By Dr. Mignonne Man-jung Chan
As Republic of China (Taiwan) celebrates two decades of participation in APEC, now is a good opportunity to identify the current state of play in the regional schemes of economic integration, look at the Economic Cooperation Framework Agreement (ECFA) with Beijing, and assess the role Taiwan plays in the construction of a future Free Trade Area of the Asia Pacific (FTAAP).
Regional Integration Schemes
In the Asia Pacific region, there are basically two parallel approaches to economic integration. One track stems from ASEAN (Association of Southeast Asian Nations)-centered schemes that were reborn in the aftermath of the Asian Financial Crisis of 1997–1998 and include the AFTA (ASEAN Free Trade Agreement), ASEAN + 3 (ASEAN plus mainland China, Japan and South Korea), ASEAN + 6 (ASEAN + 3 + Australia, New Zealand and India), and the East Asia Summit (also known as ASEAN + 6 + the United States and Russia or ASEAN + 8).
Another track is the trans-Pacific based, high-quality inclined TPP (Trans-Pacific Partnership). So far, the Pacific 9 members include the original Pacific 4 (Brunei, Chile, New Zealand and Singapore) plus Australia, the United States, Peru, Vietnam and Malaysia. TPP members say the grouping will eventually expand to APEC members, and aim to deliver substantive outcome by the time of the APEC Economic Leaders’ Meeting in Honolulu this year.
APEC leaders declared in 2010 that: “We will take concrete steps toward realization of a Free Trade Area of the Asia Pacific (FTAAP), which is a major instrument to further APEC’s regional economic integration agenda. An FTAAP should be pursued as a comprehensive free trade agreement by developing and building on ongoing regional undertakings, such as ASEAN + 3, ASEAN + 6 and the Trans-Pacific Partnership, among others.”
Institutionalizing Cross-Strait Economic Relations
On the domestic front, Taiwan has endeavored to institutionalize cross-strait economic relations in order to provide a needed boost to economic competitiveness in the aftermath of the global financial crisis triggered by the US subprime mortgage crisis. The economic meltdown particularly affected Taiwan companies, which are present at nearly every stage of the technology supply chain. As a result, Taiwan’s economy shrank by 8.56 percent at the beginning of 2009. Coupled with the fact that the ASEAN + mainland China FTA was to take effect in 2010, there was a strong sense of alarm in Taiwan regarding the potential negative impact on local industries. Lest more local firms relocate into ASEAN territories, the government signed ECFA on June 29, 2010, and the pact became effective on September 12 that year. Over a period of two years, mainland China will reduce and eventually eliminate import tariffs on items worth an estimated US$13.84 billion annually, while Taiwan will do so on goods estimated at some US$2.68 billion a year. Early harvest provisions, which came into effect at the beginning of January this year, will see Beijing remove tariffs on more than 500 products from Taiwan.
While businesspeople from Taiwan have long invested in mainland China, mainland Chinese investment was forbidden in Taiwan until the first-round of opening in 2009. Policies have been revised in the past three years to attract foreign investment. Highlights include the accession to the World Trade Organization’s Government Procurement Agreement as well as visits around the globe by ranking government officials to attract foreign investment. Direct cross-strait flights, the lifting of restrictions on mainland Chinese tourists, tax reform, mainland Chinese investment liberalization, and the signing of ECFA are all efforts to improve foreign direct investment in Taiwan.
ECFA will also speed up the pace of the two-way flow of goods, capital and tourists across the Taiwan Strait, and enhance Taiwan’s contributions to mainland Chinese exports, such as for those in the information technology industry. Furthermore, mainland China’s goodwill gestures in ECFA’s early harvest agreement, as a starter, imply Beijing’s willingness to forsake contentious issues and address Taiwan’s key concerns to the benefit of both sides.
Catalyst, Not a Cure-All
ECFA has also served as a catalyst to regional integration and a model for conflict resolution. In its post-ECFA evaluation, the Korea Institute for International Economic Policy, a South Korean think tank, has advised Seoul to negotiate quickly with Beijing on an FTA. ECFA is likely to bring more opportunities for Taiwan to be linked with regional integration schemes, including an economic partnership agreement between Taiwan and Singapore and a possible revitalization of Washington-Taipei Trade and Investment Framework Agreement talks. Japan recently completed a bilateral investment pact with Taiwan.
In addition to 14 agreements previously signed with Beijing, ECFA helps normalize cross-strait trade and investment relations. Nevertheless, while the pact can also be seen as a means for Taiwan to integrate with economies in the region, it is not a cure-all. The dynamics of local economic development will hinge upon a number of key issues such as effective industrial restructuring, product differentiation for local businesses, the ability to forge corporate strategic alliances in the global marketplace and the skill of local people to adapt to innovative forms of employment. Also important will be Taiwan’s ability to sign FTAs with other key partners and whether or not Taiwan could continue to divert risks in terms of national security, for instance, investment oversight in vital industries.
With ECFA in place, however, exports from Taiwan to mainland China will likely compete well with those from ASEAN members, although this does not have to be a zero-sum game. ECFA’s early harvest list might well serve as a springboard for regional economies to join forces with Taiwan in competitive industries and venture into the mainland Chinese market. Further cross-fertilization of ECFA and ASEAN + mainland China FTAs might well weave into a broader building block for regional integration. For sure, it could be a win-win-win situation for all.
As Asia remains the engine of growth on the global platform, Beijing’s 12th Five-Year Plan to 2015 highlights mainland China’s attempts to ease double-digit growth, open more domestic markets and enhance the service industry. Taiwan’s Golden Decade blueprint through 2020 has a number of overlapping interests and both sides seem ready to improve economic cooperation and seek common development and prosperity. Taiwan has identified six emerging industries in biotechnology, tourism, green energy, medicine and health care, high-end agriculture and the cultural and creative industry. Furthermore, four intelligent industries are being promoted, namely, cloud computing, smart electronic vehicles, patent commercialization and intelligent, green buildings.>/p>
Taiwan cherishes its APEC membership and the opportunity to learn from other member economies. In addition, Taiwan has initiated several projects, including APEC Digital Opportunity Centers, One Village One Product, Paperless Trade, Women Entrepreneurship, the SME Risk Management Center, the APEC Research Center for Typhoon and Society and the APEC Food Response Mechanism, an emergency food reserve.
In 2010, Taiwan’s bilateral trade with the other 20 APEC members exceeded US$400 billion, constituting 76 percent of its total trade. Taiwan ranks 20th for purchasing power parity with gross domestic product per capita of US$35,000. Taiwan is prepared to join in good faith any building block with like-minded partners toward a future Free Trade Area of the Asia Pacific and regional economic integration.
Dr. Mignonne Man-jung Chan is the executive director of the Chinese Taipei APEC Study Center, Taiwan Institute of Economic Research.
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