Taiwan makes lemonade from SKorea-US FTA
24 March 2012
By Ed Zacapa
The news this week that the South Korea-U.S. free trade agreement came into force sent jitters through the ranks of Taiwan exporters. It is no secret that the island’s businesses have been doing it tough recently, and the last thing needed was more pain in sectors where they have been fighting hard to remain competitive.
For the U.S., the timing of the FTA could not be better. Almost a third of its manufacturing jobs are export related, and any pact that could boost demand in overseas markets will help bring unemployment under control. Last year, it sent 40 percent of shipments to FTA countries and chalked up export growth rates 3 percent higher than to those with no agreement.
The FTA immediately eliminates tariffs on 80 percent of consumer and industrial trade between South Korea and the U.S. According to the Office of the U.S. Trade Representative, nearly 95 percent of shipments will be duty free in less than five years, with all remaining tariffs torn up by 2022.
This is worrying news for Taiwan given that the U.S. is its third largest business partner, accounting for 10.8 percent of foreign trade last year. A total of 66 percent of Taiwan exports to the U.S., mainly in the information technology sector, were duty free, while the remainder, including machinery, plastics and textiles, are vulnerable to the FTA.
The latest Ministry of Economic Affairs data reveals that 1,211 categories of Taiwan exports to the U.S. are likely to be affected by the FTA. Shipments of these products amounted to US$3.4 billion in 2010, or 9.8 percent of overall exports to that country.
But these firms are not being left to fend for themselves by the ROC government as Seoul and Washington embark on their voyage of freer trade. On March 19, ROC President Ma Ying-jeou came out strongly on the FTA, arguing that it should be viewed as an opportunity for Taiwan to prioritize economic development and improve trade relations with the U.S.
The president believes that the pact is in fact a wake-up call, highlighting the necessity to fast-track Taiwan’s economic transformation while forcing policymakers to find new ways to break the status quo and strive for the best possible outcomes.
In a sign of how seriously Ma takes the FTA, his remarks followed a specially convened National Security Council meeting attended by Vice President Vincent C. Siew, Premier Sean C. Chen, Deputy Premier Jiang Yi-huah, Presidential Office Secretary-General Tseng Yung-chuan and NSC Secretary-General Hu Wei-chen. The group discussed new strategies and reviewed a raft of response measures unveiled March 15 by the MOEA and Council for Economic Planning and Development.
The MOEA initiatives, which include promoting cross-sector alliances, staging joint marketing campaigns and bolstering R&D, also focus on organizing domestic and overseas business promotion tours, as well as expanding the presence of local companies in Mexico. They are expected to successfully shepherd local firms through what can best be described as a challenging time.
In keeping with Ma’s position that economic transformation is key, CEPD Minister Yiin Chii-ming believes the only way to respond to the FTA challenge is by shifting Taiwan’s program for greater regional economic integration into overdrive. A central component of this approach is for Taiwan to enter into more negotiations on trade agreements and continue working to deliver sustainable development.
Ma and Yiin can take comfort in results stemming from government efforts to unlock Taiwan’s trade potential. These include the Cross-Straits Economic Cooperation Framework Agreement (ECFA), the arrangement on investment liberalization, promotion and protection with Japan, and feasibility studies on economic cooperation agreements with India, Indonesia, New Zealand, the Philippines and Singapore.
But Ma is casting for even bigger fish as he seeks to negate the FTA. He plans on satisfying conditions for Taiwan’s entry into the Trans-Pacific Partnership, describing membership of the proposed trade agreement as an absolute must.
The fact that Ma is eager for Taiwan to join the TPP comes as no surprise. The state-of-the-art trade pact is an exciting concept that involves more than just tariff reductions. It promises to streamline regulatory structures and set new standards in areas such as the environment, intellectual property, investment, labor and government procurement.
But more importantly for Taiwan, the arrangement enables the island to be bolted on to an impressive structure comprising negotiating partners Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam and the U.S. Three other nations, Japan, Mexico and South Korea, are also making noises about seeking to join discussions on the TPP, adding further weight to the nascent agreement.
The government’s pragmatic approach to softening the impact of the FTA on Taiwan exporters is the right one, but real progress must be made on converting ECA feasibility studies into finalized agreements and tackling the task of economic transformation. Lemonade can be made from the South Korea-U.S. free trade lemon but a great deal of squeezing lies ahead.
Ed Zacapa is a freelance writer based in Kaohsiung.