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US attitudes on a trade agreement with Taiwan

Sunday, Sep 15, 2002, Page 4

Bruce Stokes, senior fellow at the Council on Foreign Relations, says Taiwan faces several obstacles to signing a free-trade agreement with the US. PHOTO: CHEN CHENG-CHANG, TAIPEI TIMES

Taipei Times: With respect to the US-Taiwan free trade agreement (FTA) currently under discussion, what would you say the US' attitude is toward it?

Bruce Stokes: I think the issue is not at all on the public radar screen in Washington yet. It has begun to be advocated by some conservatives in Washington, DC, who are long-time friends of Taiwan. It is an issue some security or diplomatic people brought up. There is no official position [held] by the US Trade Representative Office. But, when you privately ask them, they say "Taiwan is not living up to its World Trade Organization [WTO] commitments, and until they do that it is premature to talk about FTA." We have yet to hear from the American business community. I think the business community would be very worried about whether China would object and whether this would somehow cause trouble for them within the Chinese market. Generally speaking, the problem of any FTA for the US is that the economic benefits to the US are small. For example, we are going to [sign] free-trade agreements with Chile and Singapore, and the economic benefit from those agreements are almost zero. But, we are going to do it, and we are doing it for symbolic reasons.

"From Taiwan's perspective, if Taiwan wants to sell this to the US, it has to find in the US a couple of big companies who can stand to benefit a great deal from a FTA with Taiwan."

Bruce Stokes, senior fellow at the Council on Foreign Relations

TT: Why not sign an FTA with Taiwan for symbolic reasons?

Stokes: There is no downside ... for doing a free-trade agreement with either Chile or Singapore. The problem with an FTA with Taiwan would be a potential political downside. Even for the FTA that has made the most sense for the US, the North American Free Trade Agreement (NAFTA), the real motivation was political. There was this fear that there could be a resurgence of left-wing politics in Mexico if we did not help their economy. There was this fear of even more illegal immigration from Mexico if we did not create jobs in Mexico.

TT: Some say that Taiwan's over-dependence on the Chinese market will only speed up the process of unification with China and, therefore, an FTA with the US would create trade and investment diversification to help preserve the cross-strait status quo. This would obviously be something the US would like to see. What is your view of that argument?

Stokes: I think the theory is right. It is possible the US should think more about this. But, there is almost no one in the US thinking about this. It is not an issue that has been engaged yet. Nor have people ... recognized ... [or] decided this is the way to solve the problem. Moreover, when America says that the status quo is the best for America, my sense is that means we (America) don't have to do anything. The status quo means two things. One, nothing in Taiwan or the Strait changes. Two, it means the US is not called to do anything. To do an FTA would mean the US is called to do something. That would be at least initially a difficult psychological step. It is true in many ways we do a lot of things to maintain the status quo here. We periodically sell weapons to Taiwan. We periodically stand up for Taiwan versus the mainland. We periodically make statements. But, a free-trade agreement would involve a certain political engagement with Taiwan, a need to sell the idea in Congress and to the American people, which would be an expenditure of energy and political capital in support of Taiwan, which an administration may or may not be willing to make. While the argument is theoretically and intellectually correct, whether politicians would accept it when they have to do something, that is a different question. From Taiwan's perspective, if Taiwan wants to sell this to the US, it has to find in the US a couple of big companies who can stand to benefit a great deal from a FTA with Taiwan. Because, given the political process in the US, it is easier to sell the idea if there are a couple of companies who stand to make a lot of money from this, so that they will spend a lot of money and political capital to push the Congress and the administration to make it happen.

TT: How much weight does Chinese opposition to such an FTA have on the US? Do you think the signing of such an agreement will contradict the "one China" principle?

Stokes: If we decided that a FTA with Taiwan would be in our interest, and in the interest of stability and security, our policy would be we will define what the "one China" policy is. We will not let Beijing define for us what is the "one China" policy. They can define it for themselves. But we will define it for ourselves. If Beijing made a big fuss, this would be another reason for people to say why are we doing this when the benefits are so small; the downside and the potential danger is so great; it is a disturbance of the status quo.

TT: Does the US' experience with NAFTA work for or against such an agreement? Why?

Stokes: The initial reaction is always this -- FTA means NAFTA, which made all these jobs flow to Mexico, and so FTA with Taiwan is bad. But, for many reasons, the geographical reason being just one, jobs are not going to flow to Taiwan. Taiwan runs a trade surplus with US. Opponents are going to say this surplus will only get bigger. I think we could argue it is not a significantly large surplus, when the trade surplus the US runs with China or Japan is much bigger. One of the problems with FTAs is convincing the public that they won't kill jobs. It has not been a problem with the Chile and Singapore agreements. Taiwan is not Mexico, but it is also not Singapore. A number of American companies have invested in Taiwan to produce electronic and IT goods. Some would argue that is nevertheless costing US jobs. There would be some fears, which might be irrational, that given all the Taiwanese investments in China, somehow a FTA with Taiwan would just give China a backdoor into the US market. Taiwanese manufacturers in the mainland would bring materials to Taiwan for some kind of insignificant finishing, but they would qualify for free-trade treatment in the US.

TT: What kind of impact do you think such an agreement might have on the Chinese market?

Stokes: That is probably the most important question, whether it would have the intended effect, which is to keep Taiwanese investments home and increase American investments here. My intuition tells me that it would not slow the flow of capital that much. If, over time, the US becomes more and more wary about the growing trade deficit with China and increasingly aggressive in defending against Chinese products, investments in Taiwan might then look more attractive. It is possible any kind of FTA between Taiwan and US is going to take years to mature. It is possible the circumstances of the environment might change, such as if the relationship between the US and China became tense, then Taiwan might stand to benefit.

TT: In addition to FTAs and the "go south" policy, what suggestions do you have for the Taiwanese government to accomplish trade diversification?

Stokes: One policy would be to look to countries where the US will be making FTAs in the future. The US would like to do FTAs in central America, with Guatemala, with Honduras and with Costa Rica and so on. It seems to me that the Taiwan government could encourage investments in those countries, because you will get the benefits of free-trade treatment in the US. In addition, it will also stimulate trade with central America. It is a way to piggy-back on things that the US is doing and thrive from the dynamism of the US market in the event that an FTA with the US does not materialize.
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