While Taiwan is engulfed in scandal surrounding the case of former Mainland Affairs Council deputy minister Chang Hsien-yao (張顯耀), other countries continue to focus on promoting the progress of free-trade agreements (FTA). The latest development indicates that the wave of regional economic integration has continued to grow, especially in the Asia-Pacific region.
For example, it is reported that China and South Korea are likely to conclude a bilateral FTA this year. The Trans-Pacific Partnership (TPP), led by the US, despite its strenuous and grueling negotiation process, has continued to move forward and members hope to sign a preliminary framework agreement by the end of this year.
On the other hand, the Regional Comprehensive Economic Partnership (RCEP), driven by ASEAN states, launched the second ministerial meeting on Wednesday in Myanmar’s capital, Naypyidaw, hoping to form a consensus on the basic rules for discussing tariffs and to accelerate negotiations on services and investment, in order to conclude the treaty by the middle of next year.
As for Taiwan, after the student-led Sunflower movement earlier this year and the National Affairs Conference on Trade and Economics last month, it seems that enhancing the nation’s role in regional economic integration as well as expanding its FTA territory have become common goals across both ends of the political spectrum and for the majority of Taiwanese.
However, even though the objective is clear, the means to the end remains controversial and debatable. More importantly, the lack of competent leadership to set a sophisticated strategic action plan to devote all necessary efforts, as well as to coordinate different ministries from the top down, seems to be why Taiwan’s FTA initiative has failed.
As a result, when reckless actions in the legislative branch have triggered unexpected reactions from students and civil groups, the executive branch has rarely provided solutions, but merely been paralyzed, seeking a panacea from society by convening endless meetings, seminars and conferences.
In comparison with chaotic and tumultuous debates over external trade strategies in Taiwan, Japan’s experiences in the TPP negotiations and in fostering its FTA and regional trade agreement (RTA) development deserves some attention. After all, the fierce resistance against the TPP from agricultural associations and civil groups, as well as political obstacles that the Japanese government encountered have been no less substantial than the pressures the Taiwanese government bore during the Sunflower movement.
Nevertheless, Japan has not only overcome domestic opposition and successfully joined the TPP negotiations, but also finalized the Japan-Australia Economic Partnership Agreement (EPA) in April, effectively resisted US demands to eliminate tariffs on all agricultural products in bilateral talks, and continued to make progress in its FTA and RTA negotiations with various trading partners, including the EU, Canada, India, Mongolia and Turkey.
Several Japanese scholars, former bureaucrats, journalists and officials at the trade negotiation table have provided some interesting points on Japan’s latest experiences in trade negotiations, that Taiwan could learn from.
First and foremost, Japan has been determined to actively improve its FTA coverage of external trade and made this policy within its growth strategies at Cabinet level. In the past two decades, the Japanese Ministry of Economy, Trade, and Industry struggled between the WTO approach and FTA/RTA approach and debated which approach should be prioritized, which put Japan’s FTA policy in stagnation.
Nevertheless, with stalled progress in the WTO Doha round as well as China and South Korea’s aggressive FTA initiatives, Japan could not help but follow suit and started to adopt more progressive policies on FTA negotiations.
Most importantly, enhancing Japan’s significance in regional integration and increasing its FTA numbers have been placed as top priorities in the government’s policy agenda. In other words, it is a decision from the top of the political hierarchy that leaves no room for bureaucratic indolence.
Also, it is important to note that Japan’s previous conservative attitude toward signing FTAs was mainly attributed to concerns over its agricultural sensitivities. Indeed, Japan’s industrial goods are sufficiently competitive in the global market and concluding more FTAs definitely benefits Japanese manufacturing corporations.
However, it would be unlikely for Japan to ask potential FTA partners to open up domestic markets without Japan loosening up barriers in agricultural markets. Hence, considering the vulnerability of the agricultural sector and its political consequences, Japan had no choice but to adopt a cautious attitude toward FTAs.
Nonetheless, the above situation has dramatically changed since Japanese Prime Minister Shinzo Abe’s administration initiated the latest economic reforms — the so-called “Three Arrows” policy. Among various policy initiatives, agricultural reform has been placed at Cabinet level and treated as an imperative task that the Abe administration needs to gingerly address. Undoubtedly, Abe knew that the delicacy of agricultural issues would be Japan’s Achilles’ heel in negotiating any high-quality FTAs or RTAs, such as the TPP.
As a consequence, this issue has to be handled with prudence, to prevent any possible backfire that may undermine its FTA efforts.
In addition, the Abe administration has not only clearly identified its FTA/RTA preferences, but also made different action strategies accordingly.
For instance, given the political impacts of the TPP on Japan’s agriculture, the TPP issue has been elevated to Cabinet level and been directed by the state minister in the Cabinet. Since most FTA and RTA negotiations, like the Japan-Australia EPA, Japan-EU FTA, RCEP and China-Japan-South Korea FTA, are coordinated and decided at ministerial level, it is also unprecedented for the TPP to be handled by the Cabinet, which implicitly distinguishes the political significance of the TPP from other FTAs and RTAs.
Despite raising the importance of the TPP, it does not mean that Japan puts less effort into other FTA and RTA initiatives. Essentially, what Japan has adopted is a multifaceted strategy through conducting various FTA and RTA negotiations simultaneously, in order to shrewdly exercise and maximize its bargaining leverages at each negotiation table interchangeably.
The conclusion of the Japan-Australia EPA in April, which granted Australian agricultural goods certain access to the Japanese market, has imposed significant pressures on the US and New Zealand, since the latter two are similarly targeting Japan’s agricultural market.
Furthermore, Japan’s TPP experiences also indicate that domestic opposition may not always be an obstacle for FTA and RTA negotiations. In fact, if these challenging voices are subtly utilized by trade negotiators, antagonistic forces could play a constructive role in enlarging a state’s bargaining leverage.
For instance, regarding Japan’s “five sacred categories” of agricultural goods, which are protected by high tariffs, the Liberal Democratic Party and the agricultural committee have passed similar resolutions, strongly rejecting any tariff elimination on the items in these five categories. They even threatened to withdraw from the TPP negotiations if the tariffs related to these items could not be preserved.
Under this overwhelming domestic opposition, the Abe administration was able to persuade the US to moderate its arduous stance on “eliminating” all tariffs on agricultural products and made it agree that the final results would depend on bilateral negotiations.
In other words, Japan has successfully transformed its internal opposing pressures into bargaining clout externally without either completely sacrificing domestic interests to the US demands, or jeopardizing Japan’s TPP membership.
This case reveals one crucial truth in trade negotiation — the final result of a trade pact is made through the process of mutual compromise by participating parties. Hence, there is always room for concession.
Last, but not least, the Japanese government is fully aware of its strengths as well as weaknesses in trade negotiations and is able to make its offensive and defensive strategies accordingly. This allows Japanese negotiators to be confident and tenacious at the negotiation table without worrying about backfire on domestic fronts. This is also why they rarely consult or seek advice from business associations or civil groups during negotiation processes, since they already have a profound understanding of the needs and expectations of related industries with regard to the consequences of trade pacts.
This detailed investigation and analysis that helps to form workable strategies stems from its bureaucratic professionalism on a daily basis, not through one or two information-gathering conferences.
Hence, it is time for Taiwan’s decisionmakers to reflect and rethink the nation’s overall external trade strategy. Internally, rebuilding leadership and restoring people’s trust in the government’s economic direction are essential. Effective internal communications and coordination between the state and the public, the government and industries, and even different ministries within the government will pave the way for robust domestic support in trade negotiations externally.
As trust emerges from mutual understanding, both defensive and offensive strategies in trade negotiation can be prudently designed to address the needs of advanced industries and vulnerable sectors, domestically.
Consequently, the controversy over Taiwan’s FTA and RTA directions could be solved, which may truly enable the nation to devote all its efforts to regional economic integration. In this regard, Japan’s experiences seem enlightening and may deserve Taiwan’s consideration.
Eric Chiou is an assistant professor at National Chiao Tung University and a visiting scholar at the Research Institute of Economy, Trade and Industry in Tokyo.
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