South Korea's FTA Encirclement: A Breakthrough is Up to Us
United Daily News editorial (Taipei, Taiwan, ROC)
October 26, 2011
Summary: Everyone is concerned about the US-Korea Free Trade Agreement (FTA) scheduled to go into effect next January. According to the agreement, 99% of all industrial products manufactured by the U.S. and South Korea will be tariff free. Many products manufactured on Taiwan and sold in the US are in intense competition with products manufactured in South Korea. Once the FTA between the US and South Korea goes into effect, many products manufactured on Taiwan will be at a disadvantage the moment they come ashore, The FTA South Korea signed with the EU goes into effect this July, This leaves the government and industry deeply worried.
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Everyone is concerned about the US-Korea Free Trade Agreement (FTA) scheduled to go into effect next January. According to the agreement, 99% of all industrial products manufactured by the U.S. and South Korea will be tariff free. Many products manufactured on Taiwan and sold in the US are in intense competition with products manufactured in South Korea. Once the FTA between the US and South Korea goes into effect, many products manufactured on Taiwan will be at a disadvantage the moment they come ashore, The FTA South Korea signed with the EU goes into effect this July, This leaves the government and industry deeply worried.
The South Korean FTA is taking shape. Our government must break through the encirclement. The United States is Taiwan and South Korea's main export market, The two economies manufacture many of the same products. Therefore the advantage belongs to South Korea. Our side is at a comparative disadvantage. According to the Ministry of Economic Affairs, the financial impact may amount to US$11.8 billion, Textiles, clothing, machinery, and rubber and plastic products will suffer the most. The cost and quality of these products is similar to the cost and quality of products manufactured in South Korea. South Korea's gross margins are lower. In which case, the presence or absence of tariffs is often the determining factor. In fact, FTAs affect more than just exports. Taiwan and South Korea also compete for foreign investment. South Korea's FTAs will also have an effect on foreign investment. Therefore, our government is not alone in sounding the alarm. The Japanese public is urging Japan's government to accelerate the signing of FTAs.
The government has proposed a number of responses. President Ma says the cross-Strait economic agreement (ECFA) is an effective weapon against South Korea's FTAs. But lest we forget, in this Great Game of FTAs, South Korea's trump card is not confined to Europe and the US. It also signed an FTA with ASEAN that went into effect in 2007. It has completed a feasibility study and expects to sign an FTA with the Chinese mainland by the end of this year. Once the FTA between South Korea and the Chinese mainland is signed, any advantages conferred by ECFA could be lost.
FTA negotiations between South Korea and Europe and between South Korea and the US took an average of 15 months. Contrast this with the snail's pace for follow-up consultations over ECFA between Taipei and Beijings. South Korea began negotiating with the Chinese mainland later, but finished negotiating earlier. This is even more worrisome.
South Korea's web of FTAs is increasingly complete. Our own government has responded by undergoing industrial upgrading. and by adopting long-term measures such as market segmentation. It has also accelerated the pace of negotiations over ECFA and FTAs. Taipei has been attempting to sign an FTA with Washington for some time, Countless feasibility studies have been completed, all with positive results, But no concrete progress has been made. In recent years progress was stalled by disagreements over US beef imports. Domestic controversy over FTAs inside the United States over the past few years also had an impact. The US congress waited five years before approving the FTA between Washington and Seoul. Therefore an FTA between Taipei and Washington may be difficult at the moment. Taipei is holding FTA negotiations with the EU, But the EU has 27 countries. Each of them has different views. Much work remains to be done.
Asia has become a hotspot for FTAs in recent decades. Nearly 70% of the new FTAs have been signed in this region. The government is not oblivious to this development. But it has yet to make any practical breakthroughs. In the past, it deliberately erected barriers. But in recent years cross-strait economic and trade relations have eased markedly. Yet the government keeps turning in lousy report cards, A foreign investment protection agreement has been signed between Taipei and Tokyo. But bilateral consultations with ASEAN countries have made little progress. We can no longer blame poor cross-Strait relations. Other countries also need time to explore the Chinese mainland's stance. This may result in slow progress. But little progress has been made in the four follow-up talks over ECFA, especially over goods and services covered in most FTAs. That is even more disturbing.
Leave aside external factors such as international political and economic relations. The crux of the matter is that Taipei has been lacklustre in its efforts to promote FTAs. Everything points to the governnment, and its reluctance to liberalize. A government's determination is not exactly something that can be quantified. But the number of FTA talks held and the time allocated to FTA negotiations gives us a clue. Taipei is already negotiating ECFA with Beijing. Taipei is already negotiating an FTA with Singapore. But it lacks a clear timetable. Taipei has begun negotiating with Seoul. But it lacks a master plan. By contrast, South Korea has both a blueprint of potential FTA signatories, and a strict timetable for FTA signings. The difference between Seoul and Taipei is obvious.
In short, the key to breaking out of South Korea's FTA encirclement, is not entirely in other peoples' hands. We must strengthen our commitment to liberalization, accelerate cross-strait talks and establish a comprehensive strategy for promoting FTAs. These are all within our power. Therefore we must not blame our lack of FTAs on others. Instead, we must boldly seize the initiative.
2011.10.26 02:00 am