South Korean FTAs Take Effect, Taiwan Exports Threatened
China Times editorial (Taipei, Taiwan, Republic of China)
October 28, 2013
Summary: The Free Trade Island policy is a step in the right direction. What's
missing is execution and implementation. Taiwan's exports have set off
alarms. The government must move quickly. it must respond to short-term
economic risks. It must carefully plan and implement mid and long term
strategy. It must make hay while the sun shines. Only then can it revive
Full text below:
Taiwan's exports in September were unexpectedly weak. They spelled an end to four consecutive months of positive growth. The annual growth rate declined 7%. The total amount in dollars decreased by 1.5% since August. Aggregate exports from January to September amounted to $ 226.64 billion. This spelled an increase of only 1.3% over last year. The lack of export momentum is worrisome. Imports in September increased 8.8% over August. But decreased 0.7% over the year. Cumulative January to September imports decreased by 0.9%. Overall, the foreign trade situation looks bad.
Consider the status of exports to different regions. Exports to Europe have accelerated significantly. Exports to the United States and Japan have remained steady. Mainland China and the ASEAN region account for nearly 60% of our exports. What is worrisome is that 3rd quarter growth is now negative. The future remains uncertain.
Consider the third quarter as it affects the global economy. The United States, Europe, Japan, and Mainland China are the largest economies. Their manufacturing PMI has remained at 50 or more for three straight months. This means the economy is still growing. Theoretically Taiwan's export numbers should be improving. Yet the latest statistical data is unsatisfactory. September exports fell unexpectedly. This cannot be explained away as a short-term fluctuation. This may be due to long-term structural changes. If exports to the Chinese Mainland and the ASEAN region continue to underperform this month, it will be a major warning sign for Taiwan's economy.
Taiwan's exports and the international economic situation have diverged. This is something seldom seen in the past. Eurozone GDP growth rate in the second quarter ended a seven quarter long recession, the longest in postwar history. Growth resumed. It was the fastest since the first quarter of 2011. This was apparent in the increase in imports to Taiwan. The U.S. economy is back on track. Japan's Abenomics is beginning to take effect. The two economies are generally stable. Taiwan's exports to these two countries has remained steady. What is worrisome is Asian-Pacific region emerging markets. Mainland reforms are in full swing. Long-term economic uncertainties have been intensified. Sooner or later, the US must cease QE. When it does, Asian-Pacific emerging market funds will withdraw. This will impact the economic outlook for the Chinese Mainland and East Asian markets, exchange rates, and stock markets. These factors will all affect demand.
In short, concerns about the tapering off of QE, Mainland Region reforms, and the excessive concentration of export structures, may explain Taiwan's poor foreign trade numbers. But the question remains. How should Taiwan deal with them?
First, we must understand the changes in the global economic situation. Currently there are three major concerns. One. The Fed has yet to announce when and how it will end quantitative easing. Uncertainty remains. Past talk of QE unsettled the East Asian economy. Subsequent market reactions have moderated. But the damage done to the real economy remains unknown. Two. The U.S. government shut down in October for 16 days. U.S. GDP growth is expected to decrease 0.4% to 0.5%. Worse, the fiscal cliff has merely been postponed, not resolved. US economic risk remains. Three. The Chinese Mainland is undergoing reform. Economic growth has been downgraded from "high speed" to "medium speed." The economic structure has been changed from "factory" to "market." Dividends from reforms continue coming. But the attendant risk has increased. This will accelerate cross-Strait economic and trade coopetition.
In addition to short-term economic risks, Taiwan faces mid and long-term challenges. Taiwan requires other strategies. Put plainly, it requires FTAs and regional integration. Taiwan's main competitor is South Korea. It has been the most aggressive signer of FTAs. In recent years, its FTAs have begun to pay off. In July 2011 the Europe-Korean FTA took effect. In March 2012 the US-Korean FTA took effect. The Chinese Mainland-Korean FTA is expected to take effect in early 2014. The numbers tell the story. Take March 2012 to February 2013, and the US-Korea FTA trade situation. Taiwan's exports to the United States during this period to fell by a total of $1.9 billion, by 4.65%. South Korean exports to the U.S. grew by 3.87%. The US-Korean FTA changed the competitiveness of Taiwan and Korean products in the U.S. market. This happened after only one year. The gap in the growth rate will obviously widen. How can Taiwan companies not be concerned?
The government is aware of the increasingly harsh economic environment. In recent years, it has made efforts to promote ECFA, the Taiwan New Zealand Free Trade Agreement, GATS, and the soon to be signed Taiwan Singapore Economic Partnership Agreement. It has attempted to increase the international competitiveness of our companies. It has attempted to create more favorable conditions for them. It has sought to join the TPP, RCEP and other forms of regional cooperation, to seek equal economic status, to help Taiwan businesses break into international markets, and to expand their economic territory.
It has helped Taiwan businesses expand outward. It must also take advantage of Taiwan's geographical location and industrial structure. It must transform Taiwan into an Asian-Pacific international financial center, operating center, and capital-raising center. Its foreign policy must be to actively negotiate FTAs, while seeking to join the TPP, RCEP and other forms of regional cooperation. Its domestic policy must be to change its domestic environment. People flow, cash flow, business flow, and product flows must be liberalized. Market opening must be accelerated. This will attract a foreign presence, and create an international free trade environment. These two strategies complement each other. Implementation of a Free Trade Island is also the best strategy to revive Taiwan's stifled economy.
The Free Trade Island policy is a step in the right direction. What's missing is execution and implementation. Taiwan's exports have set off alarms. The government must move quickly. it must respond to short-term economic risks. It must carefully plan and implement mid and long term strategy. It must make hay while the sun shines. Only then can it revive Taiwan's economy.