During the previous presidential campaign four years ago, then-Chinese Nationalist Party (KMT) candidate Ma Ying-jeou (馬英九) lambasted the Democratic Progressive Party (DPP) administration for failing to sign a free-trade agreement (FTA) with any country in East Asia during its time in power. In this, he said, Taiwan was alone in the region, with the exception of North Korea. It meant that when everyone else was living it up, Taiwan was left out in the cold, he said.
More than three years into President Ma’s first term in office and Taiwan is still the orphan of East Asia, without a single FTA signed with another East Asian country. The nation was left to cope with the prodigious competitiveness of its rival South Korea, which has recently signed FTAs with both the US and the EU.
South Korea’s FTA with the EU came into effect in July.
Almost three-quarters of the products Taiwan exports to the EU overlap with those of South Korea, so the FTA is certain to affect Taiwan’s export trade to the EU. In January, the FTA between South Korea and the US will come into effect, hitting Taiwan’s export trade with the US. These two trading partners are very important to us.
Aside from the FTAs South Korea has already signed with ASEAN, India, the EU and the US, it is conducting negotiations with six other countries. Its achievement in signing these agreements is putting increasing competitive pressure on Taiwan.
True, the government is engaged in talks with Singapore over the possibility of signing an FTA, but progress is slow. I was in Singapore not long ago and asked a senior official there what was holding things up. According to the official, Taiwan lacks a comprehensive negotiation plan and the resolve to push through economic deregulation. Also, remember that even if Taipei does succeed in signing a pact with Singapore, it won’t bring significant economic benefits to Taiwan, as trade with Singapore only accounts for 3.6 percent of total exports. We have the Economic Cooperation Framework Agreement (ECFA) with our primary trading partner, China, but that is just a framework agreement, not an actual FTA. Taiwan has yet to embark on FTA negotiations with that country. Neither has it entered into FTA negotiations with the US, Japan or the EU.
Ma recently hailed an investment protection agreement with Japan as a major breakthrough. As part of the agreement, Taiwanese companies are to form partnerships with Japanese companies eager to break into the Chinese market, which is good for Taiwan’s economic prospects. Within a month, however, Taiwan was suddenly facing the imminent prospect of an FTA between South Korea and the US, something that had both the government and the media worried.
What has actually happened is that the government has oversold the potential impact of the investment agreement with Japan. This agreement is likely to have only a limited effect on investment, as it only really involves the promotion of investment in established products, investment protection and investment deregulation, and does not really promote investment into the industries of either signatory. The agreement once again falls short of being an actual FTA and does little to address Taiwan’s woes in the face of prevailing trends vis-a-vis trade agreements and the impact of investment flows in East Asia.
The investment protection agreement should be neither attributed to the signing of the ECFA nor regarded as a solution to Taiwan’s economic isolation in East Asia. Since Taiwan ceased having representation in the UN in 1971, it has managed to sign 60 investment agreements and 287 economic agreements with other countries, most notably investment agreements with Indonesia, Singapore, Malaysia, Vietnam and Thailand since 1990 and, more recently, with India and Australia. Beijing has not seen fit to interfere with any of these agreements. The Ma administration really shouldn’t exaggerate the so-called “ECFA effect” in trying to conceal Taiwan’s international problems, or indeed its own failings.
The government should come clean about the less-than-stellar impact of the ECFA and look into formulating an integrated global economic strategy. It needs to promote a consensus at home and establish a mechanism that will be of universal benefit. If it does this, it stands a chance of helping Taiwan emerge from its current problems.
The aforementioned Singaporean official told me that South Korea has been very decisive and focused in FTA negotiations, accepting almost all of the terms and conditions for economic deregulation brought up by ASEAN and the EU with hardly any argument.
This demonstrates the leadership of the South Korean government and the fact that it has very clear strategic goals. In terms of the future, it’s not the goodwill of China that Taiwan needs, it is a consensus and strong leadership at home.
Tung Chen-yuan is a professor at National Chengchi University’s Graduate Institute of Development Studies.
Translated By Paul Cooper
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