CNA, TAIPEI

Thursday, Jul 28, 2005

Assessment shows trade pact danger

MARGINALIZATION: A government report argues that increased economic integration between China, Japan and South Korea could threaten the nation

The nation’s competitiveness in the global market would be slashed if China, Japan and South Korea were to achieve economic integration, according to an assessment published Tuesday by the Ministry of Economic Affairs.

Economic integration through signing a free trade agreement (FTA) among the three countries would help their electronics, semiconductor and personal computer industries complement effectively and enable them to further boost their roles in global manufacturing supply chains and increase their leverage in product pricing and setting market standards across the world, the assessment said.

As Taiwan is also deeply involved in the manufacturing supply chain and trade in the region, its exclusion from the FTA would pose a major hurdle to its efforts to explore international markets, it pointed out.

Trilateral trade among the three countries has been growing rapidly in the last decade, with the figure jumping to US$257.9 billion last year, it said.

Taiwan is under pressure to move quickly to establish more FTAs with its major trading partners to prevent being marginalized economically as ASEAN expands its scope to China, Japan and South Korea, to the detriment of the local market.

While China has become the leading trading partner of Japan and South Korea, the combined GDP of the three countries already exceeds US$7.6 trillion, accounting for 20.87 percent of the world’s total.

MOEA officials warned that it would be more difficult for Taiwanese companies to compete in the market should the three countries end up forging an FTA, which is expected to further increase their GDPs and strengthen their influence in such high-tech sectors as electronics, shipbuilding, steel, semiconductors and the PC industry.

However, it will take longer to gauge whether a China-Japan-South Korea FTA would negatively affect the pace of Taiwan’s investment overseas, the officials said.

In addition, they said, China, Japan and South Korea agreed in May this year to join the Chiang Mai Initiative, which supplies necessary short-term liquidity among ASEAN-plus-three countries.

Based on the Chiang Mai Initiative, ASEAN-plus-three member countries have had negotiations for conclusion of BSAs (bilateral swap arrangements) among them. Japan has concluded BSAs with China, South Korea, Thailand, the Philippines and Malaysia.

Given the fact that China, Japan and South Korea are some of the world’s largest holders of foreign exchange reserves, their joint determination to fend off currency speculation will largely help stabilize currency values in East Asia, the officials said.