Take steps to avoid marginalization
By Tung Chen-yuan
4 February 2006
Over the past few years, East-Asian nations have signed many trade agreements and quickened the pace of economic integration. The exclusion of Taiwan from this process is a cause for concern.
Some people believe that Taiwan should implement cross-strait direct transport links and sign a free-trade agreement (FTA) with China as soon as possible, believing that this will avert the danger of Taiwan becoming marginalized. But will taking this approach preserve Taiwan’s freedom to sign FTAs with other nations without being thwarted by China ? Conversely, if Taiwan pushes for FTAs with its trading partners and diplomatic allies but ignores China, will this prevent Taiwan from being marginalized ? Or is Taiwan, once numbered among the four Asian tigers, destined to be sidelined ?
The situation Taiwan faces is not desperate. As long as it adopts appropriate response strategies, it will have the ability to turn a crisis into an opportunity. The development of East Asian free-trade arrangements and the increasing economic cooperation facilitates the liberalization of global commerce and investment, and this is an opportunity for Taiwan.
Because of Taiwan’s insufficient natural resources and limited market, it must rely on the integration of global resources and the development of global markets to ensure the nation’s sustainable economic development. Therefore, the advancement of East Asian economic integration and cooperation serves as a perfect chance for Taiwan to improve its economic performance.
Taiwan, of course, hopes to play a leading role in the integration rather than merely being a spectator. The biggest obstacle to this comes from China’s political obstruction. This is an international reality that Taiwan must face, and it must develop its East Asian integration strategies in this context. This strategy involves an advance along three fronts to achieve the objective of becoming a participant in global trade liberalization and the Asia-Pacific economic system.
Strategically, Taiwan should be more active in promoting the liberalization of the global trading and investment environment. Only in this way can Taiwan free itself from geopolitical constraints and overcome China’s obstructionism. Taiwan should be an initiator of globalization and a catalyst in building an Asia-Pacific free-trade system. It should make the most of the global market and global resources, rather than passively waiting for others to approach with FTA offers.
Taiwan should also make every effort to promote its presence in the multilateral free-trade system, including through the WTO, APEC and other organizations. In addition, it should actively propose and promote liberalization measures. This will bring Taiwan much greater benefit than would regional economic integration.
To bring about a breakthrough in bilateral economic and trade relations, Taiwan must be pragmatic and push for FTAs with major trading partners and diplomatic allies, including its four major trade partners : China, Japan, the US and Hong Kong. This is what will most benefit Taiwan economically.
The US should be Taiwan’s primary target for signing a FTA. The US is Taiwan’s third-largest trade partner, and an FTA with the US would serve as a political example, making other countries more willing to follow. It would also undermine the legitimacy of China’s obstructionism.
Practically speaking, Taiwan could use the process of negotiating an FTA with the US to apply pressure on China and Hong Kong to hurry up and sign an FTA with Taiwan as well. Taiwan could then turn around and use the possibility of an FTA with China and Hong Kong to ask that the US support a Taiwan-US FTA.
In particular, Taiwan should continue to work even harder for a Strategic Economic Partnership Agreement (SEPA) with the US and Japan to create strategic partnerships. Such partnerships would deal with global economic competition and emphasize integration and economic policy cooperation in the service sector. Advanced countries currently levy less than 5 percent of their import taxes on imported industrial products, which is why lowering this tax will not be of great importance to these countries.
The integration ushered in by a SEPA is far more comprehensive than an FTA, and it would better address the needs of current regional economic integration. In the next stage, Taiwan, the US and Japan could move toward the creation of a common market allowing the free flow of products, services and production factors such as capital, technology, manpower and information. The final stage would be an economic union which would provide mechanisms for regulating bilateral, multilateral and other trade relations.
In addition, Taiwan should enter into Trade and Investment Convenience Agreements (TICAs) with countries in Latin America and Southeast Asia. Such agreements would bring more benefits than a simple FTA. In particular, when signing TICAs with Latin American and Southeast Asian states, there is nothing that would stop Taiwan from first offering unilateral trade and investment liberalization until, in a few years time, these countries reach a similar level of economic opening. This would allow Taiwan to show its sincerity and win the approval of participating countries, which would result in a framework for strategic bilateral integration.
Finally, to make Taiwan a leader of globalization and a catalyst for free trade in the Asia-Pacific region, we should make Taiwan a regional operations center and a global strategic center. This would make Taiwan a base for exchanging products, services, capital, technology, information and manpower.
To achieve this, Taiwan must reach beyond current WTO achievements and look to actively push for the unilateral liberalization of its trade and financial systems, in order to secure a position as a leader of globalization and free trade and investment systems in the Asia-Pacific region. This unilateral strategy would innovate the nation’s current trade relations, not shift its trading pattern substantially — and it could only have a positive effect on Taiwan’s economic prosperity.
Tung Chen-yuan is an assistant professor in the Sun Yat-sen Graduate Institute of Social Sciences and Humanities at National Chengchi University.
Translated by Lin Ya-ti and Perry Svensson