Officials from the Office of the US Trade Representative recently arrived in Taiwan to begin bilateral talks on four vital trade issues, including telecommunication, intellectual property rights protection, rice imports and pharmaceutical products. They also hoped to hear Taiwan's perspective on how to re-establish the stalled conference on the Trade and Investment Framework Agreement (TIFA). Since the TIFA is regarded as a touchstone of any Free Trade Agreement (FTA) between the sides, we can expect that the government will once again indicate its eagerness to sign an FTA with the US on this occasion.
As it is important to know both ourselves and others, it is necessary to conduct a thorough evaluation of the desirability and feasibility of a Taiwan-US FTA, and also take into account changes in the international situation (this last admonition provided by Singapore's Deputy Prime Minister Lee Hsien-loong.)
The idea of signing a Taiwan-US FTA can be traced back to the early 1980s when policymakers obviously had the intention of using an FTA, an economic and trade alliance, as a security insurance policy in addition to the "Taiwan Relations Act" as a means to stabilize the situation in the Taiwan Strait. But as Taiwan was not admitted to the General Agreement on Tariffs And Trade (GATT), further talks on the FTA were suspended.
A generation has passed since then and Taiwan is still seeking this insurance policy. As the cross-strait relationship becomes more tense, China's growing economic strength has expanded its geopolitical influence, and East Asian regionalism (exclusive by definition) has emerged as a major force. But Taiwan, a member the World Trade Organization (WTO) since 2001, in turn, has encountered the embarrassing situation that its significant trading partners are shy to sign an FTA with it. Therefore, Taiwan once again is seeking US support to break through this regionalism and the influence of the "China factor."
First of all, it is necessary to understand the US thinking on trade politics and its standard for selecting FTA partners.
Even though the US extensively promotes a "dual-track trading strategy" (ie, restarting the multilateral Doha Development Round of talks while also actively engaging in bilateral talks) in the current phase, given its leading role in the crucial high-tech industry, its highly developed trade in services, and its massive agricultural production, the US' free trade strategy, which views the globe as an economic heartland, will not change in the short term.
In other words, the WTO with its 150 members is still US' favorite. Any FTA, given its "club" nature, can only facilitate the success of multilateral talks or be an exception when multilateral talks fail, though it can never serve as a replacement. Viewed this way, the EU, Japan and China will never become FTA partners with the US as this could destabilize or even damage the functionality of the WTO.
Due to limited resources for trade talks and the multiple considerations of economics, trade and diplomatic relations, regional balance and security, even powerful countries like the US must come up with a standard for selecting its FTA partners. Its main criteria are as follows: minimal impact on domestic politics such as specific interest groups in favor of economic goals, such as overseas investment promotion; firm promises and the ability to implement economic and trade reform; and US foreign policy.
In line with these criteria, the US has already signed the North American Free Trade Agreement (NAFTA) with Canada and Mexico, and established free trade areas with Singapore, Australia and other countries. The US has also signed FTAs with other countries such as Israel, Jordan and Morocco for diplomatic reasons. The next wave of countries or regions the US will consider for evaluation include the Free Trade Area of the Americas (FTAA) with Latin America, an agreement with the Association of South East Asian Nations (ASEAN) as a whole or part of ASEAN, for example Thailand, (though not including the Philippines as it does not support the US' WTO agriculture position), South Korea, and then Taiwan.
In fact, according to the evaluation report of the Institute for International Economics, an independent US think tank, Taiwan basically meets the US' FTA selection criteria since not only is it relaxing domestic regulations to allow foreigners to invest directly in the telecommunications industry, but it has also engaged in the liberalization of specific areas such as finance and insurance, surpassing international standards.
Officials from the Office of the US Trade Representative still insist they will not talk about an FTA with Taiwan unless the country implements harsh laws to control intellectual property rights violations and achieves a large-scale improvement in the current situation.
Such a rigid stance is rare and it is inevitable that people will suspect the US' motives: that the US, in fact, is afraid of bearing the heavy political cost of offending China in exchange for the relatively limited economic benefits of signing a Taiwan-US FTA. The only reason it would do so would be if Taiwan leaned so much toward China that it affected US strategic interests in the region.
Based on this reasoning, it's not difficult to work out that even if Taiwan makes huge concessions on issues such as telecommunications, intellectual property rights, rice imports and pharmaceutical products, from the US perspective the concessions simply fulfill the necessary conditions to discuss an FTA, but will not necessarily raise Taiwan-US bilateral talks to that of FTA negotiations. Furthermore, in line with the above, an FTA has too many ramifications to be settled on the basis of a few economic issues. On the other hand, even if Taiwan does not get the FTA that it hopes for from the US, Taiwan's liberalization will bring advantages to the economy, especially the reinforcement of intellectual property rights protection, and we can expect this to facilitate the advent of a knowledge economy in Taiwan.
It is worth mentioning that from a short-term perspective, the economic benefits Taiwan can gain from an FTA with the US are really limited; furthermore, because a Taiwan-US FTA would facilitate the expansion of Taiwan's traditional industries, such as the textile industry, this would create competition for scarce labor and capital resources and become a hinderance to the development of the high-tech sector, which would not be healthy for Taiwan's long-term economic growth. Taiwan's production and trade structure is deeply interconnected with East Asia; therefore, the advantages to be gained from integration are in East Asia, and losses from any exclusion from an FTA are also in East Asia.
Undoubtedly, Taiwan's difficult diplomatic position is obvious. If Taiwan does not want to be excluded from integration with East Asia, gaining passage through the US' "narrow door" is a must.
Achieving a stabilized and predictable cross-strait relationship will effectively lower the US' political costs in signing an FTA with Taiwan and make it a real possibility.
Honigmann Hong is an associate research fellow at the Taiwan Institute of Economic Research, where Liu Yu-hsi is an assistant researcher.
TRANSLATED BY LIN YA-TI
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