It has long been emphasized how important it is for Taiwan to join the Trans-Pacific Partnership (TPP) agreement. The main arguments in governmental and academic circles are about how Taiwan would be seriously marginalized without TPP membership due to the Taiwanese economy being heavily weighted toward external trade.
However, those arguments are derived purely from the perspective of the nation. I doubt whether these Taiwan-centered arguments are convincing to existing TPP members.
Becoming a member of the TPP requires the full consensus of existing members. That means it only takes one refusal to exclude Taiwan from the process. Therefore, in order to convince all members to receive Taiwan, explaining how Taiwan’s membership can bring economic benefits to the entire region is the key.
There are actually several major factors why the existing members of the TPP should welcome Taiwan to this multilateral trading platform. Taiwan’s participation in the TPP can indeed add to their national interests.
First, Taiwan’s membership in the TPP can help strengthen the supply value chains in the Asia-Pacific. Taiwan has been intensely and deeply integrated in the value chains of the Asia-Pacific region.
The most obvious evidence is Taiwan’s export structure. More than 70 percent of Taiwan’s annual exports to other regional destinations are intermediate goods. In addition, more than 50 percent of Taiwan’s export orders are produced overseas, mostly in the economies of the Asia-Pacific region.
If Taiwan does not join the TPP, the agreement will likely alter supply value chains, eventually marginalizing Taiwan. Why would this even be a concern to other TPP members?
A new set of supply value chains generated by economic policies or treaties will not be able to create as much economic welfare for the entire region as the original set of connections created by natural rules of supply and demand, according to standard economic theory. For that reason, Taiwan’s position in the supply value chain and its membership in the TPP will benefit the region and promote the optimal allocation of regional resources.
For example, Vietnam’s textile industry has long depended on Taiwan’s supply of functional fibers. However, the TPP “Yarn Forward” Rules of Origin (ROO) demand that TPP signatory nations use yarn produced by TPP members to receive access to zero tariffs.
Taiwan’s functional fibers are the best in the region — of a high quality and competitive price. The ROO would cause a negative impact on the Vietnamese textile industry; the cure is simply to make Taiwan a TPP member.
Second, the trading rules of the TPP are set mainly by the US and are used to supervise and manage the US’ East Asian trading partners. Before the formation of the TPP, the US stressed the significance and consequences of Trans-Pacific Imbalances (TPI).
Some US trade experts believe the US suffers from a huge trade deficit because some East Asian counterparts do not play fair. Issues such as protection of intellectual property rights (IPR) and the vested interests of state-owned enterprises (SOE) are cases in point.
When the US looked at the so-called “high-quality” TPP, it was sensible that the US seized the chance and used the original Trans-Pacific Strategic Economic Partnership Agreement, which did not include the US, as a mechanism to take care of this long-lasting problem.
In a nutshell, the purpose of the TPP is to deal with the problem of TPI. For that reason, it would be more sensible that the main contributors to TPI such as China, Japan, South Korea and Taiwan should all be included in the “high-quality” process. Japan has already attended negotiations of the TPP.
The US has also extended its welcome to South Korea. China has announced in public that it will not rule out taking part in the TPP in the future. With the inclusion of Taiwan, the TPP could be better utilized to manage TPI. This of course is more of a US-centered reason for inclusion of Taiwan. Other TPP members probably will not be too concerned about the matter of TPI.
However, the US is now leading the TPP negotiations. Solid support from the US will certainly make a difference, even though TPP membership requires a consensus from all.
Third, TPP members would gain further access to the Taiwanese market if the nation were to participate in the TPP. According to last year’s WTO tariff profiles database, the simple average most-favored nation (MFN) applied tariffs in Taiwan stand at 6.1 percent in general, 16.4 percent for agricultural goods and 4.5 percent for non-agricultural products.
By comparison, the simple average MFN applied tariffs of the 12 TPP members on average are 4.4 percent in general, 8.4 percent for agricultural goods and 3.8 percent for non-agricultural products. Therefore, Taiwan’s TPP membership would have the effect of peer pressure helping speed up the liberalization of Taiwan’s market and lowering the barriers for TPP members. In other words, Taiwan’s TPP membership would help Taiwan to speed up its economic reform. As most TPP members are close economic partners of the nation, they ought to be more willing to trade with an open and free economy.
Darson Chiu is deputy director of the Macroeconomic Forecasting Center at the Taiwan Institute of Economic Research.
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