Taiwan:  Environmental Market Analysis

• Country Overview
• Market Estimates and Analysis
• Foreign Competition
• Regulatory Impact

COUNTRY OVERVIEW

The 1980s marked Taiwan�s environmental coming of age. Rapid economic development and population growth had placed tremendous strains on the local environment. The island�s drinking water and air quality had deteriorated significantly. Public protests mounted against building and citing of factories that posed threats to public safety and the environment. In response, the Taiwan Environmental Protection Administration (TEPA) was formed in 1987 as a cabinet-level agency. In 1992, the government also announced a six-year "Green Plan" to protect the environment.

Much progress has been achieved in improving both air and water quality, particularly in the cities, but problems remain in many sectors. Taiwan�s environmental degradation has reached levels that can be seen and smelled. It is common to see Taiwanese pedestrians wear surgical masks to prevent the inhalation of toxic fumes. About 95% of Taiwan�s 21 million people are still not served by a public sewerage system. Cities still lack proper solid waste disposal systems, including industrial solid waste treatment or disposal facilities.

Affluence and a higher standard of living have engendered greater demand for a better quality of life, and the government has a firm commitment to improved living standards commensurate with international standards. However, the economic downturn and lower private investment rates have reinforced the common notion that green policies can drag down the country�s international competitiveness. Taiwanese authorities are under pressure to limit impediments to growth (such as tightened environmental standards) so that industry can weather the regional crisis. Economic advancement is the top priority and sustainable development has yet to be fully embraced as part of the national plan. Environmental protection is considered a luxury, which affects enforcement of environmental laws.  For example, water discharge standards have been relaxed, and other laws are being poorly implemented in a bid by the authorities to assist local industries.

Lax enforcement also reduces the incentive to buy pollution control equipment. Nonetheless, market watchers still expect this sector to grow 5�7% in 1998 and 1999, with many product areas (control equipment for air pollution, solid waste, and hazardous waste, as well as recycling technologies) experiencing gains.

MARKET ESTIMATES AND ANALYSIS

According to 1999 reporting estimates made by the U.S. Department of Commerce Foreign Commercial Service and U.S. Department of State officials, the Pollution Control Equipment sector ranks 12^th among leading industry sectors for U.S. exports and investment in Taiwan for nonagricultural goods and services based on estimated dollar growth in U.S. exports from 1998 to 1999 ($18 million). The best prospects for Taiwan will be high-technology pollution-control equipment and cleaner production technologies for the semiconductor, petrochemical, pulp and paper, and electroplating industries.

Total imports are a key element of concern to prospective U.S. exporters. Imports represent a market�s ability to pay for, or demand, foreign goods. Imports have been growing consistently since the early 1990s with 1997 being no exception. The first four months of 1998 have shown considerable volatility, making forecasts of total import demand fairly uncertain.

Environmental Business International estimates Taiwan�s total market for environmental goods and services as follows:

Environmental Market in Taiwan 1995-1997 ($ millions)

Pollution Control Equipment (U.S.$ millions)

• The Republic of China Yearbook of Environmental Protection Statistics, Taiwan Area, says industry investment in pollution control equipment in Taiwan has ranged between $600 million and $1.1 billion per year since the early 1990s.
• An Industry Subsector Analysis for Taiwan prepared by the U.S. Department of Commerce in 1996 indicates that Taiwan�s total environmental equipment market reached its peak during 1993, totaling $1.3 billion.
• This number dropped in 1994 by almost half to $746 million, but increased again in 1995 to $775 million, and was expected to reach $829 million in 1996.
• According to this DOC/ISA report, the market is expected to grow at a rate of 20�25% throughout 1999.
• The Department of Commerce�s 1996 Country Commercial Guide for Taiwan shows growth from $700 million in 1994 to $770 million in 1995 to $840 million in 1996.
• Taiwan�s environmental equipment market totaled $1.4 billion in 1997, according to EBI, Inc. The 1999 Country Commercial Guide estimates reported lower figures, most likely accounting for affects of the financial crisis of 1997: $629 million in 1997, $679 million in 1998, and $712 million in 1999.
• Using EBI�s figures, Taiwan's total environmental market becomes $3.25 billion in 1997, almost a 12% increase over 1995 estimates.
• According to TEPA, the total environmental equipment market in 1992 was $1.6 billion, and is expected to reach $4.3 billion by 2002.

Comparable Market Estimates

Imported Environmental Equipment:  Market Composition By Equipment Type

Source:  China External Trade Development Council, ROC Customs Import Monthly

The table below shows the composition of the environmental equipment import market. The majority of the market is pollution prevention equipment.

Imported Environmental Equipment:  Market Growth Rates By Equipment Type (U.S. $1,000)

Source:  China External Trade Development Council, ROC Customs Import Monthly Statistics

• Total environmental equipment markets increased by 6% in 1995, then decreased by 9% in 1996, and increased again by 14% in 1997.
• While both water treatment and pollution prevention markets dropped by almost 30%, those markets rebounded by almost the same amount in 1997.
• Control equipment for treatment of industrial liquids has shown a steady increase, averaging almost 28% growth between 1994 and 1997.
• The Taiwanese environmental import markets are moving in a positive direction despite the Asian financial crisis.

Manufacturing is still the largest single contributor to GDP and the source of most environmental problems. The four leading manufacturing sectors are the industries that U.S. environmental companies need to target. The electrical and electronics sector in particular is forecast to be relatively "crisis resistant" as a result of Taiwan�s secure worldwide position. These sectors have major environmental problems and need environmental controls. These sectors are also growing and, as a result, are better able to pay for environmental equipment and services than other sectors.

Sectors of Manufacturing Growth 1990-1998

Targeted Industrial/Environmental Sectors

Air Pollution

Air pollution markets are excellent candidates for U.S. technologies, especially for power, cement, iron and steel, and petrochemical plants. Taiwan is in the process of switching to lead-free fuels. This presents a possible opportunity for U.S. firms. Because this conversion is not due for implementation until 2000, with possible delays until 2003, we rank this longer term opportunity as a lower priority.

Volatile organic compound (VOC) controls represent a potential market for U.S. firms in the medium term. In addition to the synthetic leather industry, the growing electronics industry is VOC-intensive because solvents are heavily used in manufacturing integrated circuits, condensers, and other electrical components. The electronics industry is growing in double digits and new VOC regulations were due in January 1999. Now is the time to start making overtures about U.S. technologies.

Water and Wastewater Treatment Control

We believe that industrial water and wastewater treatment should be elevated as one of the highest priority markets for U.S. businesses for three reasons:

• U.S. manufacturers have some of the most cost-effective technologies for treating water and wastewater in the world and can compete with any foreign producer.
• New water quality regulations with financial enforcement are on the way.
• Industries with high loadings are continuing to expand even through the Asian crisis.

Water pollution control fees were supposed to be implemented starting July 1, 1998. We suggest identifying target industries and companies that will have to pay excessive fees under this new enforcement regime. It is our understanding that wastewater flows and permits, as would exist under the U.S. National Pollution Discharge Elimination System, are not available in Taiwan. However, it may be possible to obtain relevant information through the use of industrial surveys.

Once data is collected regarding Taiwanese companies that will have to pay high fees for wastewater discharges, this list should be communicated to a pre-qualified list of export-ready U.S. firms. If U.S. firms are not ready to export but interested in market opportunities, the U.S. Department of Commerce can help prepare them.

Toxic/Hazardous Waste

It appears that toxic/hazardous waste is a very soft market because of the lack of enforcement. Hazardous waste does not have to be characterized in Taiwan as in the U.S. Hazardous waste companies and haulers as well as the marketing of hazardous waste landfills should be considered a prospect in the long term and a low priority.

Municipal Solid Waste

The municipal solid waste market is subject to some controversy. It is a long and arduous process that U.S. companies such as Laidlaw, Rollins, and USPCI understand very well. Although the Japanese were the first to sell BOT/BOO incinerators to Taiwan, public backlash against incomplete combustion-producing dioxins from Japanese technologies may open the door for U.S. firms.

Sludge Treatment

The sludge treatment market is driven more by recovery economics than by regulatory compliance. Probably fewer than 15 U.S. companies could provide recovery services in Taiwan. Internet searches could produce a list of such companies quickly. These companies should ask for a sample analysis of the sludge and the concentration of the target material to be covered. Many U.S. firms can tell immediately if there is a commercial opportunity from the sample analysis alone.

Groundwater and Soil Treatment

The groundwater and soil treatment market is probably four to five years in the future, maybe longer depending on Taiwan's economic condition in upcoming years. In addition, Taiwanese companies will not be receptive to traditional "pump and treat" groundwater treatment technologies that have uncertain effectiveness and unknown termination. We classify this sector as a low priority.

Infrastructure Projects

According to TEPA, investments in the government's Six-Year Plan will total $12 billion. It is estimated that the average annual growth stemming from infrastructure developments will reach 20% for the next 10 years, second to the aerospace industry. The infrastructure program, however, has been beset by delays attributed to bureaucratic hurdles and public opposition. Taiwan relies heavily on nuclear energy, for instance, but the fourth nuclear power plant has created intense political controversy. Meanwhile, public interest groups have led protests against construction of factories viewed as threats to public safety and the environment. The government�s frustration with delays in infrastructure projects has led to efforts to privatize development and operations of incinerators on the island.

The imported environmental equipment market may be much smaller than the infrastructure projects market in total dollar amounts. However, for many small- and medium-sized companies, small equipment sales may be a much more realistic goal than multibillion-dollar infrastructure projects.

FOREIGN COMPETITION

As shown in the following table, the exporting country market share of Taiwan imports has been fairly steady since 1990. Japan continues to be the largest exporter of goods and services to Taiwan with just under $30 billion in exports in 1997, which represents 25% of Taiwan�s total import market. The U.S. is the second largest exporter with a total of $23 billion and a 20% share. With exports of approximately $5 billion each, Germany, Korea, and France are the next largest exporters to Taiwan. After the first four months of 1998, Japanese market share increased by roughly 2.5% (23.35 to 25.93%) while U.S. market share fell approximately 4.5% (22.01 to 17.32%). This data does not constitute a trend but imports should be watched closely.

Share of Imports by Country

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