Analysis: US-S Korea pact poses threat to Taiwan

The government has so far secured FTAs with Central American allies Panama, Guatemala and Nicaragua and hopes to break the nation's trade deadlock through the WTO mechanism. That has been stymied, however, after the WTO's Doha round of trade talks was suspended in September.

The government needs to address this issue soon, Hsueh warned, adding that there would be stronger trade integration in East Asia in the future that could leave Taiwan out.

The ASEAN plus three -- China, Japan and South Korea -- plans to remove all tariffs in the region by 2010, and form political, military and tourism alliances.

The free flow of goods at lower costs may further siphon off Taiwan's capital, which would cut into Taiwan's domestic investments and consumption, Hsueh said.

The analyst suggested that the government move to resolve the cross-strait dispute and liberalize trade and investment between Taiwan and China.

"With globalization, the government can no longer ignore the risk of Taiwan gradually being marginalized," Hsueh said.

However, Chang Chien-yi (張建一), a deputy director at the Taiwan Institute of Economic Research's (台經院) research division, said there was no reason to panic.

By upgrading core technologies and focusing on more valuable high-end products, made-in-Taiwan goods can become irreplaceable, Chang said.

"This is why Intel Corp still places orders with Taiwan Semiconductor Manufacturing Co (台積電), not Semiconductor Manufacturing International Corp (中芯) of China," Chang said.