Following three years of consultations and negotiations, the Agreement Between Singapore and the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu on Economic Partnership (ASTEP) was signed on Nov 7. Government officials beamed, the media effused and even those normally suspicious of trade liberalization kept quiet, intimating their tacit acceptance.
Despite all the concern about anything to do with politics or economics, and the doldrums the government is stuck in, the signing of the ASTEP seems to be a flicker of light in what has been a long night. Nearly a decade after it was first mooted in 2004, 10 years in which the economy has stagnated, and after several stumbles along the way, the prize has been attained.
This agreement is important because, first, Singapore is the trade liberalization bellwether of the 10 ASEAN members. Other ASEAN members will often seek to avoid political and economic risk by watching what Singapore does. Now that Singapore has signed the ASTEP, other member states will be more likely to take a similar step. Therefore, by breaching this stronghold, the suggestion is that the government is not thinking of locking Taiwan’s economy into the China market, which is something to be celebrated.
Second, Singapore is one of the four founding member states of the Trans-Pacific Strategic Economic Partnership Agreement, the precursor to the Trans-Pacific Partnership (TPP). Taiwan is anxious to enter this prized economic integration agreement, as it will then be able to more diversify its risk.
The ASTEP signing sends an extremely important message to the 12 countries — with the US at the head — that are negotiating the expansion of the TPP: Taiwan is committed to achieving full trade liberalization.
The countries negotiating the TPP will do their best to accommodate Taiwan’s requirements, to allow it to become one nation in the next wave of entrants into the partnership. This will help it avoid economic and trade marginalization.
However, there are still concerns. The government has announced plans to sign agreements with TPP member states one-by-one, hoping to achieve its goal of full entry into the TPP by 2020. Is this likely to succeed?
Taiwan, like Singapore, is one of the four Asian Tigers: an advanced economy. Negotiating the ASTEP was relatively simple, as Singapore’s customs tariff is essentially zero — it levies tariffs on only six items — and Taiwan’s import tariffs are very low.
The reason talks dragged on for three years was because Singapore wanted it to be a more high-octane agreement involving deregulation of a considerable part of the service sector.
Apparently the government, or at least the departments involved, did not agree, and kept the talks dragging on, finally coming away with an agreement on service industries only slightly better than WTO commitments.
It is understandable that the government should adopt a rather conservative approach given the nature of the Taiwanese democracy, where the legislature is powerful and the public feisty. Nevertheless, if it is going to talk up its plans to join the TPP on the one hand, while on the other sign a free-trade agreement with only a tiny amount of deregulation and so easily pass over the opportunity to open up the service sector of a small economy, this may well give countries negotiating the TPP cause to doubt Taiwan’s resolve to achieve trade liberalization.
The Cabinet has grandiose plans for liberalization, but it has allowed government departments to carry out a scorched earth campaign and act as if they were making a last desperate stand, all of which will present difficulties for joining the TPP.
Officials, the media and unions are saying that the ASTEP will help thrust Taiwan into ASEAN’s open arms. However, with the exception of import duty exemptions on a small amount of Taiwanese alcohol products, there will be little change in how local products are treated. Neither will Taiwanese products be able to be sent to other ASEAN countries via Singapore under the preferred ASEAN conditions, as only products made in Singapore qualify for the required certificate of origin.
Even if doubters decry the negative impacts of major trade agreements, the government should not exaggerate the positive effects.
None of this is to say that the signing of the ASTEP with Singapore should not be welcomed. The point is, entry into the TPP is still a long way off.
Tu Jenn-hwa is director of the Commerce Development Research Institute’s business development and policy research department.
Translated by Paul Cooper