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Taiwan pursuing FTAs with trade partners

Taiwan Journal (Taiwan Government publication)

Taiwan pursuing FTAs with trade partners

26 March 2004

By Francis Li

In January 2002, Taiwan became a member of the World Trade Organization, whose prime mission is to promote progressively freer trade globally in faith that all countries’ economies can be stimulated thereby. As doubts arise over the WHO’s future, more and more countries are looking to free-trade agreements as a supplementary approach to promoting that ideal. TJ staff writer Francis Li takes a look at Taiwan’s recent efforts in this regard.

Establishment of free-trade agreements (FTAs) and regional trade agreements (RTAs) has become a top priority for many nations. This trend is partly attributable to sluggish progress in promoting free trade under the World Trade Organization (WTO) framework, illustrated by the breakdown of negotiations at the WTO’s 1999 Seattle and 2003 Cancun WTO conferences.

It is easier, after all, for just two or a few nations familiar with each other’s business and investment environments to resolve differences and reach consensuses than it is for the WTO’s 146 members to do so.

The establishment of FTAs and RTAs over the past couple of years appears to have triggered a chain reaction, as countries who fear being left behind hasten to negotiate their own agreements. According to WTO projections, over 300 FTAs and RTAs will have been signed by 2005.

Since the United States entered into the regional North American Free Trade Agreement with Mexico and Canada in 1994, for example, it has signed bilateral FTAs with Canada, Chili, Israel, Jordan and Singapore and has completed consultations with Australia, Morocco, the Dominican Republic and five Central American countries. It is set to begin negotiations with Thailand, Panama and the Andean Group, which includes Columbia, Peru, Bolivia and Ecuador and is promoting FTAs with Bahrain and the Southern African Customs Union, which includes South Africa, Swaziland, Botswana, Namibia and Lesotho.

As an export-oriented economy and the world’s 14th-largest trading nation, Taiwan is fully aware of the potential benefits to be gained from bilateral and regional free trade agreements. The government has therefore been engaging in FTA talks with trade partners around the world, inking its first pact with Panama last August, which took effect Jan. 1 this year.

Unfortunately, because of China’s political intervention and pressure, many nations interested in entering into bilateral or regional agreements with Taiwan have either shelved the idea or adopted a wait-and-see approach.

Despite such political obstructionism, Taiwan’s government is not relenting in its efforts to negotiate further FTAs. Among its top priorities are negotiations with the United States, Japan, Singapore and New Zealand. An FTA with the United States is viewed as particularly desirable not only for purely economic reasons but because it would reduce fears of Taiwan’s other trade partners that entering into agreements with Taiwan would prompt retaliatory action by China.

During most of the second half of the 20th century, the United States was Taiwan’s most important economic and trade partner, and the trade and investment relationship with the United States was the main driving force behind Taiwan’s rapid economic development. From 1970 to the end of the 20th century, the United States was always Taiwan’s largest export market, and by the end of century Taiwan had become its sixth-largest trading partner. It was only in 2001 that China became Taiwan’s largest export market, with the United States in second place.

At present, Taiwan is still the United States’ eighth-largest trading partner, the 10th-largest market for U.S. exports overall and the fifth-largest market for U.S. agricultural exports. The United States is Taiwan’s second-largest source of imports, next only to Japan.

In 2003 alone, Taiwan-U.S. bilateral trade amounted to US$42.7 billion, amounting to 15.8 percent of the island’s overall foreign trade. During that year, Taiwan imported US$16.8 billion worth of goods from the United States, accounting for 13 percent of its total imports, while exporting US$25.9 billion worth of goods to it.

Taiwan-U.S. dialog Through its representative offices in the United States, the Taiwan government has therefore lobbied hard for a Taiwan-U.S. FTA (TUFTA). Vice Economics Minister Chen Ruey-long and Vincent Siew, convener of the Presidential Economic Advisory Panel, have led delegations to promote and elaborate on the mutual benefits of a TUFTA to U.S. think tanks and research organizations such as the Brookings Institution, the Heritage Foundation and the Center for Strategic and International Studies.

Sen. Max Baucus of the U.S. Senate Finance Committee was an early supporter of an FTA with Taiwan, in November 2000 introducing a bill titled the "United States-Taiwan Free Trade Agreement Act of 2001." At the request of Baucus and Sen. Charles Grassley, between February and October of 2002 the U.S. International Trade Commission (USITC) conducted a fact-finding investigation to determine the probable economic effects of a TUFTA.

On May 13 of that year, Taiwan’s chief representative in the United States, Chen Chien-jen, presented testimony in support of such an agreement at a public hearing held by the USITC. Of the 120-plus written submissions by U.S. industrial and business concerns and state governmental agencies, most were supportive of it, with particularly strong support from the agricultural sector.

Subsequently, in March 2003, U.S. Reps. Jim Ramstad and William Jefferson submitted a resolution to the Committee on Ways and Means advocating a freetrade agreement between the United States and Taiwan.

Studies conducted by the USITC and Taiwan’s Chung-Hua Institution for Economic Research (CIER) in 2002 indicate that a TUFTA will benefit both nations. For example, the USITC report, based on trade figures for 2001 when Taiwan was still the United States’ sixth-largest trading partner, projected that U.S. exports to Taiwan would see a 16-percent increase from US$21.9 billion to US$25.3 billion, while U.S. imports from Taiwan would see an 18-percent increase from US$39 billion to US$46 billion.

U.S. sectors that would benefit most from exports to Taiwan include machinery and equipment, motor vehicles and parts, and agricultural and food products. Taiwanese sectors that would benefit from exports under a TUFTA would include producers of textiles and leather goods, machinery and equipment, metal products, and electronic goods.

"Taiwan GDP would increase by 0.3 percent as a result of eliminating trade barriers under an FTA," the USITC report said. More optimistically, CIER predicted that if tariffs were reduced to zero, Taiwan’s GDP would grow by 0.56 percent. Exports, it said, would increase by 1.75 percent and imports by 2.86 percent with increased revenues of US$2.6 billion. Meanwhile, said the research organization, the U.S. GDP would grow by 0.02 percent, exports by 0.39 percent and imports by 0.35 percent, with increased revenues of US$1 billion. Taiwan’s agriculture and automobile sectors would be most adversely affected while the apparel and textile industries would benefit the most.

Four issues of concern As the American Chamber of Commerce (AmCham) in Taipei pointed out, nations the world over are seeking FTAs with the United States, and the considerable manpower resources required to carry out thorough evaluations of national interests and complex negotiations means that U.S. authorities must be selective in prioritizing prospective FTA partners. In this connection, AmCham emphasizes that as a condition for undertaking further TUFTA talks under the Taiwan-U.S. Trade and Investment Framework Agreement, Taiwan should first concentrate on resolving four major issues of concern, namely with respect to copyright protection and liberalization of restrictions regarding its telecommunications market, rice imports and pharmaceutical pricing mechanisms.

According to Edward Chan, executive secretary of the Bureau of Foreign Trade’s (BOFT) FTA Task Force, Taiwan-U.S. channels of communication on trade issues are open, and steady progress is being made in resolving them.

Regarding rice imports, Chan said that in 2003 the government implemented a new tariff quota system, and this year the Council of Agriculture will continue to consult with U.S. authorities in an effort to reach a consensus.

In the area of copyright protection, in 2003 the Ministry of Economic Affairs’ Joint Optical Disk Enforcement Task Force raided 1,088 factories suspected of producing illegal CD reproductions, as compared with 297 actions taken in 2002, confiscating more than 303,000 illegal disks with a market value of about US$4 million. Meanwhile islandwide police crackdowns on sales of pirated disks in night markets in the same year netted 2,017 violators and over 1.6 million illegal disks with a market value of about US$195 million.

A survey conducted July-August 2003 by the Motion Picture Association showed that the number of night market stalls selling illegal video disks had dropped by 50 percent over the previous year. Another survey conducted last August by the International Federation of the Phonographic Industry discovered only 50 stalls selling illegal music disks as compared with 300 a year before.

In 2003, Taiwan authorities successfully prosecuted 1,168 intellectual property right-infringement cases and confiscated counterfeit products worth over US$155 million. Moreover, the volume of pirated disks discovered by U.S. customs inspectors has drastically decreased.

Regarding drug pricing and new-drug data exclusivity rights, the Bureau of National Health Insurance (BNHI) has been working on adjustment measures to eliminate unreasonable pricing, and has also set up a task force to draft a revised Pharmaceutical Affairs Law in conjunction with other measures aimed at protecting data exclusivity rights. The BNHI anticipates that these objectives will be achieved by the end of this year.

As for the telecommunications industry, the government of Taiwan has drafted an organic act for the establishment of an independent communications and broadcasting agency and will accept foreign companies’ applications for fixed-network licenses as now permitted under the "Basic Act on Communications" promulgated Jan. 7. The Ministry of Transportation and Communications has announced that such applications will be accepted twice yearly in March and September, beginning this September.

The BOFT’s Chan is optimistic that the government’s ongoing efforts to address U.S. concerns will pave the way for TUFTA negotiations in the not-too-distant future.