Taiwan homes in free-trade pacts

For Asia Times 

Taiwan, seeing its competitiveness against arch trade rival South Korea dwindle partly due to Beijing-imposed isolation and partly attributably to protectionism at home, is about to celebrate breakthroughs towards signing two free-trade agreements (FTAs) – one a bilateral pact with Singapore awaiting legislative approval, the other with New Zealand, with which negotiations are soon to be concluded.

Taiwan’s bilateral trade volume with these two prospective FTA partners is not notably large – they together only account for 3.8% of Taiwan?s total trade – but the developments are a good omen. They suggest that the Taiwanese government of President Ma Ying-jeou is making headway in making trade liberalization
palatable to a notoriously protectionist public. 
“The near conclusion of FTA talks with Singapore and New Zealand is good news for Taiwan,” said Hu Sheng-Cheng, an economist at Academia Sinica, a prestigious research institute in Taipei. “Negotiations went relatively smoothly because Singapore doesn’t have agriculture, and while New Zealand relies rather heavily on it, their farming products do not greatly overlap with Taiwan’s.”

When political entity A signs an FTA with political entity B in order to mutually open markets, the possession of formal statehood by both A and B is strongly implied. China regards Taiwan as a Chinese province, not an independent state, and its work behind the scenes against Taiwan securing FTAs has never been a secret.

As a result, the only FTAs Taiwan has are with Panama, El Salvador, Honduras, Guatemala and Nicaragua – all of which recognizing Taipei’s Republic of China, as opposed to Beijing’s People’s Republic of China. Taiwan also has the Economic Cooperation Framework Agreement (ECFA) with mainland China, signed in 2010.

Korean exporters, who compete head-to-head with Taiwan in electronics, steel, machinery, petrochemicals, plastics and textiles, are free of such shackles of diplomatic isolation. Seoul has already signed FTAs with nine economic entities, including the Association of Southeast Asian Nations (ASEAN), India, the European Union, and the United States, and is negotiating FTAs with a further eight, including mainland China.

If that was not enough to send chills down the spines of the Taiwanese, three extensive economic integration agreements are under negotiation in the region Taiwan has not been invited to, namely the US-promoted Trans-Pacific Partnership (TPP), a trilateral FTA between China, Japan and South Korea, as well as the ASEAN-led Regional Comprehensive Economic Partnership (RCEP). This last will eventually link the economies of 16 Asia-Pacific countries.

When Ma took office in 2008, he vowed to improve connections between the export-reliant island to international markets. According to his school of thought, the way to go was to liberalize the domestic market in order to level the playing field overseas for Taiwan’s exporters, which after all produce over 70% of the island’s nominal gross domestic product.

At the same time, he wanted to turn Taiwan into a gateway to mainland China through the ECFA. However, his moves for trade liberalization all but fizzled out after they were met with at times hysterical opposition at home, for example, against the import of certain US meat products and the opening of the telecommunications, pharmaceutical and transportation sectors.

Mostly due to protectionist hindrances, the ECFA stepping stone plan also has not quite worked out, as proven by Taiwan’s dismal figures for bringing in foreign direct investment. In 2011, they were were the world’s second-lowest, after Angola, according to the UN Conference on Trade and Development.

That Ma is now succeeding with the Singapore and New Zealand FTAs can be taken as a sign that attitudes on the island toward trade liberalization are changing. Taiwan’s exports have dropped in value by 1.9% year on year in April, while Korea’s still managed to increase 0.4% in the same period, which are the sort of figures making Taiwan slowly come to assess that overt respectfulness of protectionist lobbies indeed becomes an unbearable burden for society.

According to Hu, the powerful farming lobby is foremost in taking a beating with the two new FTAs, while textiles, petrochemicals and machinery, including precision machinery, will reap the benefits. The pacts won’t make a difference for the Taiwanese economy’s main staple, information and telecommunications (ICT) products.

Most ICT products are already covered by the World Trade Organization’s Information Technology Agreement, he said. The agreement aims to lower all taxes and tariffs on information technology products by signatories to zero.

Hu has his reservations as to the speed and extent to which FTAs will liberalize trade. “There still is an immensely long road ahead. And at the end of the day, it will come down to whether Taiwan will secure FTAs with the US and EU.”

That Beijing has refrained from obstructing Taiwan’s FTA drives this time around can only be seen as a spectacular policy novelty. Although China’s Hong Kong Special Administrative Zone does go about and start talks on bilateral FTAs, it has always been a different story with Taiwan because Ma’s predecessors exploited FTA talks to make the case for Taiwan’s formal independence from China.

“Beijing does it to reward Ma for having liberalized cross-strait trade and travel,” said Sean King, vice president of Park Strategies, a US-based lobbying firm until recently working for the Taiwanese government. “For those who support Ma’s mainland openings, they’ll see any FTA announcements as validation thereof. That’s because without Beijing agreeing to look the other way, said announcements wouldn’t be possible.”

Jens Kastner is a Taipei-based journalist.

(Copyright 2013 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

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