Fri, Jun 08, 2012 - Page 8 News List

Taiwan is adrift in a sea of FTAs

By Rhee Sang-myon

Since the Economic Cooperation Framework Agreement (ECFA) was signed two years ago, South Korea has envied Taiwan’s apparently favorable provisions in the agreement’s “early harvest” program, which takes advantage of China’s “giving benefits policy” (讓利政策). As it turns out, the impact on South Korea has not been as great as anticipated; however, it was still one of the factors that incited South Korea to negotiate its own free-trade agreement (FTA) with China.

Some commentators have expressed deep concerns about Taiwan possibly becoming further isolated in East Asia due to the proliferation of FTAs in the region, and especially since Taiwan has only five FTAs with minor economies in Central America. They say that if a trilateral FTA between China, Japan and South Korea, as well as a bilateral Chinese-South Korean FTA, are signed, Taiwan will be further divorced from the process of economic integration in East Asia, and that the combined effects of such FTA webs would eventually marginalize any favorable effects that Taiwan may have accrued from the ECFA.

Some of them even contemplate a worst-case scenario for Taiwan in which China would tighten its containment policy toward Taiwan, making use of the ECFA to gear up increasing economic dependency.

Such concerns are mostly based on assumptions made without precise knowledge of the real situation. These observers should first realize that trilateral FTA negotiations as advertised by the leaders of South Korea, Japan and China will not be conducted until a Chinese-South Korean FTA has been negotiated. It was Japan that initiated the idea of trilateral negotiations, worrying about its own isolation when news broke that China and South Korea would soon start FTA negotiations. A Chinese-South Korean FTA would cause the latter to become a hub of FTAs, covering about 70 percent of the global economic geography and including recent FTAs brokered with the US, EU and other major and minor economies.

Furthermore, they should realize that, not long after the expression of such hopes by the three leaders at the recent summit in Beijing, China and South Korea have made it clear that priority should be given to their bilateral FTA.

A Chinese-South Korean FTA will not be realized in two years, as China hopes. Currently, South Korea is not that eager to rapidly conclude an FTA with China, as it is enjoying a trade surplus of over US$400 billion. An FTA with China would increase South Korea’s economic dependency on it much more than the current level of 25 percent of total international trade. Seoul would rather wait to feel the full effects of the recent FTAs with the US and EU, and check their potentialities, which may effectively diffuse anticipated negative effects of a Chinese-South Korean FTA.

The current stage of negotiations that has just started will deal only with procedural aspects, sorting out sensitive and highly sensitive items, and assessing whether some of them could be excluded from concessions. If the first stage proves successful, the second stage of substantive negotiations would take place in a year or so, when the new administrations in China and South Korea are prepared to tackle the matter. Because of so many complicated issues being involved — including the thorny issues of service areas, non-tariff barriers, intellectual property rights and dispute settlement — a series of protracted negotiations over several years would be needed to produce an agreement.

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