The Closer Economic Partnership Arrangement (CEPA) between China and Hong Kong took effect on Jan. 1. East Asian countries are also about to sign free-trade agreements (FTA). The question of whether Taiwan's economic and trade status will be marginalized has become a hot topic.
The concept of "marginaliza-tion" originated from the UN Conference on Trade and Development in 1997. It originally meant a complex phenomenon existing on two levels.
It could be used to describe all social conditions of disadvantaged organizations in society. Put in the context of international politics and economics, it means that the economy and development of a country (or countries) are endangered in the process of globalization. More-over, inappropriate economic policies will speed up and aggravate marginalization.
But Taiwan -- with democracy taking root, economic and trade activities being open, and the beginnings of a social security network -- has fairly sound internal and external mechanisms required to tackle the challenges posed by globalization. The possibility of globalization leading to Taiwan's marginalization is extremely slim.
Instead, the newly arising regionalism, which is primarily taking shape in the form of FTAs, poses a more direct and concrete threat to Taiwan because nearly all the countries involved are its important economic neighbors. Once crowded out, the nation will suffer greater political and economic losses.
In contrast to globalization, the trend of forming regional economic alliances tends to put Taiwan at a disadvantage. Since the signing of FTAs requires political interaction between governments, Taiwan will likely fall victim to ill-intentioned boycotts (for example, the China factor) and fail to seal these agreements as a result.
In other words, the threat of marginalization facing Taiwan now is mainly a result of regionalism, not globalization.
Regionalism in East Asia is developing in two different modes. One is the "ASEAN plus three" (Japan, China and South Korea) economy that revolves around ASEAN. The other is the "axis" mode where Japan, China and the US, respectively, serve as the centers with medium- and small-sized countries participating. These two forces influence each other. It is still unknown which side will win in the end.
The best outlook and also the biggest challenge for the "ASEAN plus three" model, which now has the upper hand, is whether it can push for the establishment of an East Asia free-trade area through this cooperative mode, and even the formation of a giant economic zone in East Asia. If it can, then this zone will be confronting the Free Trade Area of the Americas (FTAA) across the Pacific Ocean. This is the so-called polarized Pacific system.
From the global perspective, this East Asia zone will join FTAA and the EU to become a trilateral global trade system.
This economic integration mode is more closed. If Taiwan is excluded, the political and economic damage will be relatively graver. However, because there are more participating countries and China's influence will be diluted, Taiwan instead stands a better chance of becoming a member.
As for the possibility of this mode being established, the US attitude will determine whether it can stand since it will undoubtedly damage the US' strategic interests in East Asia.
Also a key factor is whether the political determination of major East Asian nations to pursue economic integration can overcome their historical disputes and economic protectionism, say, between China and Japan.
More importantly, a great majority of East Asian countries' products are exported to other regions like the US and Europe. This characteristic of being the world's economic hinterland will hamper the degree of economic integration in East Asia.
FTA "axis" networks are formed on the basis of bilateral relations with some certain individual nations or regions as the nucleus. It was widely reported recently that ASEAN will cooperate with China to build a free trade area by 2010, and that Japan and Singapore will cement their economic partner-ship. These two fall into the same category.
Once Taiwan is excluded from these FTAs, it should suffer fewer economic losses than it does when it is shut out of bloc-centered economic bodies. However, individual nations will be subject to greater influence from China.
Predictably, the China factor will continue to frustrate Taiwan in its pursuit of FTA partners.
If marginalization refers to the process of being excluded, then it is true for Taiwan. In particular, China is riding on this wave of regionalism to seal FTAs with its neighbors and at the same time prevent Taiwan from doing the same. Then following the Hong Kong mode, it is offering a CEPA to Taiwan, squeezing Taiwan's space for survival.
As global trading is growing at a tremendous speed, the possibility of an economic entity being marginalized after it is shut out of FTAs is greatly reduced even though regional economic integration is picking up speed.
Fortunately, Taiwan is already a member of the WTO. If more can be achieved under the multilateral negotiation structure, ie, if global trade is more liberalized, then the space for "different treatments" in bilateral trade agreements will shrink.
Finally, if our products are less easy to replace, no matter whether it is because they require higher-level skills or the products are greatly different (for example, when they are difficult to transport and trade, as in the case of the service sector), then the damage inflicted will be effectively reduced.
Boosting the productivity and competitive edge of Taiwanese products is the key to preventing marginalization.
Honigmann Hong is an associate research fellow in the international affairs division of the Taiwan Institute of Economic Research.
Translated by Jackie Lin
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