A free trade agreement (FTA) between South Korea and the European Union took effect on July 1. A close look at South Korea’s strategy for securing FTAs with EU and the United States — although the U.S. Congress has not approved the deal — could give us a fresh perspective for reviewing Taiwan’s economic strategy.

In seeking these FTAs, South Korea is aiming to wean itself from its technological reliance on Japan and ease the pressure from China’s manufacturing prowess. A more important goal is to make itself a bridgehead for European and American industries seeking to expand in Asia.

If these goals can be achieved through FTAs with the EU and the U.S., the technological cooperation between South Korea and those two FTA partners will bring broad and long-term benefits for all three.

At the moment, Japanese businesses are showing interest in taking advantage of the South Korea-EU FTA and the potential advantages of an FTA between South Korea and the U.S. — a big market for high-end products that will be eligible for zero tariffs.

Taiwan’s Economic Cooperation Framework Agreement (ECFA) with China supposedly should have similar advantages for Taiwan, allowing foreign businesses to use Taiwan as launch pad to the vast Chinese market.

But government statistics show that so far, the ECFA has attracted only 17 foreign investment projects — mostly by Japanese firms — totaling US$1.25 billion, compared with US$2.7 billion that Japanese firms have decided to invest in South Korea.

Why such a big difference? A possible reason is that Korea’s FTAs with EU and the U.S. allow once-and-for-all cuts in import duties on a majority of products, while the ECFA offers only an "early harvest" program, mainly for intermediary materials and components from Taiwan. For Japanese industries, this is not very attractive as they are more concerned about non-tariff barriers put up by China.

A question for Taiwan based on Korea’s "literal" free trade agreements with the EU and the U.S. is whether Taiwan can really sign totally "free trade" pacts with China or other economies? For now, the answer seems to be no.

Furthermore, the different agencies of the central government have yet to come up with a coordinated free trade strategy. If the government itself cannot say clearly what kind of free trade deals it intends to seal with other countries, what’s the point of saying out loud that it wishes to do so?

July 4, 2011

Source: Focus Taiwan News Channel