Taiwan asks US to use security law as model for FTA

Channel News Asia

Taiwan asks US to use security law as model for FTA

07 February 2007

WASHINGTON : Taiwan has asked the United States to use a special law that commits American defence to Taipei as a framework for forging a free trade agreement between the two economies.

Taiwan has free trade pacts only with economies with which it enjoys diplomatic relations and Washington is in a dilemma on how to, without angering China, forge a free trade link with its poster child for democracy in Asia.

On a visit to Washington, Taiwan’s deputy minister of economic affairs Shih Yen-Shiang said the United States could use the Taiwan Relations Act as an "innovative approach" to frame a bilateral free trade agreement.

Washington switched diplomatic recognition from Taiwan to China in 1979 but under the Taiwan Relations Act, it is obliged to offer the island a means of self-defence if its security is threatened.

"It is not so easy to avoid a political issue when framing an FTA," Shih told AFP in an interview. "We know that, but we must find some way to solve that kind of concern," he said.

"The US has the Taiwan Relations Act. This is innovation and is unique in the whole world. They have the knowledge to invent some special arrangement for Taiwan and US and they can do that for an FTA," Shih said.

Taiwan is desperate for a free trade pact with the United States, its key investor and trading partner and top arms provider, to avoid economic isolation.

Many countries do not officially recognise Taiwan and have diplomatic relations only with China, which considers Taiwan a breakaway province despite burgeoning trade with the island separated by a narrow strait.

Taipei has free trade agreements with Panama, Guatamala and Nicaragua and last year completed negotiations for such pacts with El Salvador and Honduras.

Shih said an FTA with the United States would "nurture" expanding bilateral economic ties and "ensure that Taiwan continues to be a democratic and economic success story in East Asia."

Resolutions have been adopted in the US Congress and at least 39 of 50 US state legislatures supporting an FTA with Taiwan, but the US administration and business community are reluctant to pursue it with vigour because it may incur the wrath of China.

It would also be a "win, win, win" arrangement for the triangular US-China-Taiwan relationship, he said, citing as an example the flourishing information technology (IT) product exports from China to the United States that are manufactured by Taiwanese firms in the mainland.

More than 40 percent of export orders received by Taiwan are outsourced to China and other locations before being shipped to the United States as their final destination.

Taiwanese companies have invested some US$200 billion in China over the past two decades and, largely at the behest of foreign customers, assemble a significant amount of their export products in plants in China.

China has surpassed the United States and Japan to become Taiwan’s largest trading partner.

US trade with Taiwan is estimated to have exceeded US$60 billion in 2006.

"Taiwan’s economy is already overexposed in China," said John Takcik, a former US State Department expert on China.

"As a matter of national security, the United States should be extremely wary of encouraging its eighth largest trading partner and one of its major sources of advanced technology products to fall under the control of a potential military superpower and peer competitor in Asia," he said. - AFP/ch