One may wonder whether the US, while actively seeking an FTA with South Korea, considered the damage to Taiwan's economy and trade. Taiwan is a faithful ally of the US, and the US should therefore give cautious consideration to the impact of such an agreement on Taiwan and treat it in a fair manner by also signing an FTA with Taiwan.
While we work to make this dream come true, I suggest the government consider how Taiwan should respond to a worst-case scenario. Many years ago, I suggested that the government lower taxes to make up for the loss in price competitiveness suffered by Taiwan's companies as a result of the impact of FTAs between other nations. This approach, however, is only partially effective, because no policy can make up for the economic integration that follows the signing of an FTA.
The other option is to strengthen innovation ability. The government must, however, understand that without the help of an FTA the resources required to promote innovative abilities will diminish and it may become difficult to prevent a brain drain. The promotion of innovative abilities requires a huge effort.
The impact of FTAs on Taiwan is multi-faceted, and the agreement between South Korea and the US will highlight the gravity of this problem. Resolving the FTA issue requires the government to consider every economic aspect. It must coordinate tax reform, policies to promote innovation and new cross-strait policies to find a way to resolve or minimize the problems caused by FTAs.
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 Lin Ya-ti
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