PHILIPPINES: Garment sector seeking alternative to SAVE Act

For just-style 

By  | 20 February 2014

The Philippines continues to seeks US trade benefits following typhoon Haiyan (Photo credit: Save the Children)

The Philippines continues to seeks US trade benefits following typhoon Haiyan (Photo credit: Save the Children)

The Philippine garment industry says it will relaunch its lobbying efforts to push a law through the US Congress giving it privileged access to American markets, after the shelving of the long-anticipated Save Our Industries Act (SAVE Act).

SAVE would have given a range of Philippines-made apparel duty-free access to the US. However, the Filipinos have been forced to think outside the box since news broke that the bill now has to wait until the next US Congress, which takes office in January 2015.

“The original SAVE Act bill no longer exists – it’s dead in Congress. We have to refile and give the drive a new name,” said Robert Young, president of the Foreign Buyers Association of the Philippines (FOBAP).

“We will tie it to Yolanda [2013’s monster typhoon Haiyan], naming it something like ‘Help the Philippine Textile Industry.'” Young elaborated that this should be modelled on the US’s Help HAITI Act of 2010, implemented after the Caribbean country’s devastating earthquake.

Private sector advocacy groups have been urging the Philippines Department of Trade and Industry to quickly craft such a new initiative. They claim Philippines government officials have indicated the United States Agency for International Development (USAID) could promote such a bill.

“This will have to go through process, but we hope our new drive might somehow facilitate a sympathy switch in Washington,” Young said.

 

Disaster recovery — Philippine Accountants and the Relief Effort

For Accounting and Business 

 After monster typhoon Yolanda – internationally called Haiyan – in early November 2013 devastated much of the Philippines’ Leyte and Samar islands, the humanitarian aid machinery was quick to get going, with spectacular footage of a US aircraft carrier supplying the horrified locals dominating the world’s TV screens for days. Less headline grabbing but equally important for the survival of thousands has been the work of auditors and financial reporters on the ground. The Philippines had just been shaken by a massive “Pork Barrel Scandal” implicating dozens of lawmakers, officials and private citizens in the outright theft of money intended for relatively small infrastructure and other development projects, so that one cannot but wonder how much of the Yolanda donations and reconstruction funds has been, and likely will be, stolen. Between theft and efficient aid dispersion is now standing the army of auditors, who also play a key role in bringing the region’s small businesses back on their feet in the longer run. This is a daunting task, given that not only lives and property were destroyed but also much financial data.

“Of course, our challenges are plenty; to begin with it’s the unprecedented scope of the disaster and the need to deal with very immediate expenditures and disbursements,” says Maria Gracia M. Pulido Tan, Chairperson
of the Philippine Commission on Audit (COA), in an interview with Accounting & Business.

“Relief goods such as rice and noodles have to be procured in huge quantities with little paper trail because the survivors simply cannot wait for bureaucracy to sort out the red tape,” she elaborates.

Pulido Tan took over as head of the COA in 2011, and it was her together with two other female officials in key positions who exposed the Pork Barrel scandal, earning the trio the nickname “the three furies” with the Philippine media. The COA is mandated per Constitution to audit the receipts and distribution of Yolanda donations that is coursed through the national government agencies, with Pulido Tan’s strategy to keep corruption at bay being based on two pillars: The first is that the audit has all along been conducted almost simultaneously with the dispersion of relief goods and funds, and the second one that the COA has an overwhelming number of auditors on the ground.

“The persistent threat of corruption is why we audit as relief work happens — where relief goods have been brought, where funds came from and so forth,” she says.

Pulido Tan brings into account that she is not aware of the actual number of auditors, but that there are “many”. To achieve this, the COA has in mid-November brought in the Philippine Institute of Certified Public Accountants (PICPA), as well as the National Federation – Junior Philippine Institute of Accountants (NFJPIA).

“PICPA has its regional chapters involved, which gives us sufficient boots on the ground,” she notes.

According to PICPA Executive Director Jose M. Ireneo, under normal circumstances PICPA would not audit the receipts and distribution of donations going through government agencies, but those going through private organizations, if commissioned to do so. “That the COA now fields a new approach by choosing us as partners is probably because we have made a name for ourselves participating in the audit of resources and accounting for the last national elections,” he says.

Small businesses worst hit

Another big challenge to auditors is to deal with individual enterprises that have been devastated by Yolanda. According to Ben Punongbayan, founder of Philippine accounting and consultant firm Punongbayan & Araullo, it is first necessary to distinguish between big businesses, particularly those based in Metro Manila, and the independent, stand-alone businesses in the calamity areas, which will typically be small.

“The losses of the affected entity in the first group generally would not be significant in relation to the total operations of its parent company or head office; but it is the small businesses that were severely affected in relative terms,” he says. He elaborates that their buildings, warehouses, facilities and inventories might have been either lost due to the typhoon or due to the subsequent looting resorted to by some typhoon victims.

Punongbayan notes that if accounting records were also lost or damaged, record reconstruction is a big problem for stand-alone entities that operated only in the typhoon-affected areas, as they have no Manila head office to turn to for a backup.

“But even with their data re-captured, they will most probably not be able to pay their debts to banks and suppliers, as collaterals for bank loans may no longer exist, except for parcels of land which the bank may foreclose,” he says.

Punongbayan adds that to make matters worse, the stand-alone businesses in the calamity areas may have receivables from customers who in most instances are also typhoon victims, hence, will not be able to pay their accounts. The businesses concerned will have to write off such receivables, adding such write-offs to their losses, he predicts.

Tax deductions

Bureau of Internal Revenue (BIR) Commissioner Kim Henares has relatively quickly announced that taxpayers who are Yolanda victims may file sworn statement of loss and other requirements necessary to substantiate claim of losses within 40 days if the losses are not paid by their insurance company. Tax deductions will also be given to businesses that can prove their losses were due to theft, and they can prove this, for instance, by filing a police report. As of press time, it was not known whether the BIR will grant some tax breaks or other reliefs, such as relaxation of documentary and substantiation requirements, or extension of deadline for filing reports of losses and documents, to the typhoon victims.

In terms of audits of the tax reductions, Punongbayan points again at the difference between Manila-based businesses and those operating solely in the typhoon-affected areas.

Particularly for the latter, “external auditors will have difficulties in auditing the losses to be reported by a business in its financial statements, as copies of previous annual financial statements were required to be filed with agencies which offices typically have been located in the same typhoon-affected areas,” he says. Furthermore, the original copies of supporting documents, such as invoices, official receipts and contracts, might have all been lost as well, according to him.

As to how the BIR is to deal with all that, Punongbayan sees only one plausible direction. “The BIR may be lenient, and most likely it will be,” he says, adding that to get restarted, it is not far-fetched to assume that small businesses affected by Yolanda may receive some aid from the Philippine government coming from the government’s own funds or donated funds, or both.

And Josephine Adrienne A. Abarca of the Philippine professional services firm SGV weighs in that ”the BIR may more rely on other means of verifying the amount of taxable income of a taxpayer, for instance by securing third party information.”

 

 

 

 

 

 

 

 

 

 

 

New Impetus for Biotech

For the American Chamber of Commerce in Taipei

Key in “Shengyi Road, Hsinchu” on Google maps and all that is visible is scrub and grass. But go there and you’ll find a brand-new biomedical plant – the headquarters of JHL Biotech, a start-up founded in California in 2012 – that is top-notch even by U.S. and European standards. After key figures in Taiwn’s biotech community were shown around the facility at its inauguration in early December, they were lavish with their praise. “It’s as spacious as if it were in the States,” says one of the VIP guests, who asked not to be named. “Taiwan’s biotech laboratories are usually cramped, which has been an issue with the U.S. Food and Drug Administration when local companies apply for regulatory approval.”

The domestic biotech industry is still far from being a key factor in Taiwan’s overall economic performance. But recent months have produced three developments suggesting that talk of biotech at some point offsetting the decline in the island’s IT sector can no longer be dismissed as a mere pipedream.

First was JHL’s sudden emergence, getting its pilot plant in operation in record time for manufacturing monoclonal antibodies for use as active pharmaceutical ingredients (APIs) in biologics, which are drugs derived from a living cell. Second, Taiwan’s government-initiated Development Center for Biotechnology (DCB) spun off a company called EirGenix Inc., which has taken over DCB’s pilot plant to engage in the commercial manufacturing of antibodies. And third, ASLAN Pharmaceuticals, a Singaporean drug developer focused on both biologics and “small molecules” (the industry’s term for traditional, chemically engineered drugs), set up a subsidiary in Taiwan in what was viewed as a major breakthrough.

While the three firms are following very different business models, their stories have one important aspect in common – securing sufficient investment funds was not a problem. “We raised more money than Genentech’s IPO 40 years ago and we built the Hsinchu plant in just nine months, which are both quite some achievements,” says Racho Jordanov, JHL’s co-founder, president, and CEO. Genentech, where Jordanov’s career and those of other key JHL personnel took off, was the first biotech firm in the United States, and its IPO in 1980 famously set off an investor frenzy.

JHL’s website lists high-tech venture capital firms (VCs) such as Kleiner Perkins Caufield & Byers, as well as Taiwan’s China Development Industrial Bank, as the company’s main sources for financing. The company entered Taiwan with an initial approved investment of US$20 million. “European banks are playing a role, too, extending generous loans under the condition that we purchase European equipment to go with the U.S. equipment to be imported into China for use in our plant there,” notes Jordanov. Additional capital is coming from the Chinese government, also due to strategic considerations.

 Companies involved in biologics and biosimilars (the term for biologics’ successors after patent expiration) are currently investors’ darlings, partly because the technological and regulatory threshold to develop and manufacture them is extremely high. While Indian and Chinese manufacturers are unbeatable in terms of price when it comes to producing small molecules, the steep biotech threshold is expected to provide Taiwan with a continuing competitive edge for a number of years.

Another difference between biopharma and traditional drugs is the nature of their applications. Biotech drugs typically target diseases for which treatment with chemical drugs alone is not an ideal option. One of the earliest examples was the use of biologics in producing insulin, and one of the latest is their use in anti-cancer immune therapy, which transforms patients’ blood cells into “soldiers” that go on “seek-and-destroy missions” against cancer cells.

JHL’s Hsinchu pilot plant will be operational in early 2014, producing small quantities of antibodies for use mainly in early-stage clinical trials. Simultaneously, JHL is building a commercial manufacturing facility in Wuhan, China, scheduled to begin production of APIs for commercialized drugs in mid-2015. JHL says it will be the world’s largest single-use biopharmaceutical plant.

 Typically, the customers for the firm’s APIs will be either small biotech research companies, which generally wish to avoid having to invest in building their own plant during drug development, or “Big Pharma,” the leading multinational drug companies, which might prefer outsourcing for strategic reasons (JHL says it is currently in discussion with Pfizer and Novartis). Either type of customer might later partner with JHL for drug development and manufacturing in exchange for royalties in the Asia market. Jordanov also cites the development of biosimilars as a third pillar in the company’s business model, “as many mega-sale drugs are coming off patents.”

The choice of Taiwan

 After the idea for establishing JHL was conceived in San Francisco, there were ample reasons to choose Taiwan as the location for the headquarters, says Jodanov. “We wanted to position in Asia because the Asia market is the fastest growing,” he notes.

“The main draws for Taiwan were the availability of talent, a strict but clear regulatory environment, government support, as well as respect for IP, which makes us more comfortable here than in China.”

 What resulted was a win-win situation for both the company and the host country. JHL’s staff in Taiwan – which has started with a headcount of 40 people and is expected to double in two years – includes only a few expats. In addition, Jodanov estimates that the Taiwan plant will eventually generate about US$80 million a year in pre-tax profits, while JHL’s research projects carried out in cooperation with Academia Sinica and local universities will benefit the Taiwan biotech industry as a whole.

 He further notes that as the Hsinchu and Wuhan plants will use the same computer controls, JHL will be bringing in three Chinese staff members per month for training. This arrangement means that from day one, the Wuhan operators will be familiar with the entire system, which in turn is an assuring notion for investors. “What counts for the VCs is the business plan, the management team, and the track record,” says Jordanov. “We have delivered on every milestone agreed on with the VCs in the 15 months since we’ve been established.” 

 Meanwhile, EirGenix, the new operator of what was the DCB’s biologics pilot plant, lists Formosa Laboratories, Taiwan’s National Development Fund, CTBC Capital (part of what was formerly called the Chinatrust group), and Waterland Venture Capital, among others, as its shareholders. It has an asset value of NT$540 million (US$18 million). Like JHL, EirGenix can be labeled a contract development and manufacturing organization (CDMO), and according to DCB Chairman Johnsee Lee, much of the money that has been raised will be used for technological upgrades.

 “Not many companies in Asia can do what EirGenix and JHL do,” Lee says. “And the quantities of APIs needed for clinical trials alone are sufficient for good business already.” Lee further stresses the importance of the Good Manufacturing Practice (GMP) certifications possessed by both the DCB and JHL plants, as regulators in the United States, Europe, Taiwan, and elsewhere will only clear drug candidates for trial use in humans if they have been manufactured under that standard. Lee predicts that after successful clinical trials and regulatory approvals, many clients will return to EirGenix and JHL for commercial manufacturing.

 Lee sees the emergence of the two CDMOs as a highly significant step for Taiwan’s biotech development. “Both JHL and EirGenix were set up over the last six months and take Taiwan to a new stage. Before this, Taiwanese drug companies have mostly done small molecules, which exposes them to more cut-throat competition,” he notes. 

 Also auguring well for Taiwan’s biotech industry is the ongoing regulatory harmonization with China. Lee, who is one of Taiwan’s top cross-Strait negotiators in pharmaceutical affairs, points to a new cooperative drug development program with China to be launched later this year. Under the program, the two sides will nominate a total of about 30 drug candidates, and from that pool several will be chosen for joint clinical trials on the basis of their commercial prospects or medical urgency.

 “This cooperation will greatly accelerate drug development because clinical trials will no longer have to be repeated on the other side for regulatory approval there,” Lee explains. Presumably the lion’s share of the drugs selected under the program will focus on diseases that disproportionally plague ethnic Chinese populations, such as liver cancers and diabetes. As the prevalence of these diseases is lower in the West, Big Pharma is regarded as less likely to compete with Chinese and Taiwanese developers and makers of treatments aimed at the rapidly growing China market.     

 Lee also notes that DCB has recently been certified by China to test Taiwanese biotech-based cosmetics for marketing in China. The arrangement should facilitate sales of these products across the Strait, since DCB can complete the testing faster than the Chinese laboratories now doing the job. As cosmetics are a major source of revenue for many biotech research companies, and since Chinese consumers have proven very receptive to Taiwanese cosmetics brands, this regulatory relaxation is seen as an additional shot in the arm for the Taiwan biotech industry.

 Looking beyond Singapore

 ASLAN, the Singaporean virtual drug developer whose investment last year in Taiwan was said to be even larger than JHL’s, is considered a potential client for Taiwan’s biotech CDMOs JHL and EirGenix, according to industry observers. ASLAN’s business model is to in-license drugs that typically have six to seven years of toxicity studies and animal testing behind them and have either just started or are about to start clinical trials. ASLAN typically in-licenses global rights to drugs and then designs and executes clinical trial programs, starting with phase 1 clinical trials, which usually involve 20-100 healthy volunteers, followed by phase 2, which typically look at results from 100-500 patients. At some stage, the company will seek to find partners for global phase 3 clinical trials, which may involve several thousand patients, and for eventual commercialization.

 “We are focusing on the four years during which a drug that works in a mouse is proven to work in a human,” says Carl Firth, ASLAN’s CEO. “We acquire a drug that has made it through animal testing, that has a competitive profile, and where the partner is unable to progress it themselves, which might be for strategic reasons.” He adds that the out-licenser’s motivation could also be a desire to have a partner with a different or innovative approach to develop the compound.

 ASLAN’s method is to try to identify drugs that work in a particular kind of patient, possibly in combination with other drugs, rather than seeking cures that are effective for the entire population. Taking lung cancers as an example, Firth explains that the term covers what are actually hundreds of different diseases, and that the effectiveness of a treatment may vary according to a patient’s genome, ethnicity, and the stage of the disease, among other factors. ASLAN focuses only on the 10% to 20% of patients that will have a positive response to the drug, he says.

 Because the company is targeting tumors prevalent in Asia, in addition, ASLAN says it chose to locate in Taiwan because of its good medical and research infrastructures and ample clinical trial experience. “Taiwan has come quite a long way in becoming an attractive biotech location,” notes Firth. “Three or four years ago, a strong Singapore biotech firm would not even have considered Taiwan in the first place.”  

 Firth points out that ASLAN’s in-licensing deals typically do not involve initial payments. That approach saves money that can be used for the clinical trials, which can be very expensive. Backend profits can be shared with the partner later. Firth notes that Big Pharma, on the other hand, might make an upfront payment in the neighborhood of US$80 million for oncology drugs ready to enter global phase-3 clinical trials, with the subsequent milestone payment for commercialization reaching as high as US$700 million. 

 “But it is obviously a very risky and expensive process to get there,” he says. “The reason we run clinical trials is that we don’t know what the answer will be,” adding that as a rule of thumb, only one in three candidates will make it from phase 1 to phase 3. Firth cautions that if a drug developer has only one or two drugs in the pipeline, as is the case with many Taiwanese developers, it is accordingly quite precarious from an investor’s perspective.

 In contrast, ASLAN looks like a safer bet for the four VCs that are backing it (BioVeda Capital, Cenova Ventures, Morningside, and XinChen Ventures) as it currently has three compounds in the pipeline – two for solid tumors and one for rheumatoid arthritis, with a few more compounds being targeted over the course of the year. “We have no lab, no plant, and we only have 11 people,” says Firth. “But if you look at our portfolio, you’ll see that no biotech company in [East Asia excluding Japan] has more innovative drugs in the pipeline than us.” 

 Research Institutions

 In its strategic quest to in-license more compounds, ASLAN is likely to benefit from the world-class research facilities in Taiwan, most prominent of which are DCB, Academia Sinica, and the government’s Industrial Technology Research Institute (ITRI) in Hsinchu, including its Biomedical Technology and Device Research Laboratories. Traditionally the ITRI labs have primarily researched botanical and chemical drugs, but in recent years have turned more to biologics. ITRI also runs GMP-certified manufacturing plants, which Taiwanese biotech research companies can turn to for favorable production conditions.

 According to Richard Shau, the division’s General Director and VP, the current focus of ITRI’s biotech research is a novel “scaffolding” made of biotech-engineered collagen, which enables the linking of chemical and botanical compounds and antibodies. “The key advantage of the scaffolding will be targeted drug delivery,” he explains. “A drug only cures when delivered to the targeted part of the body, whereas elsewhere it may be a poison.”

 Although a chemical drug may be good at killing a cancer cell, he continues, it can cause drug resistance, as well as other side effects, if it doesn’t hit the right target. The scaffolding now allows the chemical drug to sniff out the cancer cell at a lower dosage, with the antibody taking over the job from there. “This is the state of the art in cancer drugs currently,” he notes. Firth adds that a botanical drug can also be linked to the scaffolding, as such drugs are good at suppressing certain side effects, such as appetite loss or drowsiness.

 


Biochips for a better diagnosis

The availability of the best treatment for a disease means nothing without the right diagnosis, and Taiwan is making impressive strides in the development of so-called diagnostic biochips. These chips, as produced by Hsinchu-based Phalanx Biotech under the brand name CytoOneArray, are 1×3-inch glass slides hosting 26,000 probes. When the probes hook up with genes or gene parts in a DNA sample, a staggering 305 genetic diseases for developmental delay or intellectual disability can be detected in prenatal and postnatal tests. All of the diseases and disorders are relatively rare, but doing the math, it becomes clear that the product is destined to pay off. About 1% of people suffer from autism and 1% from schizophrenia, and when all diseases on the CytoOneArray target list are added together, they affect 6% to 8% of a given population. A prenatal diagnosis of autism, for example, is important, as it facilitates treatment of children before the unrecognized disease turns them into an outsider in the social environment.

“Our product line focuses on two markets, the first being R&D with our CytoOneArray chip and the second prenatal screening with CytoOneArray,” says Gordon Ho, Phalanx’s CEO. “As CytoOneArray is classified as a medical device, it will require regulatory approval, which we are preparing for.” Ho says he expects the regulatory nod to come sometime in 2015 because detection is much better with CytoOneArray than with current technology.

Until CytoOneArray can be sold to prenatal screening clinics, hospitals, or doctors, Phalanx’s revenue-creation is based on two pillars. First, there is the service model, where clients – typically researchers – send in cell samples for analysis. Second, Phalanx supplies other service laboratories with consumables and disposables (that is, the biochips) and provides technical support, so that they can execute the analysis services in their local regions.

A particular illustrious example among Phalanx’s clients is the U.S. National Aeronautics and Space Administration (NASA), whose researchers are using the Taiwanese biochips to profile the gene expression of mice that have gone on space missions versus those that remained on the ground.


 

The opportunities and risks of the drug-development business are exemplified by Anti-CD3, the first drug that ITRI successfully embedded in its scaffolding. After years of development work, the compound had failed phase 3 clinical trials in the United States a decade ago because of too many complications and side effects. In 2010, ITRI took on Anti-CD3 to use in its collagen platform and succeeded in markedly reducing side effects through better drugreformulation technology. Following autoimmune system trials in chimpanzees, ITRI out-licensed the drug to a Taiwanese drug developer in early 2013. Shau predicts that the product may gain approval from the U.S. FDA for a phase 1 clinical trial sometime in 2014. 

 Asked about the ITRI biotech division’s strategic direction, Shau said the stunning successes reported in the United States in recent months in relation to gene therapy technology opens even more opportunities for targeted delivery based on ITRI’s collagen scaffolding. The challenge for Taiwan now is how to bring all the research done on the island together. “The DCB has the antibodies, we have the scaffolding. Together we can create spin-offs for multimillion and billion-dollar projects,” he says.

 There is still some way to go until then, however, and what the Taiwanese biotech industry has been achieving is still humble in concrete macroeconomic terms. As the common definition of “biotech” on the island differs from Western parlance in that that it also covers pharmaceuticals, medical devices, and even traditional Chinese medicine, the industry’s total revenue statistics can only serve as a broad indicator. DCB puts the figures at NT$240.3 billion (US$8 billion) for 2011, NT$263 billion in 2012, and an estimated NT$281 billion in 2013. In comparison, TSMC, Taiwan’s world-leading semiconductor foundry, alone accounts for nearly double that amount per year.   

 But despite this relatively low level of revenue so far, the capital market has been very supportive in investing in the local biotech sector for the last several years. As a result, capitalization in the industry has grown 6.6-fold, from US$2.5 billion to US$16 billion, from 2009 to 2013.

 While that rate of growth exceeds that of the United States, Singapore, or Korea, the focus of investment activity has been concentrated largely on a few “poster child” firms, especially drug discoverer and developer TaiGen Biotechnology, as opposed to the kind of agile start-ups credited with providing the U.S. biotech industry with is dynamism.

 “The Taiwanese government has traditionally been very protective of the mom-and-pop investors that make up some 30% of stock investments here, and has therefore made listing difficult for biotech start-ups, as they do not yet really create revenue,” says Clark Su, Secretary General of the Taiwan Venture Capital Association. “And for VCs, which typically work on a timeframe of only 7 to 10 years, the 15 years needed for the drug development cycle was too long.”

Promoting startups

 But the rules of the game changed abruptly on January 7, 2013 for the benefit of startups, says Su. On that day the GRETAI Securities Market (GTSM), which operates the local over-the-counter market, implemented a reform that makes it easier for individual investors to buy startup shares through their stockbrokers. In addition, GTSM last month launched a special incubation board – similar to Hong Kong’s Growth Enterprise Market, Singapore’s Catalist board, and London’s AIM board –to help small-cap startups raise funds.

 These innovations are expected to have far-reaching consequences for the modus operandi of VCs. Su notes that they can now identify a biotech company that has just received a patent or readied a compound for clinical trials, invest in it until it has listed on GTSM, and then exit as individual investors move in.

 Besides the markedly rising share prices the new rules have brought, Su sees other signs of growing interest – and perhaps even a bubble – in the biotech sector. He has long organized matchmaking events between local biotech firms and VCs, but notes that before the GRETAI reform a given presentation was usually attended by just three or four VCs. “But since then, it has always been close to 30,” he says.

 Still, if a bubble is developing, Su believes it is not going to burst in the next three to five years. He considers that it will take that long for the first few Taiwanese-developed drugs to have entered the market, and for “people to find out that the margins are not as astronomical as they expected.” But that timeframe will be sufficient for good biotech companies to grow, he says, as well as for Taiwanese banks and other institutional investors to have educated themselves thoroughly on the subject.

 As to whether the industry will face a hard or soft landing, Su holds that it will to some extent depend on the number of biotech firms listed by then. “The bubble will burst if there are only a handful of biotech companies in the stock markets. But if there are 50 or so, we can analyze which are good and which are bad, and then share prices will be reasonable rather than crash.” 

 Accordingly, Su has been urging the government to be less concerned about protecting individual investors and instead approve more biotech firms for stock exchange listings. He expresses confidence that the authorities have been persuaded to follow that course, and that significantly more biotech listings will take place this year.

 Yet another obvious factor working against a bubble burst is the prospect of Chinese investment. Mainland-based pharmaceutical companies are “very rich” and are eager to invest in Taiwanese biotech firms, says Su, but the Taiwanese government has so far applied the brakes because of strategic considerations. As the permitted investment from China gradually expands, however, a large new source of investment funding is expected to be available for Taiwan biotech.


Making it through the pipelines

As a rule of thumb, it takes a compound 15 years from discovery to commercialization as a drug. Typically, the candidate would have been in-licensed and out-licensed more than once on its way, with each research company involved adding value. But trials could go wrong at any given time. A compound that has been in-licensed for millions of U.S. dollars could be worthless overnight and likewise the business that owns it.

Three milestones are coming up for Taiwan biotech, and the stories behind them are indicative of the nature of the business:

In a first for a Taiwanese drug developer, TaiGen Biotechnology Co will soon have brought a drug through to marketing. Taigexyn, an antibiotic to treat pneumonia and skin infections in-licensed by TaiGen in phase 1 clinical trials, is about to pass phase 3 clinical trials and is projected to gain regulatory approval in Taiwan and China at the same time. It will be the first drug jointly approved by the two sides, showcasing great strides in cross-Strait regulatory harmonization. “That will probably be announced in the first half of 2014 and will be a very big milestone for the industry,” says David Silver, president of BiotechEast, a Taipei-based consultancy for the biotech industry.

As the first Taiwanese drug to have been developed from scratch – from discovery through to clinical development and market approval – AOP2014/P1101, a biologic developed by PharmaEssentia Corp., is well on its way to hit the market. The drug, originally meant for hepatitis B and C, has had a real rollercoaster ride behind it, as during the development years a more promising drug type appeared, albeit a very expensive one. Luckily, Silver says, PharmaEssentia identified a totally new application, a rare blood disease. The company is now partnering with Austria’s AOP Orphan Pharmaceuticals to help it run phase 3 clinical trials for AOP2014/P1101 in Europe. The drug is classified as an “orphan drug,” meaning there are very few patients and thus lower regulatory hurdles. “So far it sounds all good,” Silver notes. “PharmaEssentia has built a new plant to supply the clinical trials in Austria, and once the compound has gained regulatory approval, it will do the manufacturing of AOP2014/P1101 for the market.”

Liver cancer drug PI-88from Medigen Biotechnology is in phase 3 clinical trials, which are being run in Taiwan, mainland China, Hong Kong, and South Korea, making them very expensive. According to Silver, PI-88 could be highly significant for two reasons. “First, Medigen is running the phase 3 trials alone, which is remarkable for a local biotech company because of the costs. Second, it is not clear yet, but there is the expectation that China will flatly approve the ongoing phase 3 clinical trials for PI-88’s commercialization in the Chinese market, so that Medigen won’t have to do additional trials in China to back up its phase 3 data.”

If this scenario pans out, it would mean that Taiwan biotech companies do early-stage clinical trials in Taiwan and then follow up with the rest in China, facilitating speedier commercialization of Taiwanese-developed drugs in the rapidly growing Chinese market. But Silver says the real jackpot would be if this approach could enable Taiwan to be a “drug approval portal into China” not just for drugs from Taiwan but from other countries as well.

At this stage, no one is sure if or how this approach would work, adds Silver, as his understanding is that the cross-Strait Economic Cooperation Framework Agreement (ECFA) applies to Taiwanese companies only. “However, if a licensing agreement is formed early enough between the overseas company and their Taiwan partner company to share the benefit of future China market access, then it might work out well for the overseas company when the drug from the Taiwan company gets approved,” he notes. 


 

From Battlefield to Tourist Magnet

For Taiwan Review 

Matsu is placing its bets on developing the local tourism industry.

At the entrance of a heavily fortified mountain bunker overlooking Beigan Airport in the outlying Matsu islands, young Taiwanese artillery gunners practice rapidly loading shells into their massive weapon, placing the igniter and taking aim—all in response to their squad leader’s roaring commands. The firing cord is pulled, the gun booms and an imaginary enemy warship a few kilometers away is sent to the bottom of the Taiwan Strait.

Matsu, a Republic of China (ROC)-controlled archipelago lying just 9 kilometers off mainland China’s coast but almost 200 kilometers from Taiwan proper, bore the brunt of cross-strait tensions for decades. The islands’ residents endured fierce bombardments in the 1950s, for example, and had to cope with the presence of landmines until very recently. In light of the dramatic improvement in relations with mainland China in recent years, however, Matsu is now placing its bets firmly on developing its tourism sector. Matsu’s truly picturesque coastal scenery is certainly an invaluable asset in that regard, and, in an intriguing twist, the old battlefields that were for decades a sad reminder of strife could create a windfall by attracting new visitors.

After the Chinese Civil War, Matsu—like Kinmen, the ROC’s other frontline archipelago in the Taiwan Strait—was heavily fortified by the retreating Nationalist military. Almost everywhere one looks on Matsu, there are bunkers, gun placements and tunnels. Some of the sites are the subjects of eerie war stories such as one about enemy frogmen who, on a misty, chill autumn night some 50 years ago, cut the throats of an entire platoon of Taiwanese conscripts.

Now, in the era of much warmer cross-strait relations—and likely also because modern “smart bombs” render such massive, immobile artillery positions obsolete—the ROC military has opened many of the old sites to tourists. One of the most notable is Beihai Tunnel on Nangan, which is partly flooded and was built to shelter 100 landing vessels similar to those the Allies used to reach French beaches during World War II. According to the battle plans for retaking mainland China drawn up by Nationalist military planners, each of the boats was to have carried around 120 troops.

Another Nangan fortification turned tourist attraction is Dahan Stronghold, an enormous three-level bunker complex designed to control the sea lanes around Matsu. ROC strategists surmised that an attempted invasion of Taiwan proper by mainland Chinese naval forces could be thwarted by using Dahan-based artillery to pound the communists’ ships from the time they left ports in the mainland until well after they had passed Matsu.

The conversion of military installations into tourist attractions is not the only sign that Taiwan’s defense planning has changed. Fears of an invasion by mainland Chinese ground forces have declined so much that in June 2013, Matsu and Kinmen were declared land-mine free by President Ma Ying-jeou (馬英九), and the number of troops in Matsu has fallen from 50,000 in the 1980s to around 5,000 today, according to figures from Lienchiang County, which administers Matsu. “Of course, that troop withdrawal hit Matsu economically for a while, but today the impact has been overcome through tourism,” says Yang Suei-sheng (楊綏生), Lienchiang County magistrate.

A further reduction in the number of troops, however, does not appear to be likely for the time being. “The military deployment in Matsu is necessary as long as mainland China doesn’t renounce its use of force against the Republic of China,” says Vanessa Shih (史亞平), vice minister of foreign affairs.

Arguably the second-most famous tourist draw in Matsu is Beigan’s Qinbi Village, a collection of old stone houses with a strikingly Mediterranean appearance. The village is reputedly inhabited by a single clan, the Chens, who have turned a number of the houses into cozy homestays. “Our ancestors came here about a century ago from the mainland, or more accurately from Heshan in Fujian province,” says Wang Yun-zhu (王韻筑), a Qinbi homestay operator in her 60s. “At first, they only stayed temporarily while they were pursuing the abundant fish in the area, but later they settled here to take up farming.”

Wang, who married into the Chen clan but kept her last name, explains that Qinbi’s original houses were not made of stone but of clay, reeds and other plentiful local materials. The transition to the unique Qinbi architectural style seen today was incremental, and most of the stone houses were built from the late 1800s through the early 1900s. “Then, some years ago, a county magistrate traveled to Europe and was impressed by the architectural conservation efforts there. When he returned, he told us he could promote the houses as a tourism asset, but only if we held firmly to the Qinbi style,” Wang says. Acting on the magistrate’s advice, the villagers banned construction of taller buildings and required that all façades be covered with natural stone.

She concedes, however, that granite blocks used in recent restoration efforts in Qinbi did not come from Matsu, but were imported from mainland China instead. The Chens do not have much choice about where they get the stone, she says, as granite has become rare in Matsu, and its weight makes transport from far-away Taiwan much more expensive than sourcing it from mainland China.

Like many Matsu families, the Chens moved to Taiwan proper decades ago. With the assistance of the county government, in the mid-2000s the family renovated some of the abandoned structures for use as homestays. An increasing number of tourists made operating the homestays lucrative, and members of the family began spending the peak tourism season—from April to October—in Qinbi, Wang explains. In the winter, when the sea breeze turns chilly in Matsu and visitors are few, hired hands run the business.

Wang confidently says business has improved steadily due to the Internet, which has made it much easier for independent travelers to book rooms. Most independent visitors hail from Taiwan proper, but the number of those from Hong Kong, Japan and Southeast Asia has been growing, she says. On the other hand, “mainland Chinese guests are very few and far between,” she adds.

In 2012, local residents decided that the area needed a more powerful tourism magnet than quaint stone houses, historic war relics and beautiful coastlines. In a public referendum held on July 7 that year, 57 percent of eligible voters supported the establishment of legalized gambling in Matsu. Two days later, William P. Weidner, president of Weidner Resorts Taiwan, announced that his company planned to submit a bid to build a gigantic casino resort, largely on land reclaimed from the ocean. Before any construction can begin, however, the proposed Gambling Act must be passed by the Legislative Yuan, where it is being reviewed by economic, legal and transportation committees.

The potential impact of allowing gambling on Matsu on the current cordial state of cross-strait relations must also be weighed, as casinos would attract many gamblers from mainland China, and some mainland Chinese officials have said that they do not wish to have such establishments on their doorstep.

Some observers, however, do not place much stock in claims of mainland Chinese resistance. “It’s not at all clear what the mainland Chinese central, provincial, and city governments want, but in any case they have no veto on the legislative process,” says Martin Williams, Taipei-based Asia editor for Gambling Compliance, an information provider for the global gaming industry. “Indeed, they have been remarkably quiet at this stage, notwithstanding a few comments here and there from Fuzhou-based central government officials or Taiwanese in Beijing who claim conversations with government contacts,” he adds. Fuzhou is the capital of Fujian, the province nearest Matsu and the home of many of the gamblers likely to visit the casinos.

Sold-Out Seats

Along with its casino resort, Weidner Resorts Taiwan’s plans include infrastructure projects such as upgrading Matsu Beigan Airport to allow large passenger jets to land. “The runways of our two airports on Beigan and Nangan [islands] are so short they can be served by small 56-seaters only,” Yang says. “In other words, tourists can’t come on days with bad weather because the small planes can’t fly. And ironically, many can’t come on good days, either because the seats are always sold out.”

The county magistrate’s assessment is supported by statistics on the operations of Uni Air, the only airline serving Matsu. In August 2013, the occupancy rate of the airline’s flights between Taipei and Matsu reached 90 percent, while those to and from Taichung City in central Taiwan reached 93.7 percent.

Matsu can also be reached by sea, but Yang’s rule of thumb governing transportation and weather also applies to ships: Due to the capricious weather conditions in the Taiwan Strait, ferries between Matsu and northern Taiwan’s Keelung Harbor are only able to operate on about 200 days per year, he says.

Lienchiang County officials are understandably enthusiastic about Weidner’s proposal to upgrade the airport. Yang says, however, that the county and central governments should continue developing Matsu’s transportation infrastructure regardless of the fate of the Gambling Act—and thus Weidner’s casino plans—in the legislature. Later this year, improvements at Beigan’s airport will allow slightly bigger planes to land, he says. Meanwhile, infrastructure upgrades allowing the use of faster ferries at ports in Matsu and mainland China were expected to be completed by November 2013, he adds. Planners predict the new ships will cut the travel time for cross-strait trips from 90 minutes to 30 minutes.

As for attracting more visitors from Taiwan, Matsu confronts a number of challenges. An obvious trend, for example, indicates that Taiwanese travelers are becoming more focused on visiting international destinations than domestic ones. Statistics from Taiwan’s Tourism Bureau show that international trips rose by 6.8 percent in 2012. In the same period, however, according to Euromonitor International Ltd., a UK-based market research company, domestic trips of longer than 24 hours decreased by 1.3 percent. That declining interest in domestic travel could be the reason behind the 1.5 percent year-on-year decrease in tourist arrivals that Matsu recorded in the first three months of 2013, despite significant domestic and international publicity from the casino referendum and Weidner’s promotion of its project.

A Tourism Bureau survey conducted in 2011 also provides answers as to why Matsu is the least popular of Taiwan’s major outlying islands among domestic travelers. In that survey, 88.6 percent of the respondents preferred taking domestic trips of only one to two days, which largely eliminates Matsu, given the amount of time needed for transportation to and from the archipelago. The survey also found that the main factors domestic travelers weighed when choosing a destination were convenient transportation (32.6 percent), a typical local activity (18.5 percent), exciting food (13.3 percent) and amusement facilities for children (6.5 percent). Matsu, unfortunately, is not particularly strong in any of those areas.

Chi Jun-chen (紀俊臣) is a professor in the Tourism Department at Taipei’s Ming Chuan University who has done extensive research on Matsu’s tourism potential. “Matsu needs investment before it can be turned into a tourist haven,” he says.

Chi points out another shortcoming: insufficient land. “Take E-DA World in Kaohsiung, for example,” he says, referring to a 90-hectare shopping and entertainment district in the southern Taiwan city. “As a tourism complex integrating a hotel, theme park, restaurants and shopping malls, it’s very popular, but there’s not enough land on Matsu to build something like that.”

Meanwhile, red tape often makes visitors from mainland China consider other destinations. “One reason that only a few thousand mainland Chinese make it to Matsu annually is that official travel requirements complicate things,” Yang says. Before departing for Matsu, independent mainland Chinese travelers must obtain an exit permit from their government, and that process takes around three to four weeks. “This regulation works against a meaningful influx of mainland tourists, so we are pushing hard to have it eased,” Yang says.

According to a Hong Kong tourism expert, however, Matsu’s situation appears fairly promising. Brian King, associate dean of the School of Hotel and Tourism Management at Hong Kong Polytechnic University, believes that the mainland Chinese tourism market is so vast that Matsu can succeed as a destination even without gigantic construction projects. “If the casino doesn’t come into being, Matsu could still cash in on mainland China’s trend toward independent travel,” he says. King recalls that as he was growing up in Europe during the 1960s and 1970s, mass tourism slowly gave way to individual travel, adding that the same process is happening in mainland China, but much more quickly. “And the mainland’s market size—with over 100 million travelers annually—means that any accessible place with products of interest for tourists should do fine if it’s properly promoted,” he says.

Chasing Bargains

King singles out the development of duty-free shopping as a good opportunity for Matsu. Mainland Chinese shoppers are very comfortable with the idea of traveling across borders in pursuit of a bargain, he says, as long as product quality is acceptable, brands are reliable and there is no attempt to sell counterfeit goods. “And if they’re not required to stay overnight—for example by a mainland regulation that duty-free shoppers must leave the mainland’s jurisdiction for at least 24 hours—Matsu wouldn’t need much land for construction [of duty-free stores],” he says.

The Hong Kong academic also sees real potential in battlefield tourism. “If a developer finds the right channels for promoting trips to Taiwan’s military sites in the mainland market, there will surely be groups that are particularly interested in that type of thing,” he says, adding that some travel agencies in mainland China already offer trips for such special interest groups.

Back at the artillery position high above Beigan Airport, members of the Matsu Defense Command lead a group of foreign journalists into the eerie tunnels behind the huge gun. There, loaded on pallets, is enough bottled water, canned food and military-issue chocolate to last two weeks in the event that hostilities break out. The stuff is not nearly as bad as it looks, the gunners say.

When asked whether they might need the supplies one day, the members of the gun crew shake their heads. In Matsu, it seems, there is a sense that the tense days of the past are gone. The mainland Chinese might soon come, the thinking goes, but this time as vacationers, not frogmen.

______________________________
Jens Kastner is a freelance writer based in Taipei.

Copyright © 2014 by Jens Kastner

U.S. Visa Waiver, One Year Later

For the American Chamber of Commerce in Taipei

The statistical evidence is still inconclusive, but the travel industry sees good potential for promoting more visits to the United States.
tw business 1BY JENS KASTNER

In what both U.S. and Taiwan officials regard as the most significant development in relations between the two sides in some time, qualified Republic of China passport holders were included
within the U.S. Visa Waiver Program (VWP) on November 1, 2012. The change made them eligible to stay in the United States for up to 90 days without having to apply in person for a visa from the American Institute in Taiwan (AIT) in Taipei, saving them time, effort, and the NT$4,800 (US$160) application fee.

Just before the first anniversary of Taiwan’s inclusion in VWP, a number of organizations and travel operators active in the U.S. travel market participated in the 2013 Taipei International Travel Fair (ITF) held in late October. The prominent American pavilion, located right by the entrance to the exhibition, was the show’s biggest foreign representation.

Still, several factors seemed to seriously dampen the U.S. exhibitors’ enthusiasm. One was the lack of clear evidence that VWP had succeeded in substantially increasing Taiwanese travel to the United States during the past year. Another was concern that regardless of what had transpired over the last 12 months, the effect of the partial U.S. government shutdown from October 1 through October 16 would be lessened interest by local tourists in planning trips to U.S. destinations.

When Taiwan’s Vice President Wu Den-yih cut the ribbon to open last year’s ITF, he forecast that VWP inclusion would bring a 50% increase in Taiwanese travel to the United States, while local media at around the same time quoted AIT as projecting a rise of 47% by 2017. But trying to evaluate the actual results in the first year of VWP privileges for Taiwan presents some statistical challenges. According to figures from the U.S. Departure of Commerce’s Office of Travel and Tourism Industries, it would seem that VWP indeed had a positive impact. Its data shows that in the first and second quarters of this year, the number of Taiwanese visitors to the United States rose by 21.4% and 28.5% respectively over the same periods in 2012.

Statistics from the Taiwan Tourism Bureau paint a drastically different picture, however – a decrease in outbound Taiwanese travel to the United States by 26.1% in the first half of the year. Because travel to Europe suffered an even steeper drop of 54.8% in the first seven months of the year, while travel to Japan and Singapore increased by 54.1% and 30% respectively in the same period, it appears that a major shift in travel patterns has been under way. “The Taiwanese increasingly are forsaking their annual long-haul trip to the West to the benefit of several short-haul ones per year to East Asian destinations,” concludes Janet Chang, a professor at the Chinese Culture University’s Graduate Institute and Department of Tourism Management. The trend became discernable after the 9-11 terrorist incident, but has become even more marked in recent years.

But how to account for the discrepancy between the U.S. and Taiwan statistics? One possible factor is that the Taiwan Tourism Bureau’s data is based on which box   passengers leaving Taiwan tick on their exit forms, which may not necessarily be the same as their actual final destination. Someone on his way to the United States after a  stop-over in Tokyo, Seoul, or Shanghai would not be counted as a U.S.-bound passenger. (As a result of this methodology, to cite another example, the Taiwan Tourism Bureau sometimes puts the number of Taiwanese travelers to the U.K., Italy, or Switzerland at “zero.”)

tw business 2On the other hand, the U.S. figures may give an overly rosy impression of the situation, noted industry observers interviewed at the ITF. In 2012, in expectation that Taiwan would soon be included in the VWP (the U.S. government had announced in December 2011 that Taiwan was a candidate for the program), many would-be Taiwanese visitors to the U.S. postponed their trips until they could take advantage of the policy change. The consequence was to distort the basis for comparison, reducing the number of travelers in 2012 and increasing the number in 2013 beyond what would ordinarily be the case.

For its part, however, the ROC flag-carrier, China Airlines, seems to have no doubts about the actual trend. CAL reports a substantial increase in passenger volume to the United States since Taiwan joined the VWP. “Of all routes, the one to Honolulu posted the steepest increase of 57%, a clear result of the visa waiver program,” says Anita Wang of the airline’s Media Affairs office. Starting from June this year, CAL resumed direct flights from Taipei to Honolulu; the two nonstop flights a week supplement the previous service with a stop-over in Tokyo.

In July, Hawaiian Airlines also inaugurated three-times-a-week nonstop service between Taipei and Honolulu, citing the expected increased traffic due to VWP as the rationale. At ITF, Connie He, operations manager of Wasabi International Tours, a tour operator based on the “Big Island” of Hawaii, welcomed the VWP inclusion and subsequent promotions by China Airlines and Hawaii Airlines over the last year as bringing “a lot more Taiwanese” to the Hawaiian Islands. She noted that the direct flights carry the advantage of a 1 a.m. takeoff time, “meaning you can get a good night’s sleep.” The same holds true on the return trip.

Although Guam is not directly affected by the VWP, as Taiwanese could long travel to the territory without a visa, Jon Cramer, vice president of Skydive Guam, also noted a recent increase of Taiwanese customers. “Taiwanese used to make up about 2% or 3% of our market, but over the course of the year it has become 5%,” he said.

Continued uncertainties
On a less positive note, Wasabi’s He mentioned the difficulties caused by the partial U.S. government shutdown in October. Hawai’i Volcanoes National Park on the Big Island, a major tourist attraction, closed during that period to the great disappointment of visitors. “Customer numbers dropped between 10% and 20% on the Big Island during the shutdown, but have since recovered,” she said.

If the shutdown was a relatively insignificant one-time blip to Wasabi’s business, it amounted to a major blow for some others. Janice Cheng of FlyUSA, a Taiwanese travel agency specializing in U.S.-bound incentive and other group tours, said the company encountered a double disappointment. First the boom that FlyUSA had eagerly expected due to the VWP inclusion failed to materialize, and then came the shutdown, which “brought down our business by 60% year on year.” She described it as the third most frustrating development of career as a travel agent, after 911 and SARS.

Worse still, Cheng foresees that the shutdown’s damage will be continuing. “We know that the Grand Canyon, Yellowstone, and so forth will now be open until January 15, because the U.S. government budget until then has been decided on, but we don’t know what will happen after that,” she said. “Taiwanese interested in visiting the U.S. next year ought to be making their plans now, but they don’t know now if they’ll be able to see what they’re interested in.” She considers that customers will “simply think that now is not a good time to travel to the U.S. and book Japan instead.”

Jemy See, executive director of Discover America, Taiwan, an alliance of travel agencies, tourism offices, and airlines serving the U.S. market, put it even more bluntly: “The shutdown is a tw business 3disaster.” He says he gets phone calls every day from people who are worried about committing to spending their money and then finding out that they can’t see the national parks and volcanoes.”

Despite the conflicting indicators on the general state of Taiwan’s U.S.-bound travel, China Airlines is planning to expand flights on U.S. gateway routes – Los Angeles (LAX), San Francisco (SFO), and New York (JFK) – while also conducting feasibility studies on additional direct flights to destinations such as Seattle (SEA), Dallas (DFW), Houston (HOU), and Chicago (ORD), according to Anita Wang. In Hawaii, Wasabi is planning to continue promoting travel to the islands by supporting Taiwanese TV travel shows – arranging the Hawaiian itineraries for their crews and providing them with shuttle services.

Idaho Commerce, the state government’s business promotion bureau, has been conducting similar programs to foster tourism through cooperation with the Taiwan media.  According to Nancy Richardson, the bureau’s International Tourism Specialist, Idaho commerce over the past year has brought journalists to Idaho from mass-circulation dailies the Liberty Times and Apple Daily to enable them to produce travel stories featuring the state’s hallmark natural scenery and many outdoor activities. Guam Skydive’s Cramer also stressed the need for good media strategies, noting that Skydive has lately been getting a great boost in interest among young Taiwanese customers due to a thrilling music video by Mandarin pop star Fan Yi-chen (Van Fan), which was shot with him doing the company’s skydive and subsequently went viral on YouTube.

With regard to the cruise business, Holland America Line sales representative Vivien Tseng said that at a time when flight tickets from Taiwan to the United States have become more expensive than the cost of the actual eight-day cruise, the main priority for her company is to design low-cost last-minute offers and to educate Taiwanese travelers that cruises in the United States are not necessarily “the realm of the rich and retired school teachers.”

 

 

Vietnamese Workers on the Run in Taiwan

For Asia Sentinel 

Vietnam’s draconian fines for runaway overseas workers point at TPP dilemma

 

US Secretary of State John Kerry during his current Far East swing is certain to raise human rights concerns with his Vietnamese hosts, who are feverishly working to make Vietnam worthy of Trans-Pacific Partnership accession.

It is doubtful, however, that the Vietnamese government’s Decree No. 95/2013/ND-CP will be anywhere near Kerry’s agenda. In effect since October and to be enforced after a three-month grace period, the decree will force Vietnamese overseas workers to face fines of 80 million to 100 million Vietnamese dong (US$3,800 and US$4,700) if they abandon their foreign employers, as vast numbers of them do to escape predatory brokers at the end of the term of their labor agreements.

According to Taiwan’s Council of Labor Affairs, the number of “uncaptured missing” Vietnamese reached 19,878 at the end of October, reflecting a hefty 31.2 percent annual increase, apparently hiding from the massive fines.

Simple math makes readily graspable how much a human rights issue Decree No. 95 is – given that the average wage in Vietnam is around 3.2 million dong (US$150) a month, someone working in the country would have to toil without paying for food and water for more than two years to pay up.

“As labor export is an important part of Vietnam’s economic development strategy, the harsher punishment on runaway guest workers was likely mainly driven by international pressure,” Zheng Yu, a University of Connecticut political scientist with interest in Vietnam, told Asia Sentinel.

“In August 2012, South Korea suspended the bilateral agreement on employing Vietnamese guest workers due to a large number of runaway Vietnamese workers who illegally overstayed. Although this suspension was recently lifted, it has cost more than 10,000 Vietnamese guest workers’ jobs, which was a big blow to Vietnam’s labor export sector.”

According to Vietnam’s official statistics, 500,000 Vietnamese workers are abroad in more than 40 countries. Each year, about 80,000 workers are sent abroad with Taiwan, Malaysia, South Korea and Japan being the major destinations. In Taiwan, where NGOs in mid-December launched a demonstration against Decree 95 in front of Vietnam’s de facto embassy, there are currently 122,000 Vietnamese workers out of a total foreign worker population of 480,000, with about 20 percent of them employed in metal production and human health/ social work.

NGOs are not surprised that nearly 20,000 Vietnamese have absconded.

“Vietnamese law sets the maximum broker fee at US$4,500 and requires that the worker sign the contract with the broker in the presence of the Vietnamese police,” noted Peter Nguyen Van Hung, Taiwan-based executive director of the Vietnamese Migrant Workers and Brides Office. “However, on the day of departure the broker usually forces the worker to sign another agreement stipulating a total fee of US$6,500 to US$7,500.”

A pullout is not an option for the workers at that late stage in the immigration process, Hung continued, because they have typically earlier deposited the ownership certificates for their family farm or house to get a loan from the bank in order to pay for broker, passport, airfare, health check and so forth.

“They have no choice since they would otherwise lose all that money,” he said.

According to Hung, what then often follows is just as appalling. After the worker’s arrival in the host country, the local employer might not be willing to pay what the broker has promised, and there are abundant cases of abuse of the workers by the employers. Then there is the black market for runaway workers driven mainly by ample demand in construction, farming and manufacturing, with the word of mouth pointing at the only plausible way out of the worker’s desperate situation.

“The only way to deal with it is to run away. This decision often makes the workers subject to secondary abuse,” Hung said. He predicts that the number of Vietnamese runaways will initially decrease slightly due to Decree 95 but it will then return to an upward path because the core problem is only dealt with at the surface. According to Hung, there are indications that if that happens, Vietnam police are ready to arrest absconders’ relatives back home in Vietnam and keep them in custody until the fines are paid.

Hung agrees that Hanoi’s main motive is to make a good impression on international authorities, in Taiwan’s case presumably to achieve a lift of a decade-long import freeze on Vietnamese care-givers.

“But if the Taiwanese government knows about Decree 95 and doesn’t do anything about it, it is complicit in human exploitation and involuntary servitude. Also, the harsh punishment will make people not voluntarily turn themselves in, causing Taiwan’s society a problem,” he said.

Still, Hung and others acknowledge that the Taiwanese side has come quite a long way in the past few years. Traditionally, the approach of choice has been mediagenic manhunts, such as one in the autumn of 2004 when Taiwan police in cooperation with the very Vietnamese brokers that are the main cause of the workers’ misery rounded up 500 in one month. The 100-odd brokerage personnel who were flown in from Vietnam for the job simply traced the absconders’ remittances and then presumably threatened the relatives in rural Vietnam in order to make them come up with information on the absconders’ whereabouts in Taiwan.

Replying to Asia Sentinel’s query, the labor affairs council said Vietnamese authorities haven’t informed Taiwan on Decree 95. The agency also denied speculation that Taiwan was an overseas labor destination that had pressured Hanoi to craft harsher penalties in the first place, arguing that the council has instead long recommended cutting onerous broker fees. The agency furthermore said it is actively assisting absconders who have been voluntarily turning themselves in during the three-month grace period, and moreover pointed out that it “has built a complete protection system for foreign workers which applies from prior to arrival to until departure.” And, aiming at making brokers once and for all unnecessary a “direct hiring joint service center” has been set up, among other measures.

The foreign worker issue is so complicated that even well-intended policies easily become counterproductive, however, Hung said, adding that in a perfect world, overseas employers would pay a labor broker to recruit suitable men and women.

“But the attempt to circumvent the brokers has created a perverse situation: I have heard that the broker now pays the employer with the money he has squeezed out of the worker,” Hung said.

Meanwhile, South Korea has only reopened its doors for the import of Vietnamese workers after a pilot program making mandatory a refundable deposit of US$4,800 by each worker was implemented by Hanoi. Needless to say, together with Decree 95, the pilot program would make the financial loss truly astronomic for absconders.

In the best of worlds, Vietnam would assure Kerry during his visit that the government will meet commitments on labor rights under the TPP, which always has been one of the core issues in the US’s free-trade agreement negotiations.

According to the University of Connecticut’s Zheng, Vietnam probably will negotiate a “phase-in” period to reform its labor laws and demonstrate its respect to basic workers’ rights, particularly in export industries.

“The irony is that harsh punishment on runaway workers is a step toward the direction of improving workers’ basic rights as it sets a higher standard for labor export,” Zheng said. “But on the other hand it has raised concerns about the violation of human rights for illegal workers. It is a dilemma for the Vietnamese government.

Hong Kong’s New Migration Wave

For Asia Sentinel 

Taiwan, of all places, is the beneficiary

Apparently driven by a combination of business opportunity elsewhere, high property prices, political friction and an irritating influx of mainland Chinese, Hong Kong is experiencing its second wave of immigration after the runup to the 1997 handover.

A total of 3,900 emigrants were listed byHong Kong’s Security Bureau between January and July this year, up 8.3 percent annually. But while the traditional destinations have been Canada, New Zealand and Australia, Taiwan now has become a magnet, at least according to the latest statistics by Taiwan’s National Immigration Agency (NIA). Some 632 applications for residency from Hong Kong residents were filed in September alone, a sixfold-plus increase from a previous monthly average of 100.

“The reason for the rapid growth of immigration is unclear. We distributed the residence permits under due process,” an NIA official told local media.

When Hong Kongers emigrated to Taiwan before the city’s handover from Britain to China in 1997, the Taiwanese tended to regard them as “people fleeing the long arm of the British colonial law” – triad members on the run. And since 1997 the number of immigrants from Hong Kong has been low, although with a mild pickup occurring in the first half of this year, with applications for residency reaching 1,598 through August.

Hong Kong’s per-capita GDP is much higher than Taiwan’s by purchasing power parity, at US$52,300 compared to US$39,300, leading the island’s media to jump to the conclusion the reasons for the exodus were political. “A call by Hong Kong activists to ‘evacuate to Taiwan’ appears to have hit a nerve,” wrote the English-language Taipei Times, referring to a Facebook campaign initiated by Hong Kong youth in response to the move by the CY Leung government to grant television broadcast licenses to tycoon-controlled networks.

However, the continuing political friction, including that between Hong Kong and the mainland, is hardly the story. Instead, a major factor for the Taiwan-bound wave is discernible when looking at regulations promulgated by the NIA and the Investment Commission under the Ministry of Economic Affairs.

Hong Kong residents can become “investment immigrants,” under the strikingly simple regulations. It can be done by buying shares worth NT$5 million (US$169,000) in a given Taiwanese company; establishing a proprietary business or partnership in Taiwan with the same investment amount; or lending the NT$5 million to a Taiwanese business for a year.

If that is still too onerous, there even is an easier and virtually risk-free way. Hong Kongers can simply deposit NT$5 million into a regular Taiwanese bank account and then wait a year before obtaining the right to a residency application.

After holding an Alien Resident Card for five consecutive years, the immigrant can then apply for an Alien Permanent Resident Certificate, effectively meaning life-long right of residency regardless of job or investment.

Needless to say, the NT$5 million entrance fee wouldn’t get would-be émigrés anywhere if they were up to buy a property in Hong Kong.

“It is so astonishingly simple; if Hong Kongers want to emigrate to Australia, for example, it takes either an investment of A$1.5 million (US$1.4 million) or A$5 million, with the latter one being far easier,” says Paul Bernadou, a Hong Kong migration consultant.

The A$1,5 million would have to be invested in an Australian government bond, and the applicant has to prove that the funds were generated in his or her regular skill set, “which actually is quite difficult to do.” The A$5 million scheme is more straightforward, Bernadou says, as the applicant basically only has to prove that the funds have no criminal source. He or she can then invest in a government bond or managed funds listed on stock exchange or a mixture.

Bernadou points out that he has never once had an enquiry from anyone in Hong Kong about moving to Taiwan. He acknowledges, however, that the ease Hong with which Hong Kong residents can migrate to the island makes it highly unlikely that they would want to pay for migration consultant services in the first place.

Human resource consultants in Taipei say most of the investment immigrants from Hong Kong head for the hospitality and services industries, which “Hong Kong Chinese are very strong in,” as one of them put it. Since last year, local travel businesses have been complaining that Hong Kong investors are making the most money out of the ongoing mainland tourism bonanza on the island. According to a Taiwanese academic in the tourism field who spoke on condition of anonymity, “of the US$60 that mainland tourists on average burn per day during their Taiwan trip, the Taiwanese lose on average a staggering 50% to Hong Kong intermediaries.”

In other service sectors the hard-charging Hong Kong migrants’ resourcefulness obviously pays off in relatively laid-back Taiwan. In what can be taken as the stereotype of a Hong Kong-Taipei rags-to-riches story, migrant Sam Lee at the earliest onset of the K-Pop wave in 2005, without funds worth mentioning opened Korean language school VTK, which with well over 1,000 students is now by far the biggest such school on the island.

While many of Lee’s local competitors failed even though K-Pop and K-TV dramas became mainstream later because they initially rented places that were too big so that they couldn’t be filled with students at once, Lee found an office complex where rooms could be rented one-by-one and that on very short notice according to demand, therefore keeping the initial investment extremely low.

“I could have never pulled that off in Hong Kong,” Lee says. “There the rent is too high and regulatory requirements are too cumbersome.”

He confirms that there is an increased interest in Taiwan among Hong Kongers thinking about migration. In recent months he has received phone calls from Hong Kong friends whose friends want to talk with him “about the Taiwan thing”, Lee says.