TCS Daily

Should Taipei Go FTA Shopping?

By Charles Finny - August 14, 2006 12:00 AM

The economics focus in the latest issue of The Economist is on how Mongolia is the only WTO member not yet in some form of bilateral or regional free trade arrangement. The author analyses the consequences of a further proliferation of free trade agreements likely to be the consequence of the WTO Doha negotiations having been placed in the ice box.

While we might all feel for Mongolia, and applaud the commitment that Mongolia has made towards liberalization in both its WTO commitments and in its domestic policy settings, we should be more worried about latest developments for another, more important Asian economy. Indeed, this country faces an even greater prospect of marginalization as a result of the failure of the multilateral process.

That economy is Taiwan -- an economy which is in the top ten export markets for the US, Australia, New Zealand and many others.

Taiwan does have a few FTAs under its belt with, for example, Panama, Nicaragua and Guatemala. It has also expressed a willingness to negotiate with other WTO members -- US, Japan, Singapore, Australia and New Zealand have all been mooted. And while the other parties might be attracted to the concept of an FTA with Taiwan -- which still has relatively high levels of protection in some areas of goods and services trade -- all have so far been deterred by China's negative attitude to such a development.

Unless China changes its attitude, it is unlikely that Taiwan will be able to expand its FTA linkages with countries outside its limited list of 26 or so diplomatic allies, i.e. the very few who are prepared to have full diplomatic relations with Taiwan as opposed to China. Recent comments by Taiwan's new Economics Minister Steve Chen suggest that he is hopeful that the collapse of the WTO Doha Round will increase the chances of Taiwan getting an FTA negotiation up with the US. He may be correct in this assumption, but Taiwan should not be putting all its eggs in this basket.

While Steve Chen is hopeful about a breakthrough at the bilateral level, other commentators in the Taiwanese media are suggesting a more gloomy scenario, one in which Taiwan indeed becomes marginalized as all the other regional players hop into FTA bed together. The solution, say these commentators, is for Taiwan to work harder to get the WTO talks back up and running. To achieve this, some are even suggesting a major reorientation of Taiwan's alliances inside the WTO.

Since joining the WTO Taiwan has been one of the good guys on services and non-agricultural market access. But on agriculture it has been in the protectionist camp -- essentially in the same space as Japan. Given that lack of progress on aspects of agriculture has essentially destroyed the WTO Round, these Taiwanese thinkers are suggesting that Taiwan should be prepared to be more open to agricultural liberalization. They suggest also that Taiwan should try and move from fortress agriculture to a more export focused model.

While it is great to see such sensible thinking coming out of Taiwan, it might be wiser for it to move ahead with further liberalization on a unilateral basis. The major benefits of trade liberalization are always domestic. Unfortunately the politicians and lawyers have gotten control of the game and forced a mercantilist view on trade policy (we won't open unless you do). Given the risk that Taiwan won't have other options for a few years, the economists might like to take over and start driving some domestic reforms.

Agriculture would indeed be a good place to start. Moreover, reforming the agriculture sector so that it becomes more efficient and export focused might not be as difficult as some would argue. Up until the 1960s Taiwan was an efficient agricultural producer, focused heavily on export of agricultural products. The foreign exchange which built the Taiwanese industrial miracle actually came from agricultural export activity.

Given that Taiwan has been there once, getting back into the export mindset might not be that difficult. There are also new opportunities created by Taiwan's expertise -- developed since the 1960s in food technology, preparation, distribution and retail. Couple these advantages with Taiwan's strategic location -- close to Hong Kong, China, Korea and Japan -- there is a new Taiwan export success story in the making. And most importantly, Taiwan's economy will be enjoying the same benefits as it would from WTO or FTA induced liberalization, but without having to wait for outcomes that are beyond the Taiwan Government's ability to deliver.

Charles Finny is CEO of the Wellington Regional Chamber of Commerce. He is also a former Director of the New Zealand Commerce and Industry Office in Taipei.


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