The fact that the KMT government has not excepted Taiwan's core pillars of industrial competitiveness, namely the "two trillion stars" of the semiconductor wafer foundry industry and the TFT-LCD (thin-film transistor liquid-crystal display) panel fabrication industry now threatens to undermine the foundations of Taiwan's global economic competitiveness and economic and even political autonomy.

Besides Ma's promises to allow Taiwan semiconductor wafer foundry companies to set up 12-inch fabrication facilities in the PRC, Premier Wu Den-yih stated in an interview published yesterday by local economic media that the KMT government will soon allow TFT-LCD panel fabricators to migrate to the PRC.

Wu stated that the action was being taken at the request of Taiwan panel makers, which now operate fabrication facilities in Taiwan and locate only final stage process module assembly in the PRC, and promised that the government would require that "advanced or sensitive technology will remain rooted in Taiwan" and that Taiwan companies see Taiwan as a "base" and keep research and development and headquarters here.

In the case of both Taiwan's high-flying semiconductor foundry and the TFT-LCD industries, such assurances are at best worthless or even deceptive because of the nature of the technology and knowhow involved and the nature of their "business to business" operating models which feature synergistic "clusters" of manufacturing and design, solution and commercial services.

The illustrative case is the abject failure of the Semiconductor Manufacturing International Corp (SMIC) established in the PRC by a defector from the TSMC camp was due to its inability to replicate TSMC's unique clustered "B2B" clustered relationships with Silicon Valley IC-designers.

Grabbing world dominance in these strategic industries, both of which have dual use civilian and military applications is a strategic objective of the PRC regime

It has been apparent for years that Beijing's Beijing's preferred short-cut to IC and TFT-LCD industry leadership is to entice Taiwan's high technology companies to transfer their clustered operations to the PRC and induce associated engineering and management human talent trained in Taiwan to relocate to the PRC and to train PRC talent in order to replicate and then compete with Taiwan fabricators.

Blindly opening lifting controls over PRC bound investments by semiconductor wafer or panel markets is not simply a matter of opening up markets or "letting enterprises do business" with the China market because Taiwan enjoys unique world-leading core technology or knowhow advantages in these key industries that grant Taiwan almost its only strategic edge advantage over the PRC.

Beijing has put pressure on the Ma government to lower or eliminate current administrative rules that ban the migration of TFT-LCD fabrication plants to the PRC.

A comprador government

Nevertheless, there are few logical reasons for Taiwan's TFT-LCD fabricators to migrate to the PRC since they enjoy in Taiwan superior operating conditions, including high quality labor, reliable and steady supplies of electricity and water and robust protection for their intellectual property rights, all of which are absent in the PRC.

Some Taiwan-based TFT-LCD makers have lobbied with the Ma government to allow them to migrate to the PRC, whose market will soon be saturated by seven new 8.5 generation state-funded panel, to overcome the minor added cost of China's 3 percent tariff barrier instead of adopting the wiser course of putting a priority on upgrading technology to higher generations or other ways to boost value added.

Moreover, the Taiwan government should intensify lobbying in the World Trade Organization for the inclusion TFT-LCD panels in the Information Technology Agreement (ITA) or demand in upcoming talks on the "economic cooperation framework agreement" with the PRC that Beijing lower tariffs and eliminate non-tariff obstacles.

Instead, by announcing its intention to let panel makers relocate fabrication processes to the PRC and by refusing to push for laws to protect sensitive technology and control the migration of high-technology talent to the PRC, the KMT government has torn away the best protective umbrellas against PRC political pressure or intimidation, namely the maintenance of strict official restrictions.

Ironically, the Ma government's touted cross-strait ECFA could actually further intensify pressures for migration of Taiwan's remaining high-technology industries to the PRC if Beijing still blocks or "discourages" the parallel signing of similar trade agreements between Taiwan and the Association of Southeast Asian Nations or other countries.

We urge the KMT government to show that it is more than a comprador for the PRC by protecting Taiwan's core technologies and industries.

The KMT government must take this strategic issue out of its black box and take the initiative to hold open debate among industrial experts, scholars, labor and lawmakers of all parties on the wisdom of allowing semiconductor and TFT-LCD industries to transfer operations to the PRC.