Taiwan has no choice but to join the TPP

After two-plus years of negotiations Taiwan and Singapore have inked the Agreement between Singapore and the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu on Economic Partnership (ASTEP), a free-trade agreement (FTA) between the two entities. With this pact Taiwan appears to be making progress in creating favorable conditions with other trading partners that could pave the way to the Trans-Pacific Partnership Agreement (TPP) and the Regional Comprehensive Economic Partnership (RCEP) as well as other bilateral FTAs.

Previously Taiwan has signed FTAs with five small Latin American nations, a group that accounted for less than 1% of the island’s foreign trade last year. That is much less than the number signed by South Korea and other Asian countries. Data from the Asian Development Bank shows that the number of FTAs involving Asian countries rose from 36 in 2002 to 109 this year, with 149 more under negotiation.

If Taiwan is to move from economic isolation toward integration with other nations in the region, it must join TPP, which comprises twelve key trading nations from the Asia-Pacific area – Brunei, Chile, New Zealand, Singapore, the US, Australia, Peru, Vietnam, Mexico, Canada and Japan – with the US, Japan and Singapore alone accounting for 35 percent of Taiwan's total trade last year. If Taiwan is accepted into TPP, its FTA export ratio (exports to FTA countries:total exports) will zoom from 20% to 70%, and it will enjoy considerably more preferential tariffs on its exports.

Over the past few years Beijing has used China’s growing economic clout to dissuade other countries from signing trade agreements with Taiwan. As the US encountered difficulties in effecting its ‘Asian pivot’ strategy, President Ma pushed through the signing of ECFA with Beijing in 2010. On the surface, this was good for Taiwan's economy but cost Taiwan much of its political self-determination. Over time, ECFA could prove a drag on Taiwan in competing in the world market. In addition, the latest trade figures show that while imports from China are increasing, Taiwan’s exports to the mainland are declining.

Excessive reliance on trade with China also puts Taiwan at a disadvantage at the negotiating table. If current trends continue, Taiwan could gradually settle into a secondary spot in a regional grouping centered on China. Should a serious disagreement arise between Taiwan and China, Beijing would be in perfect position to destroy Taiwan's economy. Many US experts believe that continued strengthening of Taiwan’s economic dependence on China, plus China's relentless efforts to regain its ‘renegade province,’ could eventually cost the US one of its staunchest allies in the region.

Taiwan already lags in the movement toward regional economic integration in the Asia-Pacific, and recent struggles between the government’s executive and legislative branches have exacerbated the situation. At the same time, Ma Ying-jeou’s lame-duck status pales before his ineptitude in political wrangling. Ma’s popularity in opinion polls is in single digits, providing fodder for those who still oppose ECFA three years after it was signed over of worries about its impact on SMEs and farmers. If Taiwan is to escape trade isolation and take part in regional integration, it must negotiate FTAs with other trading partners while seeking US support to join TPP as soon as possible.

Joining TPP offers several advantages. First, joining a large regional trade group will help wean Taiwan from over-dependence on China, which is hampering trade with other nations. Secondly, TPP is a grouping of a dozen economies that represent more than 30% of global GDP. The advantages of entering into a trade agreement with such a large group are so compelling that recent hopefuls for membership who missed out on early negotiations are accepting volumes of text sight unseen as a condition for admission. Also, TPP is widely viewed as a pathfinder for the proposed Free Trade Area of the Asia Pacific (FTAAP), an APEC initiative that would be very attractive to Taiwan.

At the same time, joining a trade group involving diverse economies with varying needs and demands requires sacrifices from members. Resistance to TPP is scattered but significant in the US, where opponents complain about lack of transparency in negotiations and charge that TPP offers too many benefits for large multi-national corporations and too little for the people. Detractors say TPP caters to the needs of industries like pharmaceuticals and motion pictures with clauses covering intellectual property rights. Others are leery of provisions allowing investors to appeal to arbitration if they feel their rights have been violated by a member nation.

For Taiwan, joining a pact containing sweeping provisions could heat up the still-simmering dispute between the US and Taiwan over imports of US beef and pork containing ractopamine. Under the terms of TPP Taiwan could find itself severely hampered in trying to control the entry of additive-laced meat, GM soybeans and other controversial foods.

Still, the advantages of joining outweigh possible drawbacks, and the Ma government cannot afford to waste any more time. A delegation led by Vincent Siew to the US later this month is a positive sign that Taiwan is serious about TPP. 17 businessmen including Hon Hai’s Terry Kuo, Wang Rui Hwa of Formosa Plastics, Douglas Hsu of Far Eastern, TECO’s Theodore M.H. Huang and Steve Chan of Adimmune will accompany Siew, along with experts like Lin Yi-fu, Taiwan's former representative to the WTO, and Philip Yang, former Secretary-general of Taiwan's National Security Council. The delegation will be in the US November 16-27, and Siew will speak at a workshop held by the Brookings Institution in conjunction with Taiwan’s efforts to break into TPP.

Time is of the essence if Taiwan is to gain admission to TPP. Taiwan has already missed the boat on several rounds of negotiations and opportunities to obtain favorable terms for admission. A ‘Door-nock’ delegation to the US from Taipei’s American Chamber of Commerce found a more positive atmosphere regarding Taiwan’s chances for admission, yet cautioned that Taiwan has a lot of work to do. AmCham summarized its findings by saying Taiwan's entry is “a realistic possibility, but only if Taiwan starts now to significantly demonstrate its willingness to liberalize its trade and investment regime.”

That will take time, and Taiwan does not have a lot of that right now.

Source: taiwannews