Sat, Jul 31, 2004 page8

• Taiwan and Singapore need an FTA

  • By Chao Wen-heng趙文衡
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  Two foreign figures who are vital to the nation's trade and economic relations recently visited Taiwan -- one being Singaporean Deputy Prime Minister Lee Hsien Loong (李顯龍) and the other assistant US Trade Representative Charles Freeman. They came to Taiwan with totally different views about the signing of free trade agreements (FTA) with the nation.

  Freeman reiterated the US's lack of interest in signing such a pact, while Lee showed Singapore's consistent interest in a deal. As the nation is seeking FTA partners, the discrepancy in the two visitors' attitudes provides us new ways of looking at the issue.

  Some believe that Taiwan's search for FTA partners is politically motivated. I don't think this is an accurate observation. As a country highly dependent on foreign trade, Taiwan realizes that its economic development may suffer as a result of FTAs' being signed by nations that compete with it in trade. Therefore, seeking FTA partners is a defensive mechanism. As it is getting increasingly difficult to secure FTA partners, and trade competitors are seeking such deals more aggressively, the motivation to enter into such pacts is even stronger. This, together with stalled progress in the WTO, should give the country a sense of urgency to seek FTA deals.

  Singapore is one of the few countries that has shown a keen interest in signing an FTA with Taiwan and has been working toward achieving it. However, faced with interference from China, Singapore said that it opted not to be the first country to sign an FTA with Taiwan. It is interesting that Beijing is attempting to prevent Taiwan from signing FTAs.

  According to Shi Guangsheng (石廣生), China's minister of Foreign Trade and Economic Cooperation, Beijing is determined to oppose any FTA talks between Taipei and countries with which Beijing has formal diplomatic relations. It is Beijing's view that Taipei is using the FTA talks as a means to move toward independence. I don't understand this logic since FTAs are only a commitment to lower tariffs. If there were no cross-strait issues, Taiwan, like many other countries, would still seek FTA possibilities, as they are critical to the survival of a trade-oriented economy.

  Despite its opposition to Taipei forging FTAs with other countries, Beijing itself is interested in signing the Closer Economic Partnership Arrangement (CEPA) with Taiwan. This is another intriguing phenomenon. Though both China and Singapore are highly interested in signing an FTA or CEPA with Taiwan, both initiatives may fail for various reasons. The Singapore-Taiwan FTA may not go through as a result of Beijing's interference as mentioned above. The CEPA with Taiwan may not materialize because Taiwan still has concerns over the "magnet effect" of China.

  Many countries other than Taiwan have concerns over signing FTAs with China because it represents not only a vast market but also a competitor. The uncertainty of the implication of signing an FTA with China is too high. Besides, if Taiwan signs an FTA with China and the latter does not allow Taiwan to sign FTAs with other countries, then it would be a closed free-trade area and Taiwan's trade and economic relations would be limited to this area.

  In view of the keen interest in achieving FTAs linking Taiwan, China and Singapore, there is a compromise that makes it possible for the three countries to sign FTAs with each other, especially as each has an interest in signing with at least one of the others.

  Beijing does not like a Singapore-Taiwan FTA probably because it is afraid that such a pact will further alienate Taiwan from China. But how about the idea of China also being part of such an FTA? If Taiwan is reluctant to sign FTA with China because of the "magnet effect," how about signing a deal with Hong Kong? Signing an FTA with Hong Kong could partly eliminate the "magnet effect" for Taiwan. At the same time, as Hong Kong is part of China, a Hong Kong-Taiwan FTA would also show a certain degree of economic integration between Taiwan and China.

  Then, Hong Kong could act as a model for China to sign FTAs with other countries. This would also benefit Hong Kong as an international hub.

  Besides, for Singapore, signing an FTA with Taiwan and Hong Kong means establishing free trade relations with the two important trade partners outside the framework of ASEAN, a move that will help it become a center of free trade.

  Based on the above, I recommend inviting Hong Kong to join a Taiwan-Singapore free trade agreement, thus forming a Hong Kong-Taiwan-Singapore free trade area. Such a move would also make Hong Kong a buffer zone for the economic integration of "greater China." Besides, the negotiations among Hong Kong, Singapore and Taiwan would be more feasible as they would be less likely to touch upon sovereignty disputes.

  Chao Wen-heng is an associate research fellow at the Taiwan Institute of Economic Research and holds a doctorate in international politics and economics from the University of Maryland.

  Translated by Jennie Shih
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