to grow.”

Cheng Cheng-ping, an associate professor of economics at Taipei’s Soochow University, estimated that these investment-related policies have driven around a quarter to a third of the “Taishang” or Taiwanese entrepreneurs in China to relocate their operations to Southeast Asia or to China’s hinterland, while a further 10 percent have quietly returned to Taiwan.

“This provides an opportunity for the Philippines,” said Basilio.