A Time to Realign Policy

On January 17, in the morning after opposition Democratic Progressive Party (DPP) Chairwoman Tsai Ing-wen won Taiwan’s presidential election with 56% of the vote and the DPP achieved a historic legislative majority, Ketagalan Media hosted the New Era in US-Taiwan Relations Conference in Taipei.

The panel event featured former AIT Director William Stanton, Professor June Teufel Dreyer of the University of Miami, Kharis Templeman of Stanford University’s Taiwan Democracy Project, and Professor Michael Hsiao of Academia Sinica. With new administrations in 2016 for both the US and Taiwan, there is an opportunity to evaluate and realign policy to better reflect current realities in the Asia-Pacific region in order to achieve the US and Taiwan’s present day diplomatic and economic interests.

Exemplary democratic practices

According to Kharis Templeman, elections in Taiwan are first and foremost extremely well-run for a young democracy, with smooth, efficient, and transparent vote counting. Taiwan’s election campaigns are also much more open and with more vigorous debate, compared to South Korea and Japan. Taiwan is very much a model for East and Southeast Asia in terms of democratic practices around campaign time, Templeman said. In the less positive, despite an expanded electorate since the last election, voter turnout declined again in this election, which could be a mark of disillusionment among some part of the electorate, particularly amongst supporters of the ruling but unpopular Chinese Nationalist Party (KMT).

Due to the historic defeat of the KMT, the speakers discussed the possible collapse of the KMT itself, whose internal party organization has been in tatters in the aftermath. There are no obvious leaders in the wings to rehabilitate the party, and the KMT has no apparent strategy to connect to youth voters, which it lost 5 to 1 in the 20-29 age cohort. The KMT’s current state, opined the speakers, may be a verdict on sitting president Ma Ying-jeou’s leadership and policies more than anything else. Templeman compared Ma’s approval rating, at below 20% for most of his second term, against that of Richard Nixon’s upon his resignation after Watergate, at 24%.

To Templeman, a KMT collapse would be bad for Taiwan’s democracy. In the experience of other democracies comparatively, highly institutionalized party systems do better, and those with high level of party collapse do worse, on all democracy indicators. Professor Hsiao and Professor Dreyer disagreed, with Hsiao asking “What’s the good?” with a corrupt multi-party system. Dreyer thought it odd to have concerns about the KMT collapse as it is not a party death, but a transformation of the two-party system. Either the KMT will change, or a new party will rise to fill the two-party system — maybe the New Power Party (NPP) or another one of the newer parties to emerge.

Multiplying Taiwan’s international partnerships

Professor Michael Hsiao described the 2016 elections as a “recharging”of Taiwan’s society, with a new societal force in power as indicated by the victory of Tsai Ing-wen, Taiwan’s first woman president and someone not from a political family, and by the NPP’s successful challenge to well established KMT candidates in New Taipei City, Taipei City, and Taichung. Hsiao cited the tian ran du (天然獨), or natural independence, mindset of Taiwanese youth in which a separate national and political identity from that of China’s is just the natural order of things.

According to Hsiao, the shift in Taiwan’s society will affect the future course of Taiwan’s international relations — from being dominated by its policy towards China, to developing a global strategy that, especially, recognizes vital democratic allies. Though Taiwan will not abandon China, and will work with and dialogue with China, Taiwan’s society should be ready for a more holistic strategy that refocuses to engage more strongly with the US, Japan, India, and Southeast Asian partners.

Dr. William Stanton offered words on Taiwan’s economy, highlighting its unrecognized strengths: Taiwan is #22 in the world in GDP, ahead of Brazil; in per capita GDP, ahead of France, the EU, and Israel. The problem, however, lies in the dependency on trade which constitutes 70.1% of GDP, with 40% of exports to China and Hong Kong. Therefore, Stanton agreed there is a need for diversification by Taiwan whereas President Ma was principally interested in trade with China. As an example, Stanton cited Ma’s response whenever the Trans-Pacific Partnership (TPP) has been raised in conversation — that the trade in services or trade in goods agreement with China must be finalized first as a precondition to considering the TPP.

The Tsai Ing-wen victory means that the DPP is certainly looking for new economic partners. Tsai visited both the US and Japan prior to the elections, and she mentioned them both in her victory speech. Dr. Stanton mentioned India’s interest in Taiwan and the decision of Indian grad students to choose Taiwan for Mandarin Chinese study over China. On developing trade with Vietnam and the Philippines, Dr. Stanton said that Taiwan is already the largest single investor in Vietnam while connecting with the Philippines holds many geopolitical benefits. Australia is a possibility too, but as Australia currently exports 30% of its goods to China, there is critique of US presence in Asia from Australia.

Stanton also commented that the biggest obstacle to liberalizing trade in Taiwan is its own provincialism and protectionism. Discussing the issue of US pork, he highlighted that less than 2% of Taiwan’s GDP comes from agriculture, and he suggested allowing US pork to be imported, with labels allowing the consumer to choose. Meanwhile, he contrasted the Taiwan public’s fear over ractopamine against its silence on a hundred other feed additives given to livestock in Taiwan.

Tsai’s challenges

Speaking on challenges faced by the new DPP government, Templeman emphasized that the Legislative Yuan needs to be reorganized. The DPP will have to streamline rules for the new Legislature to be able to affect change, and will need to consider how to deal with very common filibuster scenarios and put forth solutions without alienating the KMT, and other parties in the legislature.

One hidden policy landmine lies in energy and broader environmental issues. A big chunk of the DPP’s core base is opposed to nuclear power, but Taiwan is already committed to lowering natural gas usage. Trade liberalization and the TPP too could split the more youthful and idealistic NPP from the DPP, but also could split the DPP base itself.

Strengthening the economy, especially combating high youth unemployment, is one of Tsai’s largest challenges. The speakers agreed that Taiwan needs more entrepreneurship and innovation, such as more and better incubation centers to help young people develop businesses. The speakers focused on Taiwan’s youth, as the upcoming support for Taiwan’s aging society and as new classes of consumers and economic drivers. As the elections and new political parties modeled, young people incubate new companies and are an idealistic, living force that drives society. Tsai’s government must provide opportunity and hope to Taiwan’s young people, the speakers said.

Yet, Taiwan might also consider importing labor from India, which means that revising labor policy should be a DPP focus. Taiwan’s population is hollowing out and Taiwan has the third lowest fertility rate in the world at 0.9 children per woman, versus the 2.1 required for replacement rate.

Pension reform is also needed, involving the rearrangement or even cutting of pensions, but also tax increases. Taiwan’s tax revenues account for only 12.4% of GDP, which is below Japan, South Korea, and the Philippines. Without quick reform, Hsiao feels the pension issue could become a crushing burden to future generations.

On defense, Dreyer highlighted the need for Taiwan to increase defense spending and prevent technology leakage, both high concerns of Washington which faced lack of interest in arms purchases from Taiwan’s previous legislatures. The Tsai Administration will need to answer whether to produce indigenously or buy from abroad, and how to deal with the high unit costs of defense when a relatively low number of units are required. There is room to begin talks of cooperation with Japan, where Prime Minister Abe lifted restrictions on selling military materials abroad. Dreyer also spoke about India as a model, where India purchased Russian submarines and intends to use them as a template for future indigenous production.

Dreyer talked about the usual definition of stability, as the absence of military hostility — but in China’s world view there will be no military hostilities only as long as Chinais appeased. Taiwan needs to forget about not making China mad–“everything makes China mad,” Dreyer said. The question to ask is — what will make China less mad while not upsetting the US that the boat is being rocked? This is the goal to strive for while thinking about defense questions.

In a broader sense, on whether an arms race destabilizes the region, Stanton replied that if China controls Taiwan and the South China Sea, then Japan and South Korea could quickly move towards nuclear armaments. Indeed, China has also profited from security and peace in the region as a result, with the current lack of nuclear powers in South Korea and Japan.

A time to realign policy

Stanton spoke about recent changes in US policy toward Asia. In the Pivot to Asia introduced by Secretary of State Hillary Clinton in 2011, there was no mention of Taiwan. Yet, Taiwan is critical to US interests in the region. Now, there are more US forces in the Pacific as the US pulls back from the Middle East. Where Freedom of Navigation operations (FoNOps) before were considered too provocative, now they are part of the regular agenda. Australia too has been conducting its own FoNOps without attracting too much attention. The movement is in the right direction for a Pivot to Asia by the US and other friends and partners.

In the upcoming US election, all the candidates have expressed skepticism towards China, and in some cases, a very positive view on Taiwan. Loss of jobs to China, a trade deficit, and cybersecurity issues are prevailing US concerns going into the 2016 election.

Stanton revealed that aside from investment banks, computer companies, and family food chains like McDonalds and KFC being successful in China, other industries have not enjoyed as much success. General Electric, with business from light bulbs to financial services and insurance, makes less profit in China than in Australia. According to a US Chamber of Commerce survey, 80% of US companies are worried about IP theft and over 50% are worried about preferential treatment to China’s state owned enterprises. Over 50% feel picked on as “violators of Chinese law.”

Juggling the issues to forward US, Taiwan, and democratic interests in the Asia-Pacific is complicated, but Dreyer felt encouraged by the determination and enthusiasm she saw displayed in Taiwan’s elections the night before. Templeman said,“Tsai does have a large majority, clear popular mandate, and the best scenario she could possibly have going into her presidency. She is starting off on the right foot and it’s in her hands to see how this goes.”

(Feature photo of panel by Albert Tseng)