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Why 95% of Traders Fail

A Little Rice Wine Spat: Taiwan vs. U.S. and EU

Politics / Global Economy Sep 06, 2010 - 02:37 AM GMT

By: Static_Chaos

Politics

Taiwan, (aka The Republic of China, ROC), the tiny island just across the Strait from China-- found itself taking considerable heat from the United States and European Union (EU)—two biggest exporters of alcoholic beverages to the Taiwanese market--over a planned tax cut on its locally brewed rice wine.


As Asia Times reported, both Western governments allege that the local liquor will become an unfair competitor to imported whisky, cognac and brandy after the tax cut. The US and the EU consider Taiwan's move a violation of the World Trade Organization (WTO) regulations and have threatened to file a WTO case against China.

There’s a classification issue as the WTO classifies liquor by its alcohol level, while the Taiwanese government is trying to define by the way it is consumed. And in its defense, the Taiwanese government maintains that the rice wine is a common cooking ingredient, mostly not consumed as an alcoholic beverage in Taiwan, and therefore should be exempted from the high taxes aimed for liquors.

Taipei reportedly commissioned National Taipei University to conduct a study, which found that 96.4% of rice wine was consumed as cooking wine in Taiwan. However, Washington and Brussels are not buying it…figuratively and literally.

As battle clouds are gathering at the WTO, it seems high time for some quick cross-cultural understanding ….. on rice wine.

Since I had lived in Taiwan for a number of years, I can say with a degree of certainty that, unlike Japanese sake and Korean soju, both of which are also made from rice, Taiwanese rice wine is indeed used predominantly for cooking, as it is an ingredient in almost every recipe. In fact, rice wine is such a cooking staple that it is hard not to see a bottle sitting on the kitchen counter at a house or restaurant, often right next to cooking oil, soy sauce and salt.

And yes, there are some in Taiwan who also drink rice wine in addition to using it in cooking, but they are far and few in between, and mostly of relatively lower income levels, as noted by the National Taipei University’s study.

So, in short, the size of the rice wine drinker is too small, and in an entirely different demographic, social and economic segment, to even remotely have any impact on the likes of cognac or brandy.

Although Taiwan has had a robust economic growth this year after the global recession with expected Q2 GDP growth around 12.53%, its wine market size is quite small on the global scale. According to Research and Markets, the size of Taiwan’s alcoholic drinks market was around $4.4 billion in 2008—about 2,7% of the American wine market.

As such, any kind of monetary loss that could possibly result from the rice wine tax cut would be like less than a drop in the bucket. So it seems odd that the U.S. and EU would choose to go head-to-head with a long-time ally like this.

An editorial by the China Post suggested reasons beyond a simple misunderstanding of Taiwanese culture—worries of the Taiwan tax cut will set off an Asian liquor tax cut spree and they don't want to make Taiwan an exception. (Japan and Korea, in the past tried a similar argument with their sake and soju to no avail.)

For EU, my personal speculation is that Taiwan recently won its first WTO dispute against the EU over LCD flat-screen panel tariffs, reportedly saving island exporters up to $611 million a year. So, it is not that far off to say there could be a bit quid pro quo involved, since Taiwan’s rice cooking wine could not possibly touch the high-end spirits from France, Italy and Spain, etc.

Moreover, this could be also be related to the new trade pact-Economic Cooperation Framework Agreement (ECFA ) --signed in June between China and Taiwan after 60 years of separation and political differences/hostilities. With Taiwan and China both playing a significant role in world trade, ECFA has drawn the attention of many WTO members. The China Post reported that the ECFA is likely to formally take effect and be implemented in September after an exchange of instruments between Taiwan and China.

As for Taiwan, Asia Times quoted an unnamed officials of the Taiwan Tobacco and Liquor Company that the tax cut by President Ma’s party was aimed at appeasing Taiwanese voters in the low-income classes—the rice wine drinker audience and mostly supporters of the opposing Democratic Progressive Party (DPP) --at least through the important five special municipality elections to be held later this year.

Meanwhile, Taiwan’s Ministry of Economic Affairs reportedly is working on a presentation to prove to that the rice wine in question is mainly a cooking ingredient; the rice wine does not affect the sales of Western liquors like scotch and brandy.

Good luck with that as it is quite obvious that this seems far beyond just a cultural exchange on wine use.

By Static Chaos

http://static-chaos.blogspot.com

© 2010 Copyright Statoc Chaos- All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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