Beijing, Tokyo, Seoul FTA Sets Off Alarms in Taipei
China Times editorial (Taipei, Taiwan, ROC)
May 18, 2012
Summary: Recently leaders of Mainland China, South Korea, and Japan signed an
investment agreement in Beijing. They agreed to negotiate a three nation
FTA (Free Trade Area). They expect to make it official two or three
years down the road. This is not a death knell for Taiwan's economic and
trade relations, But it is definitely a warning bell. If the government
and private industry cannot catch up, Taiwan's economic future will be
in jeopardy. No wonder President Ma expressed concern, No wonder he
instructed the Executive Yuan to accelerate economic and trade
negotiations with other nations. No wonder he stressed that follow-up
consultations with the Mainland over ECFA must be completed as soon as
possible. Otherwise the competitive advantage Taiwan enjoys over Japan
and South Korea, made possible by ECFA, will soon be neutralized. .
Full Text below:
Recently leaders of Mainland China, South Korea, and Japan signed an investment agreement in Beijing. They agreed to negotiate a three nation FTA (Free Trade Area). They expect to make it official two or three years down the road. This is not a death knell for Taiwan's economic and trade relations, But it is definitely a warning bell. If the government and private industry cannot catch up, Taiwan's economic future will be in jeopardy. No wonder President Ma expressed concern, No wonder he instructed the Executive Yuan to accelerate economic and trade negotiations with other nations. No wonder he stressed that follow-up consultations with the Mainland over ECFA must be completed as soon as possible. Otherwise the competitive advantage Taiwan enjoys over Japan and South Korea, made possible by ECFA, will soon be neutralized. .
Asia has Four Little Dragons. Hong Kong and Singapore are city-states, They are mainly service and financial industry oriented. Their gross domestic product (GDP) may be lower. But their per capita income is higher. Taiwan and South Korea, on the other hand, are manufacturing oriented. The two economies export largely the same products. Consequently South Korea is regarded as a direct competitor. The two economies each have strengths and weaknesses. Taiwan has long been in the lead. South Korea even collapsed during the Asian financial crisis of 1997. It caught up only in 2000.
While recovering from the 2008 financial tsunami, the strengths and weaknesses of the two economies became clear. The gap between Taiwan and South Korea has steadily widened. Over the past few years, South Korea has been moving full speed ahead. It has signed FTAs with major nations as the United States, India, and the European Union. Taiwan meanwhile, signed nothing except ECFA with the Mainland. Taiwan's technology industry clearly lags in DRAM and LCD production. ECFA has enabled Taiwan to catch its breath by enabling it to retain its competitive advantage in the Mainland market. Taiwan can still compete with South Korea in the Mainland LCD market. In fact it commands a slightly larger share of the market than South Korea. But if the mainland and South Korea sign an FTA, the advantages ECFA provides Taiwan will be completely neutralized. Faced with these pressures and changes in the strategic picture, can government authorities, the ruling and opposition parties, and the general public really remain unconscious and unresponsive?
Over the past decade, global trade and economic relations have shifted in the direction of bilateral agreements. The trend is unlikely to change. Nearly 300 FTAs have been signed the world over. South Korea has seen the farthest and made the most elaborate plans. South Korea has signed FTAs with the United States and the European Union. India has followed suit. It is negotiating FTAs with Mainland China and Japan, the world's second and third largest economies, If these are signed, Mainland China's FTAs with Japan and South Korea will account for over 12 trillion dollars in GDP. They will account for almost a fifth of the world's wealth. South Korea's global FTA master plan will be complete.
Nations that sign FTAs demand that both sides open their markets to each other, usually in three to five years. They demand that tariffs on over 95% of the products they export be reduced to zero. They demand the removal of import barriers. Once tariffs are reduced to zero, bilateral trade invariably increases. For state-owned enterprises, the zero-tariff rate makes these nations more competitive than nations which levy tariffs. The other side is forced to open its markets, but so is ours. Some domestic industries may be "hurt." But the nation's overall efficiency is invariably increased. This is why 300 FTAs have been signed in a single decade the world over. This is why South Korea has systematic plans to sign FTAs with every one of the world's major economies. It knows that FTAs upgrade its economy and increase its growth.
Now take Taiwan. Taiwan investments on the Mainland have enabled Taiwan companies to benefit from export-driven investments. They have enabled them to enjoy a huge trade surplus on the Mainland for some time. Taiwan companies on Mainland China have also enjoyed an edge on the competition due to language and culture. The Mainland is gradually transitioning from world factory to world market. Each year it imports 1.7 trillion US. This is close to the United States' 1.9 trillion US. This market of course is what financial gurus have their eyes on.
The Mainland and ASEAN are about to sign the ASEAN-plus-one East Asia Free Trade Area. Concerns about Taiwan being marginalized encouraged Taipei and Beijing to sign ECFA. This gave Taiwan time to catch its breath. But ECFA is a slapdash, half-baked FTA. Follow-up work expanding its scope remains. Meanwhile, South Korea has signed FTAs with three other economies. Suppose Seoul signs an FTA with Beijing? Suppose Taipei fails to complete follow-up work expanding the scope of ECFA with Beijing as soon as possible? ECFA will be totally neutralized. Taiwan will find it nearly impossible to compete with South Korea, either globally or on the Mainland.
Taiwan must break out. It must complete follow-up negotiations expanding the scope of ECFA, as soon as possible. This will help Taiwan businesses to seize the market. FTA negotiations with other countries should be accelerated. The business community has undergone both growth and decline while competing with South Korea in the global marketplace. The government's negotiations with foreign nations may proceed smoothly. This may provide businesses with better and more competitive market conditions. But in the end, success or failure will be determined by the businesses themselves. Mainland China, Japan, and South Korea are negotiating an FTA, Taiwan's economic and trade prospects remain unclear. Everyone in the government and the private sector, must mobilize to defuse the crisis.