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Vietnam riots a test for Taiwan trade protection agreements

Publication Date : 17-05-2014

 

The government has vowed to invoke the trade protection agreement it has signed with Vietnam to help Taiwanese businessmen seek compensation for the massive losses inflicted on them in the wake of the riots in the Southeast Asian country.

The actions the government is going to take won't be just about how much it can recover for the investors. It is going to show us whether such trade protection agreements have any meaning at all.

There are always risks accompanying any investments, but the riots in Vietnam have come as a wake-up call for Taiwanese investors that such risks are about more than just profits and losses for business operations. They should now realize their lives could be at stake and that their life-long hard work could evaporate overnight, leaving behind nothing but trauma.

In theory, the rationale behind signing trade protection agreements is to make sure that foreign investors will not be left with nothing in cases such as the riots in Vietnam. The agreements are a form of incentive to attract investors.

And it must have been one of the major reasons motivating Taiwanese businesses into flocking to Vietnam, thinking their investments were protected.

Many big players in Taiwan's electronics industries have also been considering moving their manufacturing operations to Vietnam from China in search of cheaper labor. They must be having second thoughts now.

Until now, Taiwan has never invoked the terms of a trade protection agreement to seek compensation from another country for its citizens.

But the government has promised to help Taiwanese investors seek damages from Vietnam according to the trade protection agreement that both sides signed in 1993.

Taiwanese businesses have invested US$27.3 billion in Vietnam, according to Taiwan's Economics Ministry. While the exact losses that Taiwanese businesses have suffered in Vietnam have yet to be determined, media reports about burned, damaged and pillaged factories have led us to believe that the sum should be quite substantial.

The losses are not just about the damage to the factory buildings and equipment; they also include business losses resulting from suspended operations and delayed shipments.

It may be doubly difficult to seek compensation from a country whose government operations are far from transparent.

How can we be sure that the losses will not be deliberately underestimated? Can we be sure that Taiwanese investors who intend to stay on in Vietnam will not be forced to under-report their losses? And is the Vietnamese government financially capable of covering the losses? Remember, Vietnam has just given up the right to host the 2019 Asian Games because of financial difficulties. And Taiwan is probably not the only country that will seek compensations from Vietnam.

Some observers have speculated that Vietnam's compensation may come in the form of tax rebates for Taiwanese investors. That would be “meaningful” only for those who choose to continue their businesses in Vietnam, not for those who choose to leave.

We also wonder how hard the Taiwan government is going to press Vietnam for the compensation. Taiwan has a woeful track record in dealing with other countries, as its diplomatic efforts have often been crippled by its isolation in the international community. Could the interests of investors be sacrificed for the sake of the country's diplomatic interests?

The Vietnam case is actually a showcase of how well Taiwan can handle the consequences of such disputes. It will show us whether the trade protection agreements Taiwan has signed or is seeking to sign are anything more than just empty documents.

Is the government able or willing to pursue other countries when such circumstances arise?

We're watching the development of the Vietnam case closely.

 

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