With US President Donald Trump signing an executive order to withdraw the US from the Trans-Pacific Partnership (TPP) and the difficulty of joining the Chinese-led Regional Comprehensive Economic Partnership (RCEP) due to the peculiarities of cross-strait relations, the government this year should focus on the “new southbound policy,” free-trade agreements (FTAs) and the Trade and Investment Framework Agreement (TIFA) in its foreign economic and trade strategy.
China is losing its competitive advantage as an investment environment; in contrast, ASEAN and India can provide young workers due to the “demographic dividend.”
In reaction to the resistance against westbound development and the southbound trend, and facing the tide of global direct investment flowing into ASEAN and India, the administration of President Tsai Ing-wen (蔡英文) has developed a new southbound economic and trade strategy, a creative plan for Taiwan’s economic development.
With the correct strategic direction and proper coordination, this could lead Taiwan onto the global trade stage.
For the government’s reference, I propose a model of reciprocal industrial cooperation between “altruism” and the “Asia-Pacific innovation corridor.”
Since the launch of ASEAN’s 10 members plus China, Japan and South Korea, China has been ASEAN members’ largest trading partner. Considering the “China factor” of the RCEP and China’s “one belt, one road” initiative, it would be very difficult for ASEAN and India not to care about China’s attitude and pressure.
The government must uphold the “altruism” ideal and take the initiative to expand the nation’s cooperation with ASEAN and India to create a need for Taiwan’s more competitive industries, so that the nations targeted by the “new southbound policy” can understand that Taiwan is a partner worthy of cooperation. Hopefully, this will induce them to sign bilateral FTAs with Taiwan.
Regarding the complex issue of interpersonal relations, Taiwan can leverage its comparative advantages with ASEAN — such as the nation’s growing Southeast Asian community, contract training in agricultural skills for ASEAN workers, the provisions of healthcare and medical assistance, building an “e-ASEAN,” sharing experience in small and medium-sized enterprise development, two-way educational and cultural exchanges and other issues — to promote and improve bilateral substantive relations.
In 2015, Japan gave ASEAN NT$60 billion (US$1.96 billion) in aid, accounting for 0.048 percent of its GDP at the time, while South Korea gave NT$15 billion, or 0.036 percent of its GDP. In comparison, the aid given by Taiwan was only NT$350 million, just 0.002 percent of GDP, making Taiwan’s contribution to ASEAN’s development less than that of Japan and South Korea.
This, coupled with China’s obstructionism, means that the government needs to carry out supplementary measures for the southbound industries — for example, making good use of the paradigmatic alliances in Taiwan’s and Japan’s information technology industries in the global high-tech market, furthering the establishment of the Asia-Pacific Innovation Corridor and integrating key raw materials in Taiwan’s and Japan’s innovative industries. The industries of the two nations can collaborate to share the profits of southbound division of labor.
China has always wanted to deepen cross-strait economic and trade cooperation, and is worried that Taiwan’s integration into the regional economic framework would divert it from cross-strait economic and trade exchanges, tilting Taiwan toward the US, Japan and other markets.
The government should try to maintain cross-strait economic cooperation to enhance Taiwan’s competitiveness in the Chinese market and reduce China’s uneasiness over Taiwan’s expanding international economic and trade space. This would be helpful for integration into the RCEP.
The question of how Taiwan would find a balance between “being economically controlled by China” and “being economically marginalized” will be a test of the wisdom of the governing and opposition parties’ leaders.
The US trade deficit last year was US$502.3 billion, the highest it has been since 2012, with a trade deficit of US$347 billion with China. That is 47 percent of the total goods trade deficit. Successive US governments have vowed to do everything possible to improve the US-China trade imbalance.
In response, Taiwan should elaborate that among the foreign investors in China, Taiwanese companies have the most competitive vertical division of labor, and that if a Taiwan-US TIFA can be signed, it would combine both sides’ advantages and specialties, and the two could work together in the Chinese market. This would be helpful in reducing the US’ trade deficit with China.
The economy is the key for the futures of both sides of the Taiwan Strait. Taiwan — with limited resources and Chinese constraints — should leverage Japan’s influence on ASEAN due to its long-term aid and investment in infrastructure, guiding a way out for Taiwanese companies by directing them from westbound to southbound development, as well as diversify exports.
Guo Kuo-hsing is a visiting associate professor at the University of Tokyo and a visiting academic at Kyoto University.
Translated by Lin Lee-kai
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