Author: Shiro Armstrong

At the American Enterprise Institutes’s panel discussion on Taiwan’s Economic Future, this week much of the initial talk centred on a US-Taiwan free trade agreement (FTA). But all the speakers were in agreement that the economic benefits are ‘embarrassingly small’. That is, a few billion dollars in trade gains (including a lot of trade diversion) and miniscule income gains — all too small to quote in percentage terms.

Some other useful points worth mentioning:

-One of the biggest impediments to Taiwan’s trade is its trade with mainland China is a one way street, or one hand clapping, as it restricts imports of a whole range of critical goods from the mainland… and prevents Taiwan from achieving its full competitiveness in the global economy. (direct trade and investment was banned until as recently as 2001).

-One of the best ways for the United States to engage Taiwan and boost trade is by helping with Taiwan’s behind the border reforms. This will not be done most effectively in a preferential or discriminatory FTA. Most of the panel agreed that the regulatory system has a long way to go and much more needs to be done in terms of privatisation of state owned enterprises.

-A potential US-Taiwan FTA will not face the same sort of domestic resistance in Taiwan as the US-RoK FTA is facing in Korea now. Of course, some of this is the mishandling of the beef issue by both the United States and RoK governments. But it is not now the strategic interest as Beijing and Taipei attempt to sort out the trade and travel restrictions that severely damage Taiwan’ trade and incomes.

-If the US-Taiwan link is severed in any way, not only are the security implications huge, the economic security implications are huge. Taiwan is the Silicon shield, said Rupert Hammond-Chambers, the president of the US-Taiwan business council. Taiwan is a vital part of the global supply chain because it leads the world in chips, chips and chips (semi conductors, not freedom fries).

-The main argument for a US-Taiwan FTA? Maintain the status quo in security, both the geopolitical and economic kinds. The proponents of the FTA did acknowledge unilateral trade liberalisation is the first best option, followed by multilateral liberalisation (WTO) and lastly an FTA.

-The plethora of bilateral FTAs in Asia have had negligible economic effect so far and remain unlikely to.

And what will Beijing’s reaction be, or Australia’s to all the trade diversion?

At a time when there is promise of movement between Taipei and Beijing, which is likely to significantly strengthen Taiwan’s global competitiveness, the sensible heads are suggesting that much more can be done to promote American investment and commercial interests by an agreement that does not need an FTA framework at all but seeks to assist regulatory reform and get tariffs, trade and services down where they need to in what is still a heavily regulated economy.

Related articles:

1. Taiwan, China, and the WHO
2. Taiwan: The Democratic Progress Party’s ‘China Syndrome’
3. Typhoon Morakot and Taiwan: damaging Ma Ying-jeou’s presidency?
4. Haiti earthquake and China-Taiwan complexities

1. Time to re-think the economic partnership with Japan in Asia
2. Australia, and managing Japan’s insecurity
3. Obama and Asia

This entry was posted on Friday, June 20th, 2008 at 8:16 pm and is filed under Trade. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.