TRADE PACT SIEGE: Central bank governor sounds warning on stalled cross-strait service trade pact

By Amy Su  /  Staff reporter

Fri, Mar 28, 2014 - Page 13

Central bank Governor Perng Fai-nan (彭淮南) yesterday said the nation’s economy would lose growth momentum if Taipei remains slow in signing free-trade agreements (FTAs) with other countries, including the cross-strait service trade agreement with China.

Perng said a stalled implementation of the service trade pact would lead to little progress on discussions on a cross-strait trade agreement in goods, which may be more significant to the economy.

“We have lagged far behind South Korea in the FTA issue,” Perng said after the bank’s quarterly board meeting, where board members decided to keep the bank’s policy interest rates unchanged for the 11th straight quarter.

Perng said Beijing currently imposes a 5 percent tariff on flat-panel imports.

If South Korea signs an FTA with China, it would allow South Korean manufacturers to enjoy zero tariffs, while Taiwanese firms would remain subject to the 5 percent import levy, a move that could adversely affect the employment of about 100,000 workers in the Taiwanese flat-panel industry, Perng said.

The financial sector and offshore yuan business would also develop better under an environment where both service and goods trade pacts have been signed with China, Perng said.

“The deal may be critical to get RQFII [renminbi qualified foreign institutional investor] quotas with China,” he said.

At yesterday’s board meeting, the monetary authority kept its discount rate unchanged at 1.875 percent, as well as maintaining the collateralized and unsecured loan rates at 2.25 percent and 4.125 percent respectively, citing a mild pickup in the domestic economy and pressure on consumer prices.

Tony Phoo (符銘財), a Taipei-based economist at Standard Chartered Bank, said the central bank’s tone has turned slightly more upbeat, but the bank may need to see a stronger upside risk to inflation before considering shifting away from its accommodative stance.

Raymond Yeung (楊宇霆), a Hong Kong-based senior economist with ANZ Research, said the central bank may hold back the timing of interest rate normalization if the current deadlock over the trade pact drags on and the nation’s growth outlook further deteriorates.