Inter Press Service | 15 December 2004

ECONOMICS:
U.S.-Taiwan Free Trade Agreement in Pipeline?

Tim Shorrock

WASHINGTON, Dec 15 (IPS) - In the days before Taiwan’s voters rejected their government’s increasingly confrontational stance towards mainland China, officials from Beijing and Taipei were here to promote their respective views on free trade.

China, according to Zhang Yunling, the director of Asia-Pacific Studies at the Chinese Academy of Social Sciences, prefers a regional arrangement, similar to the European Union, which would provide a forum for discussing East Asian trade, finance and even security.

An East Asian economic community, said Zhang, would build on recent bilateral trade and investment initiatives involving China and other key players in Asia but would "gradually bring all countries together" around common objectives. The Association of South-east Asian Nations (ASEAN), which is negotiating a free trade agreement with China, would also play "a very important role," he said.

In contrast to the EU, however, an Asian regional organisation would not require member countries to adhere to common political standards, such as pluralistic democracy, he said. "The diversity of political systems is not actually required" in his vision, Zhang told a seminar on Asian regionalism organised last week by the Sasakawa Peace Foundation.

Although Zhang does not speak officially for Beijing, his academy is funded and run by the central government, and Zhang’s views often reflect official positions.

A few days after Zhang’s speech, Mei-Yueh Ho, Taiwan’s minister of economic affairs, made two appearances to press for a bilateral free trade agreement between the United States and Taiwan. Such an agreement would be a "logical next step" for Taiwan, which is the eight-largest U.S. trading partner, Ho told the U.S.-Taiwan Business Council.

The council, which is chaired by former U.S. defense secretary William Cohen, represents U.S. multinational corporations with large investments in Taiwan, and recently funded a major study of bilateral trade between Washington and Taipei.

That study, which was released while Ho was visiting Washington, argues that the U.S. government should create a free trade area with Taiwan specifically to overcome China’s objections to including Taiwan in its favored regional trade proposals.

Taiwan is "conspicuously absent" from intra-Asian free trade agreement (FTA) discussions, the report states. "The prospect of a U.S.-Taiwan FTA thus has considerable significance not only for its potential to increase bilateral trade, but also because it might facilitate Taiwan’s participation in intra-Asian trade liberalisation."

If Washington took such an initiative, the report claims, Japan might find it "more politically feasible" to negotiate its own FTA with Taiwan, "which in turn could pave the way for Taiwan’s participation in other bilateral and regional trade liberalisation initiatives." The report was published by the Institute for International Economics (IIE).

In remarks to a seminar organised by the IIE, Ho backed the report’s conclusions. She said that a bilateral FTA would benefit U.S. companies seeking an export platform in Asia and would promote free and open trade throughout Asia. Taiwan, she added, "has been deliberately frozen out of the FTA process" in Asia.

In last week’s parliamentary elections, Taiwan’s opposition party won a surprise victory over the ruling, and pro-independence, party of Taiwan President Chen Shui-bian. It is unclear how the opposition Nationalist Party will proceed on trade issues, but party leaders want Taiwan to adopt a much more conciliatory attitude towards China than President Chen. That is likely to include trade, and could therefore spell trouble for a bilateral FTA with the United States.

The loudest voices in Washington favouring an FTA with Taiwan are conservatives who believe that China poses a long-term threat to U..S. security. As noted in the IEE report, major support "comes from pro-Taiwan political and security voices in Washington looking to bolster Taiwan against political pressure from Beijing."

In late November, the U.S. and Taiwan held several days of discussions under the bilateral trade and investment framework agreement (TIFA). These talks are aimed at removing Taiwan from a U.S. watch list of countries with poor records in protecting intellectual property rights. Before embarking on free trade talks, Taiwan must show progress on that issue.

In his talk to the Sasakawa group, Zhang did not specifically address the issue of a Taiwan FTA. But he emphasized that a regional framework is China’s preferred mechanism.. "Gradually there is regional institution building," he said. In particular, "we need some kind of regional financial arrangement."

But Taniguchi Tomohiko, an editor for ’Nikkei Business Publications’, said any regional arrangement must include the United States. "The U.S. should be fully engaged in this process," he said. "I’m puzzled why the U.S. is so nonchalant towards Asia."