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The Impact of Taiwan-USA TIFA on Taiwanese Fasteners

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2021-11-01
 
 
by Dr. Arthur Hsu
 
Foreword
 
     The trade war between the U.S. and China in recent years still has not come to an end despite the inauguration of U.S. President Biden, while the trade partnership between Taiwan and the U.S. has become closer instead, with the bilateral trade value reaching over NT$ 2,430 billion every year. Trade and Investment Framework Agreement (TIFA) between Taiwan and the U.S. suspended in 2016 was resumed in the end of June, 2021 and was focused on deepening Taiwan-USA relationship and helping Taiwan quickly recover from the impacts of the pandemic. During the meeting, Taiwan expressed its will to sign the Taiwan-USA Bilateral Trade Agreement (BTA) and continue to reinforce bilateral interactions to deal with trade related issues. The difference between BTA and FTA is that: in order to facilitate economic integration and eliminate trade barriers, FTA requires up to 90% of goods and service traded between two countries to be subject to 0% tariff, while BTA requires opening the domestic market and removing most barriers against imports & exports to offer each other favorable trade agreements. One of the TIFA resolutions includes that: in order to create a better future for Taiwan and the U.S., both sides will make an effort to promote the free flow of necessary goods and accelerate the customs clearance procedure under the WTO framework. Fasteners are one of the major foreign exchange earning industries for Taiwan, and this industry is highly export-oriented with more than 90% of its fasteners for export (over 40% for the U.S.), so TIFA will cause a significant impact on Taiwanese fastener companies. In the future, how can Taiwan get more preferential taxes or tax-free benefits for its fasteners will become a critical issue. This article will explore the trade statistics between Taiwan and the U.S. in recent years, the impacts of TIFA on the industry, and some strategies for the industry to respond to it. 
 
Taiwan-U.S. Fastener Trade in Recent Years
 
     Table 1 shows fastener trade between Taiwan and USA and that between Taiwan and the world in 2014-2020; in terms of import, in 2020 Taiwan imported NT$ 4.87 billion worth of fasteners from the world (with the 7-year CAGR at 1.25%) and imported NT$ 0.85 billion worth of fasteners from the U.S. (with the 7-year CAGR at 7.63%). The fastener import from the U.S. was around 16-18% of Taiwan’s total fastener import from the world. There was not much fluctuation over the last 7 years, but the proportion was growing (at 6.3%) on the whole.
 
     In export, Taiwan exported NTD 122.23 billion worth of fasteners to the world in 2020, with a -0.90% CAGR for the last 7 years. Taiwan exported NTD 52.28 billion worth of fasteners to the U.S. in 2020, with a 1.71% CAGR for the last 7 years, slightly higher than the CAGR of export to the world. The proportion of fasteners exported to the U.S. grew from 37.0% in 2014 to 43.3% in 2020. The proportion of the U.S. market inched closer to 50%, and for the past 7 years the U.S. market has had a CAGR of  2.63%. It shows evidently increasing importance of the U.S. market to Taiwan, meaning that fasteners will be a critical product for Taiwan to seek tax exemption from the U.S. in future bilateral trade negotiation.
 
Table 1. Fastener Import & Export Trend Between Taiwan and U.S./World
Unit: NTD 100 Million; %
Year
2014
2015
2016
2017
2018
2019
2020
CAGR
Taiwan's Import from the U.S.
5.5
6.2
8.0
7.2
7.9
9.2
8.5
7.63%
Taiwan's Import from the World
45.2
43.9
44.1
42.3
49.5
52.1
48.7
1.25%
Percentage of USA in Taiwan's Total Import
12.1%
14.1%
18.1%
17.1%
16.0%
17.7%
17.4%
6.30%
Taiwan's Export to the U.S.
477.7
502.0
473.7
502.7
574.8
578.5
528.8
1.71%
Taiwan's Export to the World
1290.5
1296.3
1226.5
1307.4
1460.6
1394.4
1222.3
-0.90%
Percentage of USA in Taiwan's Total Export
37.0%
38.7%
38.6%
38.5%
39.4%
41.5%
43.3%
2.63%
Source: Taiwan Customs and trade data by Taiwan Institute of Economic Research
 
Import of U.S. Fasteners into Taiwan in 2020 and Estimated Influence
 
     In terms of import, according to Taiwan and the U.S. customs as well as the data from WTO, Table 2 lists the fastener items imported from the U.S. into Taiwan. The tax for fasteners imported into Taiwan mostly ranges between 4% to 10%. There are only few of them that are tax free. The import values and proportions of the top 3 fastener products imported from the U.S into Taiwan in 2020 are: Steel screws and bolts (at NTD 313 million, making up 36.9%); steel threaded products (NTD 129 million, 15.2%); steel nuts (NTD 114 million, 13.5%). Overall, the value of import into Taiwan from the U.S. is low. If Taiwan and the U.S sign the trade agreement in which Taiwan reduces the tax on fasteners imported from the U.S., the annual tax income for Taiwan will decrease by NTD 42.39 million which should be tolerable. The primary American fastener companies are Illinois Tool Works (ITW), Precision Castparts, Alcoa, Acument, etc. Although the fasteners manufactured by these companies vary in types, the ones that Taiwan imports from the U.S. are mostly high-value and high-price fasteners, which helps Taiwanese high-end industries access components with fewer costs.
 
Table 2. Import of U.S. Fasteners into Taiwan in 2020 and Estimated Influence
Currency: NTD; %
HS Code
Items
Taiwan Tax
Import Value
(100 Million)
Import Proportion
Estimated Annual Tax Income for Taiwan
(10 Thousand)
731600
Iron or steel anchors, grapnels and parts thereof
10.0%
0.04
0.4%
37.8
731700
Iron or steel nails, tacks and similar parts
0.0%
0.02
0.2%
0.0
731811
Iron or steel automotive screws
5.0%
0.01
0.1%
2.7
731812
Other wood screws made of iron or steel
5.0%
0.00
0.0%
0.0
731813
Iron or steel screw hooks and screw rings
5.0%
0.01
0.1%
4.6
731814
Iron or steel self-tapping screws
5.0%
0.06
0.7%
31.2
731815
Other iron or steel screws and bolts
5.0%
3.13
36.9%
1563.4
731816
Iron or steel nuts
5.0%
1.14
13.5%
570.6
731819
Other iron or steel threaded products
5.0%
1.29
15.2%
643.0
731821
Iron or steel spring washers and other locking washers
5.0%
0.19
2.3%
97.4
731822
Other iron or steel washers
5.0%
0.78
9.2%
390.4
731823
Iron or steel rivets
5.0%
0.15
1.8%
75.6
731824
Iron or steel cotters and cotter pins
5.0%
0.51
6.0%
254.1
731829
Other iron or steel non-threaded products
5.0%
0.58
6.8%
289.0
741510
Copper nails, tacks and similar parts
5.0%
0.00
0.0%
2.1
741521
Copper washers (including spring washers)
4.0%
0.06
0.8%
26.0
741529
Copper bolts, nuts and similar parts
4.0%
0.08
1.0%
33.3
741533
Copper threaded products including screws, bolts and nuts
4.0%
0.02
0.2%
8.1
741539
Other copper threaded products
4.0%
0.02
0.2%
7.0
761610
Aluminum bolts, nuts and similar parts
5.0%
0.37
4.3%
184.1
79070020
Zinc screws, nuts, bolts and similar parts
2.5%
0.00
0.0%
0.0
830820
Hollow rivets or cotter rivets made of base metals
10.0%
0.02
0.2%
19.0
Total
8.48
100.0%
4239.5
Source: Taiwan Customs and trade data by Taiwan Institute of Economic Research
 
Export of Taiwan Fasteners to the U.S.  in 2020 and Estimated Influence
 
     Regarding export, Table 3 lists the trend of Taiwan’s fasteners export to the U.S. and the estimated influence. The U.S. imposes a relatively larger range of tax between 0% to 12.5% on Taiwan’s fasteners, and there are six tax-free items under this category. There remain 16 items that should be proposed as exempted items in Taiwan's future negotiation with the U.S.
 
     The value and proportions of the top 3 fasteners exported from Taiwan to the U.S. in 2020 were iron or steel screws and bolts (at NTD 26.13 billion, making up 49.4%), iron or steel nuts (NTD 8.39 billion, 15.9%), and iron or steel self-tapping screws (NTD 8.16 billion, 15.4%). These three items make up a large proportion of Taiwan’s export value to the U.S. and the market share there, but only iron or steel nuts are entitled to tax reduction. If Taiwan and the U.S sign the trade agreement in which the U.S agrees to lower the tax on Taiwan’s fasteners, Taiwanese companies will have around NTD 2.3 billion less to spend on tax every year. In the give and take where Taiwan seeks tax reduction from the U.S., Taiwan should keep an eye that the proposed content of tax reduction should be better than the content of FTA which the U.S. signed with countries (such as South Korea) that rival with Taiwan, just in case that could put Taiwanese fastener companies on a weak spot in global competition.
 
Table 3. Export of Taiwan Fasteners to the U.S.  in 2020 and Estimated Influence
Unit: NTD 100 Million; %
HS Code
Items
U.S. Tax
Export Value
Export Proportion
Estimated Tax Income for the U.S.
(Tax Reduction for Taiwan)
731600
Iron or steel anchors, grapnels and parts thereof
0.0%
0.39
0.1%
0.00
731700
Iron or steel nails, tacks and similar parts
0.0%
17.95
3.4%
0.00
731811
Iron or steel automotive screws
12.5%
0.84
0.2%
0.11
731812
Other wood screws made of iron or steel
12.5%
33.98
6.4%
4.25
731813
Iron or steel screw hooks and screw rings
5.7%
0.12
0.0%
0.01
731814
Iron or steel self-tapping screws
7.0%
81.65
15.4%
5.72
731815
Other iron or steel screws and bolts
4.5%
261.30
49.4%
11.76
731816
Iron or steel nuts
0.0%
83.91
15.9%
0.00
731819
Other iron or steel threaded products
5.7%
8.19
1.5%
0.47
731821
Iron or steel spring washers and other locking washers
5.8%
1.24
0.2%
0.07
731822
Other iron or steel washers
0.0%
12.24
2.3%
0.00
731823
Iron or steel rivets
0.0%
4.72
0.9%
0.00
731824
Iron or steel cotters and cotter pins
3.8%
3.11
0.6%
0.12
731829
Other iron or steel non-threaded products
2.8%
7.49
1.4%
0.21
741510
Copper nails, tacks and similar parts
2.5%
0.14
0.0%
0.00
741521
Copper washers (including spring washers)
3.0%
0.21
0.0%
0.01
741529
Copper bolts, nuts and similar parts
3.0%
0.32
0.1%
0.01
741533
Copper threaded products including screws, bolts and nuts
2.3%
6.57
1.2%
0.15
741539
Other copper threaded products
3.0%
2.46
0.5%
0.07
761610
Aluminum bolts, nuts and similar parts
5.5%
1.65
0.3%
0.09
79070020
Zinc screws, nuts, bolts and similar parts
3.0%
0.00
0.0%
0.00
830820
Hollow rivets or cotter rivets made of base metals
0.0%
0.33
0.1%
0.00
Total
528.81
100.0%
23.04
Source: Taiwan Customs and trade data by Taiwan Institute of Economic Research
 
The Give and Take in the Talks Before the Signing of U.S.-Taiwan BTA
 
● Fastener Materials
 
     Taiwan’s steel import has been tax free since 2004. The steel and aluminum which the U.S exports to Taiwan are tax free. However, the steel and aluminum exported from Taiwan to the U.S. is still subject to Section 232 on the U.S. side. Although Taiwanese officials have expressed concerns to the U.S. in the TIFA conference in June and hoped the U.S. would quickly re-examine Section 232 on a reciprocal basis to retract the tax on Taiwan’s steel exported to the U.S., there is only a small fraction of American steel and aluminum that constitutes the material source of Taiwan’s fasteners; therefore, the negotiation on fastener materials poses little impact on Taiwan’s fastener industry.
 
● Fastener Products
 
     Taiwan is one of the sources of fastener import for the U.S., and South Korea as a rival to Taiwan is the sixth largest source of fastener import for the U.S.. Therefore, Taiwan should make claims for a better FTA deal than South Korea’s in terms of the conditions for tax exemption during the negotiation. Further, Taiwan should seek exemption on products under the HS Code 7318 which are currently taxed at 5% by the U.S. As an example, iron or steel screws and bolts (HS Code 731815) will be a critical item for seeking tax exemption from the U.S., and therefore, should be included into the first list of items for BTA negotiation to make for a higher price advantage for Taiwan’s high quality fasteners entering the U.S. market. Regarding less competitive Taiwanese fasteners, the value of fasteners that Taiwan imports from the U.S. is not much and therefore the U.S. would gain less benefits (NTD 42.39 million) from tax exemption on fasteners even if the U.S. were to ask for it. On the principle of fair trade, considering that the value that goes from Taiwan to the U.S. is much higher than the case vise versa, the whole situation will be favorable to Taiwan. The outcome of the give and take makes little impact on Taiwan’s fasteners.
 
     Additionally, it is worth mentioning the deployment of Taiwanese companies on distribution in the U.S. Brighton-Best International, a joint venture between Ta Chen International and Taiwanese steel companies (including Taiwan CSC, Fang Sheng Screw, Jinn Her Enterprise, etc.), acquired the once-top American alloy steel fastener distributor Brighton-Best, and then started global marketing under the brand called Brighton-Best International (BBI). In 2014, BBI became the largest standard fastener importer and distributor in the U.S., integrating the distribution of steel and fasteners in the the U.S. market. If Taiwan and the U.S. make it to sign the BTA, it will strengthen the combined synergy of Taiwanese companies’ manufacture and distribution in the U.S. market.
 
Business Opportunities for Taiwanese Companies in U.S. Trillion Infrastructure Plan, Evaluated on Fastener Unit Price
 
     Besides trading values, we can use average unit price as a precursor to evaluate bilateral fastener trade between Taiwan and the U.S. Table 4 and Table 5 show the import and export unit prices for Taiwan/U.S. bilateral trade. In terms of import, Taiwan imports fasteners from the U.S. at NTD 1,998.8 per kilogram, much higher than the average (NTD 231.5 per kilogram) of Taiwan’s import from the world. In terms of export, Taiwan exports fasteners to the U.S. at NTD 80.9 per kilogram, lower than the average (NTD 80.6 per kilogram) of Taiwan’s export from to the world. Therefore, Taiwanese fastener companies developing the U.S. market should not be complacent about themselves being the top import source for the U.S. They should think about ways to speed up progression towards high-value fasteners.
 
Table 4. Average Import Price of the Top 3 American Fasteners Imported into Taiwan in 2020
HS Code
Product Name
Import Value
(NTD)
Import Volume
(Ton)
Average Import Unit Price (NTD)
7318159000
Other iron or steel screws and bolts
310 million
199.3 tons
NTD 1,533.3/kg
7318190000
Other steel threaded products
130 million
22.1 tons
NTD 5,820.5/kg
7318160000
Iron or steel screws and nuts
110 million
69.2 tons
NTD 1,649.8/kg
Taiwan’s import from the U.S. in 2020
850 million
424.1 tons
NTD 1,998.8/kg
Taiwan’s import from the world in 2020
4.87 billion
21,026.6 tons
NTD 231.5/kg
Source: Taiwan Customs and trade data by Taiwan Institute of Economic Research
 
Table 5. Average Export Price of the Top 3 Taiwanese Fasteners Exported to the U.S. in 2020
HS Code
Product Name
Import Value
(NTD)
Import Volume
(Ton)
Average Import Unit Price (NTD)
7318159000
Other iron or steel screws and bolts
26.13 billion
343 thousand tons
NTD 76.2/kg
7318160000
Iron or steel screws and nuts
8.39 billion
84 thousand tons
NTD 99.4/kg
7318140000
Self-tapping screws
8.17 billion
108 thousand tons
NTD 75.8/kg
Taiwan’s export to the U.S. in 2020
52.88 billion
654 thousand tons
NTD 80.9/kg
Taiwan’s export to the world in 2020
122.23 billion
1.42 million tons
NTD 80.6/kg
Source: Taiwan Customs and trade data by Taiwan Institute of Economic Research
 
     The trillion dollar infrastructure plan after Biden took presidency makes for an important business opportunity for Taiwanese fastener companies to take a share in the U.S. market, given the backdrop of the U.S. policy to mitigate China’s influence. The traffic infrastructure will cost USD 621 billion, and electric vehicle related investment and demand will largely increase due to factors such as increased demand for charging stations, as well as the U.S. policy to prohibit Chinese EV makers from going public in the American soil. Taiwanese fastener companies see opportunities in the U.S. modern revamping of  public transportation such as roads, bridges, railway and seaports. The infrastructure for the Internet, power water facilities will cost USD 311 billion. The construction of high-speed Internet, and the upgrade on power facilities and pipelines in the U.S. will provide opportunities for Taiwanese fastener companies. No matter how it goes for the U.S./China trade war and Taiwan/U.S. BTA, Taiwan must dedicate itself to upgrading down-stream metal industries such as fasteners and hand tools, and develop high value-add fasteners to improve industrial competitiveness. This will ensure Taiwan fastener industry can enhance its trading role in the U.S./China trade war and continue to expand its share in the global market.
Taiwan-USA TIFA
taiwan fastener
impact
台美貿易協定
台灣扣件
影響
扣件
國際展會
惠達雜誌
匯達實業
外銷媒合
廣告刊登
螺絲五金
五金工具
紧固件
台灣扣件展
印度新德里螺絲展
越南河內螺絲展
墨西哥瓜達拉哈拉螺絲展
美國拉斯維加斯螺絲暨機械設備展
波蘭克拉科夫螺絲展
義大利米蘭螺絲展
德國司徒加特螺絲展
wire Dusseldorf
FASTENER FAIR INDIA
FASTENER FAIR VIETNAM
FASTENER FAIR MEXICO
FASTENER POLAND
FASTENER FAIR ITALY
FASTENER FAIR GLOBAL
FASTENER WORLD
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