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Nation must target Mexico for FTA

Taipei Times, Taiwan

Nation must target Mexico for FTA

By Lin Guo-jung and Antonio Hsiang

18 September 2006

After the negotiations for the "Doha Round" of world trade talks collapsed at the end of July, Brazilian Foreign Minister Celso Amorin said that international trade would revert to the law of the jungle, with the strong lording it over the weak.

Institute for International Economics director Fred Bergsten has said that a major risk of indefinitely suspending the Doha talks was that discriminatory bilateral and regional agreements might replace continued global liberalization and lead to increased protectionism.

Bergsten believes that one of the best candidates for a "Plan B" is the proposal by leaders of APEC to launch a free trade area of the Asia-Pacific region (FTAAP). But Taiwan has been blocked from participating, which clearly shows that the nation is being further marginalized in the latest regional trade realignment.

Late last month, prior to the ASEAN leader summit, Japan introduced a plan to add Australia, New Zealand, and India to the proposed ASEAN Plus Three trade area — the 10 ASEAN countries plus China, Japan, and South Korea.

This echoes Bergsten’s viewpoint. The problem is that with President Chen Shui-bian in urgent need of support from staunch pan-green supporters to counter the protests against him, it is unlikely that the cross-strait deadlock will be resolved. But the question is: Can Taiwan afford to procrastinate further on expanding its trade ties?

To solve this problem, we believe Taiwan must target Mexico as a free trade agreement (FTA) partner. Given that the decision to sign an FTA is not based solely on economic considerations, it is important to look at the issue from an international perspective. In 2002, Mexico was the last of the 141 WTO member nations to reach an agreement with China.

As early as 1993, Mexico imposed 1,000 percent anti-dumping duties on shoes, toys and textiles imported from China. Between 2001 and 2004, 12 of the 20 largest companies in Mexico’s export processing zones moved to China.

As a result, Mexican President Vicente Fox’s administration has made an all-out effort to tackle Chinese competition. From the perspective of international political economy, Mexico therefore has more experience with, and is more motivated to oppose China, than any of the other countries Taiwan is targeting as possible FTA partners.

It is also important to look at the issue from the perspective of current Taiwan-Mexico economic and trade relations. Currently, half of Taiwan’s diplomatic allies are situated in Latin America, but the top three Latin American nations in international trade volume — Brazil, Mexico and Chile — have no formal diplomatic relations with Taiwan. Given that Brazil and China have a close strategic partnership and that Chile just signed an FTA with China on Aug. 21, Mexico has now become Taiwan’s best target for a trade agreement.

According to statistics published by the Ministry of Finance, bilateral trade between Taiwan and Mexico was US$1.403 billion in 2004 and US$1.239 billion last year, more than double that of the nation’s bilateral trade with all of its Latin American allies.

Furthermore, Mexico’s average tariff in 2004 was 15.81 percent, which is relatively high compared to other nations. As a result, signing an FTA with Mexico would be more beneficial than signing FTAs with Taiwan’s Latin American allies.

Finally, it is necessary to look at the issue from how well Mexico’s and Taiwan’s economies complement each other. One crucial consideration when signing an FTA is both nation’s economic structures. The more the two nations complement each other, the better the chances that they will ink an FTA.

The reason Japan, the US and South Korea signed FTAs with Singapore is that Singapore has no agricultural industry and thus has less of an impact on their domestic agricultural industries.

A second consideration is to achieve lower customs tariffs. The reason Japan saw Mexico as its most important target for an FTA agreement was that Mexico is an emerging market that Japan wanted to tap into, but it had high tariffs. Japan has no interest in establishing an FTA with Taiwan because it already considers Taiwan’s tariffs to be low enough. South Korea has no interest in a trade agreement with Taiwan because of the two nation’s similar market structure, which makes them competitors.

Mexico’s advantages include its proximity to the US market, abundant and cheap labor and natural resources, and stable economic growth. In terms of trading environment, it is a signatory to the North American Free Trade Agreement, and has signed an FTA with 43 countries. Given that economic conditions in Taiwan and Mexico complement each other, there is much room for the two nations to cooperate.

According to the World Economic Forum’s Global Competitiveness Report published in March, Mexico’s global competitiveness rating fell from 44 in 2001 to 55 last year.

Taiwanese officials should try to use the structural differences between the two economies to explore possibilities of the division of labor and trade cooperation, and use this as a way to persuade Mexico to sign an FTA with Taiwan.

Maybe Mexico will be able to help the nation find its way out of the "international trade jungle."

Lin Kuo-jung is a professor and Antonio Hsiang is an assistant professor in the department of international trade at Chihlee Institute of Technology.

Translated by Lin Ya-ti