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Taiwan’s free trade troubles

Asia Times Online | Kowloon, Hong Kong | 14 July 2004

Taiwan’s free trade troubles

By Mac William Bishop

TAIPEI - Hardly a day goes by without some news about free trade agreements (FTAs). Right this minute, tired trade officials somewhere are undoubtedly hammering out the final details of a bilateral trade pact. Taiwan officials wish they could say the same.

Establishing an FTA, or an economic pact that lowers and eliminates some tariffs on some goods, is a definite accomplishment in the realm of economic policy, and therefore much prized by politicians, who then can point to expanding investment and prosperity (they hope). Taiwan is no different.

In 2003, Taiwan had approximately US$143 billion in exports, and $119.6 billion in imports. It is a member of the World Trade Organization (WTO) and thus obliged to reduce tariffs and open markets under its accession agreement. Taiwan also has thousands of economic agreements of various types, as do most countries, but most are very specific accords, ie, ships from one country can fish in particular waters of a particular country at a particular time. What an FTA can do is take all of these things and consolidate them into one neat package.

Taiwan’s politicians and business leaders are no different than their counterparts elsewhere, despite the fact that Taiwan’s claim to statehood is vigorously disputed by one of the world’s most influential emerging markets: China. Of the United Nations 191 member states, only 27 recognize Taiwan as a sovereign state, thanks to Taipei’s lavish checkbook diplomacy and despite Beijing’s efforts to isolate the country diplomatically. Still, Beijing needs Taiwan’s investments. China isn’t necessarily trying to block all of Taiwan’s international accords, but it is trying to tighten the diplomatic noose. Beijing didn’t really mind when Taiwan joined the WTO, so long as it didn’t join as the "Republic of China" or "Taiwan". So Taiwan joined as "The separate customs territory of Taiwan, Penghu, Kinmen and Matsu".

Despite trading all over the world, Taiwan has only one FTA, with Panama. Many nations, eager to enter the burgeoning China market, are reluctant to enter into such FTA pacts that recognize Taiwan as a sovereign entity, lest they alienate Beijing.

The political dispute with China over political connections and unification has had rather unfortunate results for Taiwan’s efforts to expand its markets and boost its trade. Most recently, this can be seen in Taiwan’s efforts to negotiate a bilateral FTA with Paraguay.

China outmaneuvers Taiwan on Paraguay FTA
The "Paraguay Problem" should stand as a textbook example of the proper application of soft power in a multilateral international institution in order to further a nation’s diplomatic goals. Unfortunately for Taiwan, however, China is adroitly outmaneuvering the island, which Beijing often claims is an unruly prodigal province.

Taiwan has a mere 27 diplomatic allies, or countries that have established formal state-to-state relations with Taipei. Most of these were acquired through the liberal use of dollar diplomacy, although Taiwan’s Ministry of Foreign Affairs officially denies that such financial inducements are sanctioned, or indeed, even necessary.

One of these allies is Paraguay. Taiwan provides more than US$20 million in investment, lending and technical assistance projects to that Latin American nation, and it is attempting to expand business ties with Paraguayan companies and to increase investment in small- and medium-sized enterprises, or SMEs.

Taiwan is working to expand its economic influence in South America through negotiations with Paraguay over a bilateral FTA. Later this month, starting next week on July 19, Taiwan’s minister of economic affairs, Ho Mei-yueh, will lead a delegation to Asuncion. She will try to push the stalled negotiations forward, but few analysts think she will succeed.

"The [Taiwan-Paraguay] talks are in trouble," said deputy director-general Wu Chin-mu of Taiwan’s Ministry of Economic Affairs’ department of South and Central America.

The problem is China and its influence with Argentina and Brazil. Both countries recently sent high-level delegations to Beijing and both are members of Mercosur, the South American Common Market, a regional body designed to facilitate trade in South America. Paraguay and Uruguay are also members.

"Paraguay has to obtain the consent of all the members of Mercosur to be able to sign an FTA with Taiwan," Wu said. And that consent isn’t likely to be forthcoming.

Argentina, Brazil pressuring Paraguay to recognize China
Argentinean President Nestor Kirchner spent the first week of July traveling to China, where, among other things, he reportedly assured Beijing that his government was working with Brazil to pressure Paraguay into switching its diplomatic recognition from Taiwan to China.

Trade agreements are central to this issue.

"China ... wants to sign an FTA with Mercosur," Wu explained. "It says that Paraguay is the problem. It wants Paraguay to become its ally."

At the moment, the government in Asuncion is not receptive to pressure from Brasilia and Buenos Aires. In fact, some observers say, the obvious attempts to influence Paraguay’s foreign policy have only reinforced its support for Taiwan.

Not all of Taiwan’s aspirations are being thwarted by Beijing, however. Taiwan has managed to sign one free trade agreement. Last August, after a round of marathon negotiations begun nearly a year earlier, Taiwan and Panama signed an FTA, Taiwan’s first - and so far only - such agreement.

Still, most of Taiwan’s effort in terms of trade negotiations has been toward inking a pact with Washington. The key obstacle to a Taiwan-US FTA is not Beijing, however, but intellectual property rights (IPR) infringement.

At a recent speech hosted by the American Chamber of Commerce in Taipei, the outgoing economic and trade chief of the American Institute in Taiwan, William Weinstein, said foreign companies lost $452.7 million in copyright piracy in Taiwan last year alone.

US: Taiwan flouts intellectual property rights
Weinstein said that IPR infringement, in addition to travel and trade restrictions and opaque government procurement processes, were the biggest hindrances to the US acceding to a free trade deal with Taiwan. The US, despite China’s consistent protests, maintains de facto relations with Taiwan and has promised to come to its defense if necessary.

Weinstein’s message wasn’t falling on deaf ears in Taipei. The US has consistently complained of these issues to Taiwan, and most analysts say that the number one priority for Taipei is tightening the government’s lax protection of copyrights.

Substantial progress is being made. On Saturday, July 10, Taiwan’s government officially closed one loophole that had existed in its copyright protection laws for almost 40 years. The loophole allowed any movie released before 1965 to be exempted from copyright protection laws: hence the huge number of classic films - everything from Casablanca to The Hustler - that were available in Taiwan’s street markets, each for less than one US dollar.

Now that the loophole has been closed, the films are no longer considered exempt from the copyright protection laws, and companies such as Evervision Corp and AV Book Corp will be forced to seek other forms of revenue.

As a result of such progress, there has been talk that the US is considering removing Taiwan from its "Special 301" watch list of IPR violators.

Rhetorically, President Chen Shui-bian’s administration has made a Taiwan-US FTA its primary trade focus. At the end of May, Premier Yu Shyi-kun announced that the government was setting up a "special task force" - a standard phrase employed by the government, which cynics say signifies that nothing will happen - to expedite the trade negotiations with the US.

What a "special FTA negotiation task force" means in practical terms is certainly open to question, but nonetheless it played well in the media.

In many respects, the true purpose of an FTA is as political as it is economic. As Premier Yu himself said when announcing the task force, "We might not benefit much from the agreement, but we’re bound to be worse off economically, politically and diplomatically if we don’t pursue it."

If Chen ever does sign a trade pact with the US - something analysts say is virtually impossible before the US presidential elections in November - you can be sure that Taipei will waste no time in turning its success into a propaganda whip with which to beat its hobbyhorse: the supposedly debilitating (for Taiwan) effects of increased cross-Strait economic interaction.

Mac William Bishop is a journalist based in Taipei. Comments or queries may be sent to [email protected]

Copyright 2004 Asia Times Online Ltd.

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