Taiwan is struggling to find ways of making free trade agreements (FTAs) with its trading partners, even as China and ASEAN are set to sign two landmark agreements this month establishing the world's largest Free Trade Area, which is scheduled to come into being by 2010.
An FTA is an agreement between two countries or among groups of countries aiming to establish a policy of non-intervention regarding trade between the nations involved.
Tariffs and non-tariff barriers to trade are usually removed or lowered, while each country maintains its own policy towards countries that are not part of the FTA.
Chinese Commerce Ministry spokesman Chong Quan (
Since China and ASEAN began talks on a free trade accord in early 2002, and signed a framework agreement in November of that year aimed at phasing out tariffs, the government here has studied the impact of such a pact and how to respond to it.
A study the Taiwan Institute of Economic Research (TIER) conducted for the Executive Yuan's Research, Development and Evaluation Commission on the subject forecast a less-than-optimistic future for Taiwan's economy after the China-ASEAN FTA comes into effect.
Adopting the Global Trade Analysis Project model, the paper said that after signing the FTA and introducing zero tariffs, China and the ASEAN nations will enjoy increased GDP growth.
China's GDP will grow an added 0.57 percentage points and ASEAN countries' by an added 1 percentage point to 5.73 percentage points. Taiwan, barred from the trade zone, will suffer a decline in its GDP growth by 0.05 percentage points, which is equal to US$149 million, the study said.
The country's industries of apparel, leather, textiles, wood processing, paper and plastic and chemical products will be those that suffer most from a China-ASEAN FTA, the study found.
"The WTO and APEC [Asia Pacific Economic Cooperation] are supposed to provide Taiwan fair market opportunities. However, the China-ASEAN FTA would put our products and industries at a disadvantageous position, because we lack an economic partnership with the [ASEAN] economies," said Jiang Kuang-shyr (
According to the bureau, the Ministry of Economic Affairs (MOEA) was aware that signing FTAs would become an international trade trend as early as 1997.
Nevertheless, the government did not immediately start FTA talks with potential partners, because it feared the negotiations might disrupt the country's accession to the WTO.
The establishment of the China-ASEAN Free Trade Area may cause foreign investment in Taiwan to decline, said Wu Fu-cheng (吳福成), a TIER associate research fellow specializing in FTAs.
"Most foreign investors will choose either China or ASEAN countries rather than Taiwan as their destination because of the zero tariffs," Wu said.
Materials and ingredients for processing can circulate in the trade zone more freely and with lower costs. Besides, as trade volume in the trade area grows, China and ASEAN nations' exports to the US, Taiwan's largest export market, apart from China and Hong Kong, will gain strength.
"Facing competition from the China-ASEAN free trade zone, Taiwan's export to the US may shrink. We feel growing pressure from China and ASEAN in recent years," Wu said.