Almost one year after Taiwan signed the Economic Cooperation Framework Agreement (ECFA) with China, the government continues to insist the nation will have many more opportunities to reach free-trade agreements (FTAs) with other countries, completely ignoring the fact that the main obstacle to such agreements is China.
The state-owned Central News Agency (CNA) reported last month that the Ministry of Economic Affairs planned to step up its ongoing FTA negotiations with Singapore and had high hopes of concluding a deal within one year, but no one knows for sure how long such a deal could take. What we do know is that a South Korea-EU FTA set to take effect on July 1 is likely to have a significant impact on Taiwan’s economy.
This is unavoidable because Taiwan and South Korea compete head-to-head in steel, machinery, electrical equipment, petrochemicals, plastics and textiles. Even worse, about 70 percent to 75 percent of Taiwan’s exports to Europe overlap with those from South Korea.
Once the FTA between South Korea and the EU comes into effect next month, it will remove almost 100 percent of import duties between the two sides and lead to the easing of other non-tariff barriers. As a result, government data show that Taiwanese exports to Europe will be 16 percent to 55 percent more expensive than those of South Korea.
As bad as this is, worse lies ahead for Taiwanese exporters. Their competition with South Korean exporters is set to intensify even further, as South Korea looks to implement an FTA with the US by the end of the year. At the same time, Seoul is also aggressively pursuing a trilateral trade pact with Japan and China.
In contrast, Taiwan’s promotion of an FTA with either the US or the EU has been on hold for years, with no signs of a quick breakthrough anytime soon.
In the event that a trilateral trade deal between South Korea, Japan and China comes into being next year, Taiwan will be further marginalized in the global economy and increasingly less able to compete with South Korea, which has already established FTAs with Australia, Chile, Singapore, India and ASEAN.
Little wonder then that as the one-year anniversary of signing the ECFA approaches some people have come to dismiss the government’s euphoria over its impact on Taiwan’s push for more FTAs as nothing short of delusional.
Last month, in a speech to a local trade group, Vice President Vincent Siew (蕭萬長) blamed Taiwan’s lack of progress in signing FTAs on government officials who he said were reticent about opening local markets to competition.
In his assertion, Siew was only partially right. Another important reason why the nation’s FTA push has made so little progress over the past year is cross-strait political tensions.
In view of South Korea’s growing foreign trade power, Taiwanese exporters need to be aware of the possible impact the South Korea-EU FTA could have on their business and devise strategies to respond to this new challenge as soon as possible. In the long term, they will have to differentiate their products and develop niche markets in order to stay competitive.
As for the government, it needs to realize that a deeper and more diversified trade relationship with the world is far more important than a single trade pact with China. In response it should review Taiwan’s current situation in the global trade environment and adjust its FTA strategy accordingly.
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