Beijing tightens noose on Taiwan -
via Korea By Jens Kastner
A nightmare came true for Taiwan on May 2:
the mainland's Xinhua news agency reported that
Beijing will formally begin negotiations on a
free-trade agreement (FTA) with South Korea, the
island's arch rival in trade. South Korea's
Ministry of Foreign Affairs and Trade said Monday
that the talks will start on May 14.
As
Taiwanese manufacturers, who compete head-to-head
with their Korean counterparts in electronics,
steel, machinery, petrochemicals, plastics and
textiles, rely much on the edge Beijing lets them
have over foreign competitors in the mainland, any
concession given by to the Koreans will make
Taipei one head shorter at the cross-strait
negotiation tables.
Seoul has numerous
FTAs, the most important being one with the
European Union and the United States-Korea Free Trade
Agreement (KORUS), which
came into effect in March. Taiwan, by comparison,
beyond its trade agreement with the mainland, has
FTAs with the handful of nations with which it has
diplomatic relations, accounting only for a tiny
part of the island's annual exports.
The
Economic Cooperation Framework Agreement (ECFA)
the Taiwanese signed with Beijing in 2010
eliminated tariffs on 557 items under the "early
harvest list", giving the island's exporters some
advantages over the Koreans and Japanese in China.
Follow-up talks on the ECFA have yet to be
concluded.
Taiwanese President Ma
Ying-jeou recently mentioned a two-year timeline
to sort out tariff reductions or exemptions for a
further 5,000 items, among other crucial issues,
but Taipei now has good reason to fear that Seoul
is faster. As China is both sides' largest trading
partner, Beijing effectively fired the starter's
gun to a negotiation race by saying that two years
are also realistic for the completion of the
Sino-Korea FTA.
"The inauguration of
Sino-Korea FTA negotiations has put Taiwan under
tremendous pressure," said Liou To-hai, director
of the National Chengchi University's Center for
WTO Studies, in Taipei.
"Should South
Korea sign an FTA with China ahead of Taiwan and
China completing agreements on trade in goods,
trade in service and investment, all the dividend
that Taiwan has gained from ECFA's early harvest
program could be neutralized."
The
cross-strait agreements Liou referred to are
stalled by a long list of obstacles, mostly
related to opposition by Taiwan's mainland-wary
political parties and public sentiment, as well as
Beijing's insistence on avoiding any hint on
Taiwanese statehood.
According to Liou, a
Sino-Korea pact threatens to divert trade and
investment away from Taiwan.
"Sectors
South Korea and Taiwan compete fiercely in both in
China and world markets, such as semiconductors,
mobile phones and digital TVs, are not on the
early harvest list", he said. "If tariff on those
items produced in South Korea were exempted due to
the Sino-Korea FTA, Taiwanese manufacturers would
lose their price competitiveness."
This
would force Taiwanese investors in the mainland to
stop importing key components from their home
island and instead purchase them from local
mainland firms, causing Taiwan's trade surplus
with China to decline significantly, Liou said.
Foreign direct investment (FDI) in Taiwan
would also be affected. Since the signing of the
ECFA, Japanese companies have used Taiwan as a
gateway into the Chinese market, but this
phenomenon could come to an untimely end, as
"Japan is likely to shift its investment to South
Korea," Liou said.
Trade volume between
Taiwan and the mainland reached about US$160
billion last year, while that between South Korea
and mainland China was $245.6 billion. If the FTA
comes into being, two-way trade is expected to
reach $300 billion by 2015.
A Sino-Korea
FTA will likely cover goods, services,
intellectual property rights and investment, and
reportedly even sensitive areas such as Korea's
agricultural sector and China's petrochemical,
electronics and machinery industries won't be
taboo at the negotiation table.
Seoul
agrees in principle on the need for a trilateral
China-Japan-Korea FTA, which eventually could pave
the way to an "ASEAN plus Three" trade pact. While
Taiwan will obviously be marginalized under such
scenarios, the diplomatic isolation Beijing has
been enforcing upon the island is hardly the only
factor that leaves Taiwanese exporters
increasingly at the mercy of the Chinese market.
Ronald A Edwards, an expert on China's
political economy and professor at Tamkang
University in Taipei, pointed out that at least as
large a part of the dilemma is self-made and
ironically also by Taiwan's anti-unification
political opposition.
"If Taiwan continues
to send US products back and pull US goods off the
shelf, it will send a signal to other countries,"
Edwards said, referring to an old trade spat
Taiwan has with the US over the ban on imports of
the food additive ractopamine. Mad cow disease
affecting US beef is also an issue. The issues led
to recent controversy in Taiwan after the ruling
Kuomintang wanted to scrap the ban on ractopamine
for the sake of trade liberalization.
"If
the Taiwanese cannot manage their trade relation
with their most important political supporter and
number two trading partner, other countries may
think twice about entering into trade pacts with
them," Edwards said.
Hu Sheng-Cheng, an
economist at Academia Sinica and former minister
of the Cabinet-level Council for Economic Planning
and Development, said Taiwan's exporters of
electronic and technology products might not be
too seriously affected by a Sino-Korea trade pact
because they are somewhat cushioned by the WTO's
Information Technology Agreement.
Traditional industries, such as machinery,
petrochemicals, plastics and textiles, will be
more affected, and as those employ the most
people, and so political pressure on Taipei
through the negotiations on a Sino-Korea FTA will
be even greater. That in turn, puts Taipei ever
tighter on Beijing's leash, according to Hu.
"Talks on the Sino-Korea FTA will affect
the follow-up ECFA negotiations. Beijing will
lever the talks with Seoul to force Taipei into
making concessions on ECFA and even to compromise
on political issues."
It is a hallmark of
the secretive cross-strait talks that their
outcome is unpredictable, said Hu, but if Taipei
behaves obediently, the completion of the ECFA at
Korea's expense could come about more sudden.
Taiwan's anti-unification opposition
suspects President Ma will very soon publicly
acknowledge Beijing's "One China principle". "Ma's
inauguration speech on May 20 and Beijing's
reaction to it will provide clues," Hu said.
Ma's usual mantra is that the mainland and
Taiwan "belong to China and that China is the
Republic of China" (not the Communist-led People's
Republic of China). This might be moderated to say
that the mainland and Taiwan "both belong to
China" or "the Chinese nation", or he might not
refer to his three "nos": no independence, no
unification, no war - his line in his first
inauguration speech.
If, as the DPP
worries, he skips the three "nos" and reference to
the "Republic of China" this time, the
negotiations on the ECFA may move faster than
Sino-Korean FTA, Hu believes.
Jens
Kastner is a Taipei-based journalist.
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