Page 1 of
2 Cornered: Taiwan falls behind in
FTAs By Ting-I Tsai
TAIPEI - When the United States and South
Korea ended a 10-month marathon negotiation and
achieved a consensus on a bilateral free-trade
agreement (FTA) on April 1, Korean farmers were
not the only group worried about the
market-opening deal. Taiwan and its business
people, who have counted South Korea as one of
their main competitors for decades, also feared
that they might emerge as big losers.
They
have reasons for concern, as nine of the two
economies' top
10
export commodities, and 50 of the top 100, are the
same items. But Taiwan's problems extend beyond
falling behind in developing a closer trade
relationship with the United States. It is now
moving away from its main trade partners as it
falls behind in the global race to ink free-trade
pacts.
"When we look back 10 years later,
this might be a watershed of Taiwan's and Korea's
economic competition," said Hung Tsai-lung,
research fellow at the Taiwan Institute of
Economic Research, who emphasized that promoting
liberalization is a crucial and urgent issue for
Taiwan.
From January 2006 to February
2007, Taiwan's foreign trade totaled US$492
billion. But by the end of February, it had only
inked FTAs with Panama, Nicaragua and Guatemala,
countries that still recognize the Republic of
China. Taiwan has completed negotiations and was
set to sign a trade pact with El Salvador and
Honduras this Monday, Taiwan's first multilateral
FTA. The island has also begun talks with Paraguay
and Costa Rica.
However, bilateral trade
with these seven countries only accounts for 0.22%
of Taiwan's foreign trade. None of its top 20
trade partners, including Japan, the US, South
Korea, Germany, ASEAN (the Association of
Southeast Asian Nations), and rival mainland
China, have shown any interest in signing an FTA
with Taiwan. This is despite the fact that
recently five members of the US House of
Representatives proposed a resolution in support
of a US-Taiwan FTA.
In contrast, South
Korea has inked FTAs with the ASEAN countries,
Chile, Singapore, and EFTA (the European Free
Trade Association), while the European Union,
Australia and China have all expressed their
interest in opening negotiations with Seoul.
It is estimated that the US-Korea deal
will cause Taiwan to lose $2 billion in trade,
particularly in the textile, apparel and
athletic-shoe sectors, according to Taiwan's
Chung-Hua Institution for Economic Research.
Furthermore, investors will now be more likely to
allocate their capital and transfer their
technologies to South Korea.
John Gilbert,
a professor at Utah State University's department
of economy, estimated in 2003 that a US-Korea FTA
would cost Taiwan $130.7 million, but in Taiwan,
Stephen Young, director of the American Institute
in Taiwan, the de facto US embassy, tried to play
down the new deal's significance by arguing that
the US-Korea FTA will take a while to manifest
itself. Nevertheless, the anxiety in Taiwan is
still high.
John Deng, chief
representative of Taiwan's new Office of Trade
Negotiation, which was founded on March 30, said:
"This is hard to deal with for people like myself
who once battled [the South Koreans on the trade
front] and thought we had defeated them in the
1990s."
Because of their similarities in
income level and industrial structure, Taiwan and
South Korea are often compared. South Korea began
overtaking Taiwan in gross domestic product per
capita, exports to the US, and even exports to
mainland China in 2001. One of the main reasons is
South Korea's active integration with mainland
China, according to a study released last month by
DBS Group called "Korea: Why It Outperforms
Taiwan".
"China policy plays a key role
here," suggested the paper's author, Ma Tieying.
In contrast with "the liberalized outward
investment policy in Korea, Taiwan imposes a 40%
ceiling [of companies' net worth] on China-bound
investment. However, capital could still find ways
to flow into China from Taiwan," said Ma, who
believes a liberalized policy toward the mainland
along with upgrading industry are ways Taiwan can
catch up and boost the flagging confidence of both
foreign and local investors.
The calls for
change have not only come from foreign investment
banks but also the US administration and US
business associations and chambers of commerce.
Karan Bhatia, deputy US trade
representative, noted in a speech in Taipei last
May that Taiwan's restrictions on cross-Strait
economic interactions have discouraged
multinational companies from establishing
operations in Taiwan. He said the restrictions on
transfers of commercial technology, on imports of
certain goods from the mainland, on travel to
Taiwan by mainland Chinese employees of Taiwanese
and multinational companies, and on mainland-bound
investment, and the lack of direct cross-Strait
air and shipping service, have all taken their
toll.
Whether the US administration is
using Taiwan's lack of direct transportation links
with China as an excuse for not inking an
FTA
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