Due to the complexity of friendships and animosity among nations, membership in a multilateral Free Trade Agreement (FTA) is more susceptible to interference from international political forces than bilateral agreements.
In practice, it is almost impossible for a group of several nations to reach a trade agreement that is equal between all member nations. As a result, multilateral FTAs often carry a more symbolic than practical significance.
Some examples of multilateral FTAs are the FTA between China and the Association of Southeast Asian Nations (ASEAN) initiated in 2001, and the FTA between ASEAN and the three ASEAN Dialogue Partners, namely China, Japan and South Korea initiated in 2003, also known as ASEAN+3.
Compared with a multilateral FTA, a bilateral FTA suffers from less political interference. The reason is that a bilateral FTA is established between two nations relying on each other to bring about mutual economic advantages.
Thus, signing a bilateral FTA is more practical than symbolic, and it will also be better for the economy of the two nations. Examples are the bilateral FTA between Thailand and New Zealand last year and that between Turkey and Morocco this year.
For Taiwan, which has come under Chinese pressure in the international arena, entering into a bilateral FTA is more feasible than entering into a multilateral one. But, one wonders, why has Taiwan yet to establish an FTA with any nation in the world? What is the problem with Taiwan's FTA strategy?
In fact, the government has been active in pushing for the establishment of bilateral FTAs with three of its closest trading partners, Japan, the US, and South Korea. But the efforts have yet to yield results, since the three nations remain passive despite the government's activity.
Why is there such a difference between Taiwan and its three trading partners in their perception of the necessity for an FTA? We can get some understanding of the problem by analyzing the FTA strategies of these three nations.
The US currently has bilateral FTA agreements with Australia, Chile, Israel, Jordan, Morocco, and Singapore. Japan has bilateral FTA relations with only Mexico and Singapore. South Korea only has bilateral FTA relations with Chile and Singapore.
Looking at each nation's characteristics, we find that Japan, the US and South Korea choose their FTA partners not based on how close these partners are in terms of trade relations. Rather, they want FTA partners with industries complimentary to their own. For example, Singapore has become one of the favorite FTA partners for these three nations primarily due to the following reason: Singapore has no agricultural industry, but instead, its major employer is the service industry. Therefore, establishing an FTA with Singapore will not have a great impact on domestic agricultural industries in Japan, the US, or South Korea.
Looking at the contents of the FTAs entered into by Japan, the US and South Korea, we can find that their main emphasis is on lowering bilateral tariffs on the import of goods.
Taking Japan's example, the primary reason for it to sign an FTA with Mexico was that the Mexican market is one of the emerging markets that Japan is targeting. Also, given that Mexico has relatively higher external tariffs than other Central American nations, the Japan-Mexico FTA helps push Japanese products onto the Mexican market.
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