Fri, Feb 10, 2012 page8

• Beef, China and TPP are all linked

  • By Eric Chiou 邱奕宏
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  Last year Taiwan expressed an interest in joining the Trans-Pacific Partnership (TPP) at the APEC summit in Honolulu. Since then, there has been little public reaction from the TPP’s nine members. That was until last week, when American Institute in Taiwan (AIT) Chairman Raymond Burghardt openly commented on Taiwan’s TPP accession, and linked this issue with the trade dispute over Taiwan’s ban on US beef as well as the suspension of the Trade and Investment Framework Agreement (TIFA) talks between the two countries.

  These comments revealed part of the US’ TPP strategy toward Taiwan: Taiwan’s accession hinges on whether it can be “serious about trade liberalization” and the US beef issue will be one of the critical criteria to test Taiwan’s sincerity in opening markets and joining the TPP.

  It should not come as a surprise that the US uses TPP accession as a bargaining chip in exchange for Taiwan backing down on the beef issue and the resumption of the TIFA negotiations, since bilateral and multilateral trade negotiations are intertwined and many countries join the TPP for various economic, geopolitical and domestic reasons. For existing TPP members, the decision to accept new members is used to place pressure on their non-TPP trading partners, to facilitate stalled bilateral trade negotiations, or to request further economic concessions.

  For example, when Japan announced its intent to join the TPP, members with huge agricultural export sectors, such as the US, Australia and New Zealand, were eager to take the TPP negotiations as an opportunity to force Japan to make substantial concessions on opening its agricultural markets, something that had been a major obstacle in these countries’ individual bilateral free-trade agreement (FTA) negotiations with Japan.

  In other words, some countries join the TPP negotiations to boost their economic position and bargaining power.

  By joining the TPP, Vietnam intends to promote a US-Vietnam FTA and to seek US recognition of Vietnam as a market economy. For other countries, like Australia, in addition to expecting moderate economic advantage from membership, the major impetus to join the TPP is driven by the strategic consideration of keeping the US engaged in East Asia.

  Similarly, the Philippines, which has explicitly expressed its intent to join the TPP, wants to use it to strengthen its strategic alliance with the US to balance China’s assertiveness in the South China Sea.

  Interestingly, according to some Japanese academics, Japan also sees the TPP as a step toward lessening its economic dependence on China. Japan’s TPP involvement could further consolidate the US-Japan security alliance.

  Some countries also regard the TPP as a window of opportunity to launch vital domestic economic reform and to overhaul uncompetitive industries. For instance, the leadership in Vietnam aims to employ the TPP to boost domestic economic reform and restructure its state-owned enterprises.

  Likewise, some Japanese policymakers consider TPP accession a critical opportunity to revamp Japan’s long inefficient agricultural sector and readjust its industrial strategy.

  In short, the complexity of the TPP cannot be fully understood from a single economic perspective, but needs to be evaluated from a range of geopolitical, economic and domestic factors.

  Once this is understood it is easy to see that Taiwan’s TPP accession will inevitably encounter multiple significant challenges. The first massive challenge comes from Taiwan’s imbalanced economic structure and the adverse impact accession would have on Taiwan’s vulnerable sectors.

  Taiwan’s overwhelmingly export-led economy makes its participation in regional economic integration imperative. Nevertheless, the TPP, which the US has pledged will be a “high standard, high quality” FTA, aims to slash most tariffs to zero and liberalize the agricultural sector. The consequent regulatory changes will have a severe impact on Taiwan’s weaker industries, especially the agricultural sector. Not only access to the beef market, but rice and other agricultural products will be placed on the TPP negotiation table. Whether the Taiwanese government has sufficient political will and is well prepared to deal with these impacts is questionable.

  From a geopolitical perspective, joining the TPP can improve Taiwan’s overall position in regional economic integration, lessen its economic overdependence on China, break its marginalization in East Asia and strengthen its economic ties with major economies in the Asia-Pacific.

  However, Taiwan’s TPP maneuverings may upset China, since the negotiation of the Economic Cooperation Framework Agreement (ECFA) is ongoing and Taiwan’s TPP initiative may be viewed by China as fence-straddling. Furthermore, given China’s ambivalent attitude toward the TPP and that some Chinese officials and academics consider the TPP to be a provocative US strategy to challenge China’s leading role in East Asia, Taiwan’s accession could irritate Beijing and lead to it ending its economic conciliation toward Taiwan.

  Even if China regarded the TPP as an innocuous initiative aimed at accelerating regional integration, based on past experience, it is highly questionable if Beijing would allow Taiwan to enter TPP negotiations before China.

  Despite these challenges, Taiwan’s participation in the TPP could bring more benefits than drawbacks in the long term. Nevertheless, there are critical obstacles Taiwan must overcome before it can be accepted into the TPP.

  Domestically, the Taiwanese government has to launch a comprehensive review of each industrial sector that might be affected by the TPP. In addition, it needs to formulate a mid to long-term economic strategy to overhaul the economy and reduce negative impacts on vulnerable sectors.

  Additionally, whether Taiwan can join the TPP, to some extent, may depend on its associated ongoing bilateral trade negotiations. This is why US beef, the TIFA and the TPP are all linked.

  To use Taiwan’s leverage on bilateral and multilateral fronts and to make progress on both fronts simultaneously will test the skill of Taiwan’s trade negotiators.

  Last but not least of the critical challenges is to obtain China’s understanding that Taiwan’s decision to join the TPP is driven by the need to maintain its economic survival and to maximize economic prosperity, to convince China that TPP accession will not undermine continuing robust economic exchanges across the Taiwan Strait and that it certainly does not carry any geopolitical implications detrimental to China.

  Eric Chiou is an associate research fellow at the Taiwan Institute of Economic Research.

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