Kurt Tong, the US official who manages all aspects of US participation in APEC, visited Taipei last week to talk with Taiwanese trade officials. When Taipei indicated its interest in joining the Trans-Pacific Partnership Agreement (TPP), which is the first and only trade negotiation that US President Barack Obama’s administration had engaged in since he took office three-and-a-half years ago, Tong said: “Taiwan itself has to be ready for it first.”
Given the infamous “China factor,” which has left Taiwan an outsider in East Asian economic integration, Taipei could only sign free-trade agreements (FTA) with five tiny Latin American states that account for less than 0.2 percent of the nation’s total trade. Taiwan has therefore been eager to sign any bilateral or multilateral FTA with any country to avoid being marginalized in East Asian economic integration.
One major argument from the advocates of the Economic Cooperation Framework Agreement (ECFA) with China was it would enhance Taiwan’s opportunity to sign FTAs with other countries.
It has been more than one year since the ECFA was signed, so what has happened to all those FTAs that were supposed to follow it?
This is a serious question that has to be raised for public discussion on the efficacy of the ECFA, especially since the South Korea-EU FTA took effect on July 1 and since the US-South Korean FTA is expected to be ratified on Capitol Hill soon.
South Korea is at a similar level of development, a strong competitor with Taiwan in the world market. South Korea has already signed multiple trade pacts with its major trading partners, covering more than 60 percent of its total trade. Taiwan, other than the FTAs with its Latin American allies, has only had the ECFA with China.
If the ECFA could really eliminate the “China factor” and help Taiwan obtain FTAs with other countries, then one would expect that the Taiwan-Singapore FTA would have been signed by now. In retrospect, one has to mention that, if negotiations had not become entangled over the title of the proposed trade pact, an FTA with Singapore would have been completed during the Democratic Progressive Party’s administration.
The TPP includes not only free trade in goods and services (zero tariffs among Chile, Singapore and New Zealand) and the removal of non-trade barriers, but also the protection of intellectual property rights, quarantine of agricultural products and government procurement.
Moreover, the TPP will not override existing FTAs, thereby avoiding the “spaghetti bowl” phenomenon resulting from different rules of origin. For example, TPP-4’s rule of origin is different from that of the Singapore-New Zealand Closer Economic Partnership. However, firms in both countries have the discretion to choose which rule to execute in their trade practices.
Other than trade liberalization, the US is focusing more on labor, environment and protection of intellectual property rights in the trade accord.
The US probably intends to use the TPP-9 as a role model for all regional trading arrangements, which usually cover much less in trade-related issues than what the US had anticipated.
The significance of the TPP is manifold.
First, it is the first trade pact that the Obama administration has actually negotiated. Presumably, Obama intends to use the TPP to facilitate US exports to fulfill his goal of doubling US exports within a five-year period.
Second, there is an “open accession” clause within the P4 bloc to accept other like-minded APEC members countries and to provide those countries with an avenue to join in the free trade club that may not be available for them otherwise.
Third, as Australian economist Peter Drysdale said: “the TPP is supposed to weld the Asia Pacific region together because TPP is closer to the ‘open regionalism’ than any of the existing FTAs such as the ASEAN-FTA, ASEAN plus three [China, Japan and South Korea] or the proposed ASEAN plus six [ASEAN plus 3 plus India, Australia and New Zealand].
Taiwan has strong trade and investment relations with the TPP-9, especially the US. The merchandise trade of the TPP-9 members with the US accounts for less than 6 percent of total US trade, and none of the eight prospective members counts as one of the US’ top 10 trading partners.
Taiwan has a two-way trade with the US totaling more than US$50 billion in the past year and Taiwan is the US’ seventh or eighth-largest trading partner.
As a member of the APEC and WTO, Taiwan has legitimate reasons to request the US and other TPP members join the trade pact.
The only question is, as Tong suggested in Taipei, “whether Taiwan is ready for it at all.”
Taiwan has not even resumed its Trade and Investment Framework Agreement talks with the US, not to mention free import of agricultural products and the intellectual property rights protection under the TPP.
Peter Chow is a professor of economics at the City University of New York. He was a research associate at the National Bureau of Economic Research and a consultant for the World Bank.
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