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FTA with Taiwan seen benefiting Thailand

Taipei Journal

FTA with Taiwan seen benefiting Thailand

16 February 2005

By Manik Mehta

Two countries that already share a healthy amount of annual bilateral trade, Taiwan and Thailand are set to become even closer friends as a new era in textile trade begins and international trade and investment continue to grow. Regular Taiwan Journal contributor Manik Mehta argues that the two nations would do well to cement their existing partnership with the formal adoption of a free-trade agreement.

As a new era begins for the global textile trade, with World Trade Organization regulations replacing the much-despised MultiFibre Agreement and abolishing all quotas, more and more countries are entering into free-trade agreements (FTA) with each other as a means of simplifying regulations and removing cumbersome tariffs on traded commodities.

It is curious, however, that many countries appear to be disinterested, unwilling or incapable of ironing out an FTA with a global player like Taiwan, the world’s 14th-largest trading nation and a veritable fountainhead of technology. With its highly advanced manufacturing infrastructure and strong potential to make investments in a wide range of industries, one would think that Taiwan would be an automatic choice as a candidate for a strategic partnership with any other country in the world.

Thailand, for example, has expressed interest in an FTA with Taiwan, according to unofficial sources. Bilateral trade between the two countries approached US$5 billion in 2003, a 30 percent increase over 2002. While Taiwan’s exports to Thailand amounted to US$2.57 billion, its imports from that country hit US$2.36 billion. During the first nine months of 2004, Taiwan’s exports to Thailand amounted to US$2.40 billion, up 28.67 percent over the year-earlier period, while imports from Thailand amounted to US$2.09 billion, a 20.67 percent growth over that same period the previous year.

Taiwan’s exports to Thailand include integrated circuits, micro-assemblies, data processing machines and other electronic apparatus and components. Imports from Thailand include electronic products and components, rubber and rubber products, sugar, starch and motorized vehicles and parts. Taiwan is already among Thailand’s top ten trading partners, but there is considerable potential for increasing two-way trade.

"We have enormous potential yet to tap in bilateral trade," says Kao Jen-min, the director for economic affairs at the Taipei Economic and Cultural Office in Bangkok, Taiwan’s de facto embassy in Thailand. According to Kao, bilateral trade in the first nine months of 2004 surged 25 percent compared with the year-earlier period. "However, we have merely scratched the surface. There is still a lot of untapped potential," maintains Kao.

Economic prudence is not the only reason for signing an FTA. Taiwan offers the latest technology. Indeed, it bills itself as a pioneer in the highly complex and intricate field of nanotechnology, which will doubtless play a crucial role in the modernization of almost every type of product in the future.

"We are not just talking about trade. Think about the huge technology and the investment potential inherent in an FTA which will motivate Taiwan corporations to undertake substantial investments in countries where they have production sites," Kao said. He substantiated his argument by citing the example of the Taiwanese tire company Maxxis International, which invested more than US$5 million in 2003 to build a tire manufacturing plant in Rayong, Thailand.

Taiwan is already the third largest investor in Thailand, following the United States and Japan. Taiwan’s cumulative investment in the kingdom amounts to approximately US$11 billion, according to Kao, but there is still the potential for more.

Taiwan’s corporate sector has a history of aggressively entering opening markets. China is a case in point: Even though it does not have an FTA with the mainland, Taiwan has been quick to take advantage of the low production and labor costs across the Taiwan Strait and the inducements that the government in Beijing has offered to Taiwanese investors. Today it is one of the top five foreign investors in the country that has come to be known as the world’s factory. Indeed, about a million Taiwanese currently live and do business in China, and there is a very large presence of Taiwanese companies in China’s southern provinces, where almost everything is manufactured, from textiles and shoes to computers.

An FTA with Thailand would intensify trade, business and technological exchange between the two partners. Thailand already sends delegations to Taiwan, which reciprocates with missions of its own. A large Taiwanese group led by Vice Economics Minister Shih Yen-shiang visited Thailand in June 2004, for example, and another visit is scheduled for 2005. In return, representatives of Thailand’s Board of Investment visited Taiwan in 2004.

Thailand’s business community appears convinced that an FTA with Taiwan would be to the two countries’ mutual advantage. Thailand has several legislative, bureaucratic and institutional weaknesses that restrict or impede the country’s ability to make further economic progress. An FTA could provide the badly needed external impetus for Thailand to modernize and, where necessary, eliminate some of its archaic procedures and systems that could not have otherwise been changed due to vested domestic political interests.

Another strong rationale behind an FTA is the new windows of opportunity that would open up as a result. Thailand will have new opportunities to buy and sell goods, and it will become more open for foreign businesses. Indeed, a free-trade pact would be a compelling reason for Bangkok to create stronger mechanisms and new institutions for the country to seize these opportunities.

Thailand already has partial or full FTAs with a number of countries, such as Bahrain, China, India, Peru and Australia. Thai officials are also currently negotiating a free trade pact with the United States and creating the so-called Thai-Japan Closer Economic Partnership.

Thai entrepreneurs acknowledge in conversations that Thailand’s industries and its consumers stand to benefit from increased imports, which an FTA with Taiwan would inevitably lead to, especially considering that import duties on selected goods would be significantly reduced if not abolished entirely. It would give Thailand a wider choice and selection of imports, and the option of importing higher-quality goods and services will not only increase the purchasing power of Thai consumers but also free up the domestic labor market and allow for increased specialization. This foreign competition would spur Thai industries to increase their capability to innovate.

It is no coincidence that some of the world’s most affluent and competitive countries, like Hong Kong, Singapore, New Zealand and the United Arab Emirates, maintain some of the most liberal trade policies. It is an established fact that FTAs generate considerable interest with both partners to increase trade and business, and also motivate their corporate sectors to intensify cooperation. Thailand would do well to look to the example of Bangladesh, which has initiated free-trade talks with India, Pakistan, Sri Lanka, Malaysia and Morocco.

Bangladeshi business leaders have demonstrated a keen interest to enter into FTAs, particularly with India, in the hopes that such agreements would help wipe out that country’s trade deficit with India of over US$2 billion. Indeed, the two nations have formed a committee of experts to accelerate the pace of negotiations for finalization of an FTA.

Bangladesh has been pushing the FTA issue with India at every available opportunity because it feels that a bilateral arrangement would bring more advantages than multilateral deals. By forming a strategic partnership with India through an FTA, Bangladesh expects to reduce the list of dutiable products and increase the pace of trade liberalization.

Another big advantage for Bangladesh is that its wage level, which is much lower than that of India, can attract new Indian investments in apparel and agro-products, the mainstay of Bangladesh’s economy. India’s biggest industrial conglomerate, the Tata Group, has announced its interest in setting up industries in Bangladesh to cater to the Indian market. There is a lesson in all this for Thailand.

The signing of an FTA with Taiwan would provide a strong fillip to business travel between the two countries. Some 670,000 Taiwanese tourists visited Thailand in 2003, many of whom were high-spending business travelers interested not only in meeting their Thai counterparts to conduct business, but also in sightseeing, shopping and leisure tourism. Conversely, some 50,000 Thai nationals visited Taiwan in 2003, often to attend trade shows and exhibitions in the nation’s capital.

"Taipei’s trade shows are a big attraction for Thai exhibitors and trade visitors," says Kao. "I expect the number of Thai participants and trade visitors to increase in the future." The onset of a quota-free era in textile trade also heralds a major psychological improvement in the global trading environment that will see countries leaning towards greater liberalization in their trade interaction. The FTA is an effective tool toward achieving that goal.