taiwan’s participation in regional economic integration an

Taiwan’s Participation in Regional Economic Integration － An Assessment, and the Outlook for the Future 11

Taiwan’s Participation in RegionalEconomic Integration－ An Assess-ment, and the Outlook for the Future

Da-nien Liu

Director, Regional Development Study Center,Chung-Hua Institution for Economic Research

Abstract

The main aim of this paper is to examine the prospects for

Taiwan’s participation in regional economic integration. The paper

begins by presenting an overview of regional economic integration

in different regions around the world. There is a clear trend towards

the emergence of three major regional blocs. If Taiwan is unable to

achieve a breakthrough in terms of securing greater participation in

regional economic integration, its economic competitiveness will be

steadily eroded. To escape from this situation, Taiwan will need to

focus on negotiating free trade agreements (FTAs) that are based on

mutual benefit, and it must be prepared to implement market opening.

As regards the strategy for negotiating FTAs, it will be necessary for

Taiwan to draw up a comprehensive strategy for its participation in

regional economic integration, and to identify those industries that

are likely to be negatively impacted by an FTA so that the government

can communicate with firms in these industries in advance and formu-

late response strategies to minimize the negative impact. Taiwan also

needs to complete the Economic Cooperation Framework Agreement

(ECFA) negotiations with China as rapidly as possible, to prevent

12 Prospect Journal No.11

the benefits from ECFA from being diluted, and must plan out a

strategy in advance for dealing with the mutual impact of ECFA and

the proposed FTAs between South Korea and China and between

Japan, South Korea and China. In industry, the emphasis needs to be

placed on expanding production, and on negotiating FTAs with

Taiwan’s main export markets. A secondary focus should be placed

on job creation, working to negotiate FTAs with Taiwan’s main

trading partners for trade in services. At the same time, it must be

recognized that FTAs are not a “magic bullet” for enhancing export

competitiveness; ongoing industrial development still depends on the

fundamentals.

Keywords: Regional Economic Integration, Free Trade Agreement,

ECFA, TPP, RCEP

I. Global Trends in Regional Economic Integration

The World Trade Organization (WTO) Doha Round trade talks

have sought to bring about a level of trade liberalization (in terms of

both depth and breadth) that would be the greatest ever achieved since

the WTO’s predecessor, the General Agreement on Tariff and Trade

(GATT), was first initiated. Unfortunately, the sheer scale of the Doha

Round’s ambitions has prevented any significant progress from being

made. With trade liberalization at the global level having stalled, there

has been a worldwide upsurge in efforts to achieve regional economic

integration. According to statistics from the WTO’s Regional Trade

Agreements database, since 1995 the number of regional trade agree-

ments has grown from 34 to 245, an increase of 211 agreements.

There is thus a clear global trend towards participation in regional

economic integration.1

Jong-Wha Lee, Innwon Park & Kwanho Shin, “Proliferating Regional Trade


Three major regional trading blocs are gradually taking shape,

in Europe, the Americas, and Asia. Although the process of regional

integration began at a relatively late date in Asia, recently this process

has been speeding up. In Europe, the European Union (EU) is the

main focus of regional trade growth, while in the Americas the U.S.

continues to play a leading role in this respect. In Asia, the main

promoters of regional economic integration have been China, Japan,

South Korea, and the Association of Southeast Asian Nations (ASEAN).

The current state of regional integration in each of these three main

regions is discussed separately below.

1. The European Union (EU)

In the past, the EU tended to focus mainly on promoting mul-

tilateral trade liberalization within the WTO framework, and did not

work actively to promote regional economic integration (its attention

was largely taken up with the process of EU expansion). While the

EU did sign a number of bilateral trade agreements, most of these

were signed with neighboring countries, with the aim of helping these

countries to achieve faster economic growth, and of promoting political

and economic stability within the region. In recent years, however,

with the stalling of the WTO Doha Round, the dramatic growth in

the number of regional trade agreements being signed around the

world has created a situation where the EU finds itself being “squeezed

Arrangements: Why and Whither?” The World Economy, Vol. 31, No. 12, De-

cember 2008, pp. 1525-1557; John Whalley, “Recent Regional Agreements:

Why So Many, Why So Much Variance in Form, Why Coming So Fast, and

Where Are They Headed?” The World Economy, Vol. 31, No. 4, April 2008,

pp. 517-532; Jo-Ann Crawford & Roberto V. Fiorentino, “The Changing

Landscape of Regional Trade Agreements,” Discussion Paper, No. 8, 2005, pp.

1-33, World Trade Organization, <http://www.wto.org/english/res_e/booksp_e/

discussion_papers8_e.pdf>.


out” of international trade. Recognizing that the path towards mul-

tilateral trade liberalization is currently blocked, the EU has begun

to adjust its foreign trade strategy, and is now working actively to

develop cross-regional alliances.

The “Global Europe” strategy formulated by the EU in 2006 in-

troduced the concept of the “new-generation FTA,” emphasizing the

need to make economic factors the main consideration when choosing

potential FTA partners.2 The main criteria are market potential and

degree of protectionism; the greater the market potential, and the

higher the level of protectionism that currently exists, the more likely

the EU is to target that country as a partner for an FTA. The economic

upheavals in Europe over the past few years have also led the EU to

adopt new policies to achieve economic and fiscal strengthening, and

to make economic considerations a major motivation for negotiating

FTAs; the aim is to use the dynamism of non-European economies

to revitalize the economies of Europe. The “Europe 2020” strategy

promulgated by the EU in 2010 reiterated the importance of the “new-

generation FTA” concept, and the need to actively seek FTAs with

other countries; it emphasized the need for cross-regional alliances

and a “Go East” strategy, focusing on the development of alliances

with Asian nations such as South Korea, Singapore, Vietnam, India

and Japan. Participation in regional economic integration has thus

become a key element in the EU’s overall trade strategy.

While continuing to expand its own membership and strengthen

ties with non-EU countries in the Mediterranean region, the EU has

also signed FTAs with Chile, Mexico, South Africa, Peru, Colombia

European Commission, “Global Europe: competing in the World: A Contribution

to the EU’s Growth and Jobs Strategy,” Trade － European Commission, 2006,

<http://trade.ec.europa.eu/doclib/docs/2006/october/tradoc_130376.pdf>.


and South Korea, all of which have already come into effect, and

has completed negotiations for FTAs with a group of Central American

nations, Singapore and Canada; the negotiations for the FTAs with

Singapore and Canada were finalized in 2013. Negotiations are still

underway regarding possible FTAs between the EU and the U.S.,

Japan, Vietnam, Malaysia, India, ASEAN, the Gulf Cooperation

Council, MERCOSUR, and the Andean Community. Particular at-

tention is being paid to the progress in the negotiations for the Trans-

atlantic Trade and Investment Partnership (TTIP) between the U.S.

and the EU, and for the EU-Japan FTA; these are the agreements that

the EU will be focusing on most heavily in the near future.3

2. The U.S.

The U.S. is a long-standing advocate of multilateral trade li-be-

ralization, promoting liberalization within the WTO framework, and

in the past it showed limited enthusiasm for regional trade agreements.

However, when the GATT Uruguay Round, which was launched in

1986, began to stall, while at the same time the level of integration

within the EU continued to deepen, the U.S. began to demonstrate

more enthusiasm for regional economic integration. The U.S. approach

to trade negotiations is usually referred to as “competitive liberali-

zation,” with simultaneous promotion of liberalization through multiple

channels (bilateral, regional and multilateral), which the U.S. believes

can speed up the liberalization process and help to ensure U.S.

economic prosperity.

This competitive liberalization approach has put the U.S. in an

advantageous position when seeking to negotiate FTAs. Besides its

own economic might, the simultaneous pursuit of liberalization

To date, the EU has signed a total of 34 regional trade agreements.


through multiple channels also helps to put the U.S. in a stronger

negotiating position. As shown in Table 1, the U.S. has established

FTAs with countries in the Americas, Asia, Africa and Oceania. Al-

though negotiations for an FTA with the EU are still ongoing, the

U.S. already possesses a global network of FTAs and cross-regional

alliances. The U.S. has thus been very effective in making its regional

integration strategy work.

Table 1: U.S. Participation in Regional Economic Integration

FTAs that are alreadyin effect

Israel, NAFTA (with Mexico and Canada), Jordan, Singapore, Chile,Australia, Morocco, Bahrain, CAFTA-DR (with the Dominican Re-public and four Central American nations), Oman, Peru, SouthKorea, Colombia, and Panama

FTAs that are currentlybeing negotiated

Malaysia, Thailand, Southern African Customs Union*, United ArabEmirates, Andean Community**, Trans-Pacific Partnership (TPP)***,Transatlantic Trade & Investment Partnership (TTIP)

Source: The present study.Notes:* The five member states include South Africa, Botswana, Lesotho, Swaziland and Namibia.

** The four member states include Colombia, Peru, Ecuador and Bolivia.***The Trans-Pacific Partnership Agreement (TPP) was formed following the announcement

by the U.S. in 2008 that it would be joining the Trans-Pacific Strategic Economic Part-nership (TPSEP) grouping established on May 1, 2006 by Singapore, Brunei, NewZealand and Chile. Currently, a total of 12 nations are participating in the TPP negotiations.

Recently, the U.S. has been participating more actively in Asian

affairs. Besides announcing the “Pivot to Asia,” the U.S. has also

been lobbying Asian nations to join the U.S.-led Trans-Pacific Part-

nership (TPP). The U.S. views the TPP as a path towards Asian

regional economic integration which will also provide diplomatic

and strategic benefits for the U.S. within the Asia Pacific region.

Currently, the TPP and the TTIP agreement with the EU are the main

focus of U.S. efforts in the regional economic integration sphere, and

since considerable progress has already been made in the TPP nego-

tiations, this is being prioritized over the TTIP. Currently, the TPP

has 12 member nations4, and it is anticipated that the negotiations


will be completed by 2014. The first round of talks regarding the

TTIP was held in July 2013; four rounds of talks have been held so

far, and the negotiations are due to be concluded in 2014.

3. Asia

Given the rapid pace of progress in regional economic integration

within the Asia region over the past few years, in the following

sections an overview of the overall state of regional economic inte-

gration within the region as a whole is followed by more detailed

examination of the situation in relation to key regional economies:

China, Japan, South Korea, and ASEAN.

A. Regional Overview

In the past, countries within the Asia region showed little en-

thusiasm for regional economic integration; the ASEAN Free Trade

Area (AFTA) is the only regional grouping that has been in existence

for some time. However, over the past few years more countries have

begun to seek participation in regional integration, and significant

progress has been made. As shown in Table 2, a total of 136 regional

trade agreements have already come into effect in the Asia region;

another 23 have been signed but not yet come into effect; 90 are still

at the negotiation stage, and 67 are under preliminary evaluation;

this gives a combined total of 315 agreements or potential agreements.

Of those FTAs that have already come into effect, Singapore has

signed the most, at 20 agreements, followed by Japan and India.

Thailand, China, South Korea and Malaysia have also all signed 10

or more such agreements.

These include New Zealand, Chile, Singapore, Brunei, the U.S., Australia,

Peru, Vietnam, Malaysia, Mexico, Canada and Japan.


Table 2: Regional Trade Agreements Entered into by MajorAsia Pacific Economies (as of February 2014)

NationsFTAs Already

in Effect

FTAs Signedbut Not Yet in

Effect

FTAs atNegotiation

Stage

FTAs at Pre-liminary

EvaluationStage

Total

India 13 4 13 9 39

Singapore 20 1 7 4 32

South Korea 10 3 9 10 32

China 10 2 8 5 25

Malaysia 12 2 8 6 28

Japan 13 0 9 4 26

Thailand 11 4 5 7 27

Indonesia 7 2 7 6 22

Vietnam 8 1 6 4 19

Philippines 7 0 2 6 15

Taiwan 4 2 1 0 7

Hong Kong 3 1 1 0 5

Australia 9 1 8 2 20

New Zealand 9 0 5 4 18

Total 136 23 90 67 315

Source: The present study.Note: The data presented in this table is taken mainly from the individual countries’ FTA-

related websites. As a result, there is some degree of duplication; for example the FTAbetween Singapore and Japan, which has already come into effect, is included in thetotals for both Singapore and Japan, whereas the FTA between Singapore and the U.S.is included only in the Singapore total.

B. Participation of Major Asia Region Economies in RegionalEconomic Integration

(a). China

In the past few years, China has demonstrated unprecedented

enthusiasm for pursuing greater participation in international trade

affairs.5 Following the signing of the CEPA agreement with Hong

Kong in 2003, in 2004 China signed trade in goods, trade in services


and investment agreements with ASEAN; since then, China has grad-

ually negotiated FTAs with a considerable number of other countries,

and has been participating actively in regional economic integration.

As can be seen from Table 3, China has signed FTAs with countries

all over the world. The FTA that China signed with Iceland in 2013

was particularly significant, as this was China’s first FTA with a

European nation. It demonstrated that China is already in a position

to successfully negotiate FTAs with advanced economies.

Table 3: China’s Involvement in Regional Economic Integration


Asia Pacific Trade Agreement (APTA)*, Hong Kong, Macao, ASEAN,Chile, Pakistan, New Zealand, Singapore, Peru, Costa Rica

FTAs that have beensigned but not yet comeinto effect

Iceland, Switzerland

Source: The present study.Note:* The signatories of the Asia Pacific Trade Agreement (APTA) include Bangladesh, China,

India, South Korea and Sri Lanka.

China is currently focusing its attention on negotiating an FTA

with South Korea, an FTA with Japan and South Korea, and the Re-

gional Comprehensive Economic Partnership (RCEP).6 However, be-

cause of historical and political reasons, China remains suspicious

of Japan, and has therefore been devoting most of its attention to ne-

gotiating the FTA with South Korea, and in the RCEP. Currently,

formal negotiations have already begun regarding the China-South

Korea FTA, and it is anticipated that negotiations may be completed

by 2014. With regard to the RCEP, four rounds of talks have already

Agata Antkiewicz & John Whalley, “China’s New Regional Trade Agreements,”

The World Economy, Vol. 28, No. 10, October 2005, pp. 1539-1557.

The 16 member states of the RCEP include ASEAN 10 countries, China, Japan,

South Korea, Australia, New Zealand and India.


been completed. It is hoped that negotiations may be completed by

2015.

One point worth noting is that, whereas in the past China viewed

the U.S.-led TPP initiative as a competitive threat aimed at shoring

up U.S. influence in the Asia region (a view which led China to

launch the RCEP as a counterweight), following the news that Japan

would be seeking membership of the TPP, and the announcement

that the TPP would be instituting new trade rules, China’s attitude

towards the TPP has changed, and the Chinese government has an-

nounced that it is now studying the possibility of seeking TPP mem-

bership in the future.

(b). Japan

In its statements regarding the new policy measures being im-

plemented to revitalize the Japanese economy, the Japanese government

has announced that, in the future, it will be focusing on helping

Japanese companies to develop overseas markets, reinvigorating do-

mestic industry, and fostering the creation of new markets. At the

same time, Japan will be working actively to build a network of FTAs

with other countries. The target is for trade conducted within the TPP

framework and under the terms of the FTAs being negotiated between

Japan and the EU and between Japan, China and South Korea to

account for 70% of Japan’s total foreign trade by 2018. Japan is fully

aware that historical and political factors will ensure that progress

in the negotiation of the FTA with China and South Korea will be

slow, and will also affect negotiations in relation to the RCEP. Japan

is therefore prioritizing the TPP and the proposed FTA between Japan

and the EU, with the Japan-China-South Korea FTA and the RCEP

being put on the backburner for the time being. Japan’s participation

in regional economic integration is summarized in Table 4 below.


Table 4: Japan’s Involvement in Regional Economic Integration


Singapore, Mexico, Malaysia, the Philippines, Chile, Thailand,Brunei, Indonesia, ASEAN, Vietnam, Switzerland, India, Peru

Source: The present study.

(c). South Korea

Following the inauguration of Park Geun-hye as President of

South Korea, in June 2013 South Korea’s Ministry of Trade, Industry

and Energy announced a new foreign trade roadmap which would

involve a transformation in South Korea’s approach to negotiating

FTAs, with a shift towards emphasizing the benefits that FTAs can

provide in terms of strengthening South Korean industry and building

linkages between different sectors. The Ministry also announced that

the share of South Korea’s total foreign trade that takes place within

the framework of FTAs will rise from 35% in 2013 to 85% in 2023.

South Korea’s participation in regional economic integration is

summarized in Table 5. While South Korea has not yet become

involved in the TPP trade talks, it is already negotiating to sign an

FTA with China and another FTA with China and Japan, and to

become a member of the RCEP. FTAs signed between South Korea

and the U.S., the EU and ASEAN have already come into effect, and

South Korea already has FTAs with most of the major economies

within the TPP (Japan and Mexico are the only two major TPP

member economies with whom FTA negotiations have stalled). South

Korea has thus tended to take the view that joining the TPP would

not offer significant benefits for South Korea, and securing membership

of the TPP has not been a key priority for the country.

However, following the formal announcement that Japan would


be participating in the 18th round of TPP negotiations, and China’s

announcement that it has begun to study the possibility of applying

for TPP membership, the changing international trade environment

has caused South Korea to rethink its stance towards the TPP. South

Korea has stated that it will be keeping a close eye on how the TPP

negotiations progress, and that it has begun exploratory, one-on-one

discussions with TPP member states. It can therefore be assumed

that it will only be a matter of time before South Korea joins the

TPP. Nevertheless, as South Korea has not yet made any formal an-

nouncement about seeking TPP membership, for the time being it is

likely to give priority to negotiating the FTA with China, followed

by the Japan-China-South Korea FTA, the RCEP, and FTAs with in-

dividual ASEAN member states including Indonesia, Vietnam and

Malaysia.

Table 5: South Korea’s Involvement in Regional EconomicIntegration


Asia Pacific Trade Agreement (APTA), Chile, Singapore, EuropeanFree Trade Association (EFTA)*, ASEAN, India, EU, Peru, U.S.,Turkey

FTAs that have beensigned but not yet comeinto effect

Colombia, Australia, Canada

Source: The present study.Note: The four member states of the European Free Trade Association (EFTA) include Switzerland,

Iceland, Norway and Liechtenstein.

(d). ASEAN

While continuing to intensify the level of integration within AS-

EAN, ASEAN has also been working actively to strengthen linkages

with other economies. Besides the many FTAs that ASEAN has

signed with individual countries, there has also been a major focus


on positioning ASEAN as the hub of larger groupings, with the aim

of making the “ASEAN + X” arrangement the mainstream model for

regional economic integration in East and Southeast Asia. ASEAN’s

FTAs with China, South Korea, Japan, New Zealand and India have

already come into effect; negotiations for an FTA with the EU have

been put on hold for the time being. The RCEP negotiations, which

involve the 10 ASEAN member states plus six other economies

(China, Japan, South Korea, New Zealand, Australia and India) are

scheduled for completion in 2015.

According to the “Guiding Principles and Objectives for Ne-

gotiating the RCEP” promulgated by ASEAN, the RCEP will provide

for differing commitment levels to reflect disparities in economic

performance between member economies. Would-be members will

have the option of undertaking membership talks in a sequential

manner, through a single undertaking, or in some other form. Once

the negotiations between the initial 16 nations have been concluded,

an announcement will be made as to the terms under which other

economies can join. So far, four rounds of RCEP negotiations have

been held; the final round is scheduled for completion in 2015.

To summarize, the worldwide trend towards regional economic

integration continues to grow stronger. The process of regional econo-

mic integration has been most rapid in Asia, with most of the parti-

cipants being Asian economies (rather than economies located outside

the region). The trade agreements signed in the Asia region have em-

phasized market opening, industrial collaboration and trade facilitation,

supported by strict rules of origin, with the aim of strengthening the

regional division of labor between signatory economies and promoting

the integration of the regional supply chain.7 At the same time, there

Saori N. Katada & Mireya Solis, eds., Cross Regional Trade Agreements:


is a trend towards a gradual expansion of the scale of integration,

with the formation of nascent trade blocks.

II. The History of Taiwan’s Efforts to Negotiate FTAs

Prior to securing membership of the WTO (under the name

“Chinese Taipei”), Taiwan did not make a proactive effort to negotiate

FTAs with other countries, partly because of concerns that this would

delay the securing of accession to the WTO, and partly because such

efforts would inevitably be obstructed by China. Taiwan’s key goal

during this period was to secure WTO membership as rapidly as

possible. It had originally been assumed that, following accession to

the WTO in 2002, Taiwan would be able to leverage its status as a

WTO member to develop overseas markets. However, the lack of

progress in the WTO Doha Round which began in 2002 meant that,

in the event, Taiwan was unable to make effective use of the WTO

platform in this way. At the same time, with multilateral trade libe-

ralization having stalled, countries throughout the world began to

abandon the multilateral approach and focus on bilateral trade agree-

ment and regional economic integration; the negotiating of FTAs

thus emerged as a key element in countries’ foreign trade policy.

With trade negotiations under the WTO framework having

reached an impasse, and with the number of FTAs growing rapidly,

Taiwan found itself in an increasingly disadvantageous position within

the global trade environment. Although Taiwan worked actively to

negotiate FTAs in an effort to avoid becoming marginalized, these

efforts were hampered by opposition from China. Over the period

2003-2008, the only FTAs that Taiwan succeeded in establishing

were with Central American countries that had formal diplomatic re-

Understanding Permeated Regionalism in East Asia (Berlin: Springer, 2008).


lations with Taiwan (Panama, Guatemala, Nicaragua, El Salvador

and Honduras). These FTAs were mainly intended to serve diplomatic

ends; they did not create any significant economic benefits for Taiwan.

It was only after the thawing in “cross-strait” relations between

Taiwan and China in 2008, and the commencement of negotiations

for the signing of the Economic Cooperation Framework Agreement

(ECFA) with China in 2009, that the obstacles to Taiwan’s negotiating

of FTAs with other countries grew less pronounced.8

In 2013, Taiwan secured some major breakthroughs in its efforts

to secure greater participation in regional economic integration. On

July 10, 2013, the Agreement between New Zealand and the Separate

Customs Territory of Taiwan, Penghu, Kinmen, and Matsu on Economic

Cooperation (ANZTEC) was signed, followed on November 7, 2013

by the signing of the Agreement between Singapore and the Separate

Customs Territory of Taiwan, Penghu, Kinmen, and Matsu on Economic

Partnership (ASTEP). The signing of these FTAs with New Zealand

and Singapore represented a major step forward in terms of Taiwan’s

ability to successfully negotiate FTAs with countries other than those

with which it has formal diplomatic relations. However, given the

rapid pace of regional economic integration, Taiwan still has a long

way to go to catch up.

At a time when regional economic integration is progressing by

leaps and bounds throughout the world, Taiwan is still mired in the

controversy over the approval of the ECFA services trade agreement.

If Taiwan cannot achieve a significant breakthrough in its participation

in regional economic integration, its competitive advantage will be

Cyrus C. Y. Chu, ed.,《ECFA：開創兩岸互利雙贏新局面》(Taipei: Prospect

Foundation, 2009); Tain-jy Chen, ed.,《不能沒有 ECFA：東亞區域經濟整合

對臺灣的挑戰》(Taipei: Prospect Foundation, 2010).


steadily eroded. Of the various regional economic integration agree-

ments, the ones that should be of most concern to Taiwan are the

TPP, the RCEP, the China-South Korea FTA, the China-Japan-South

Korea FTA, and the TTIP.

With the addition of Japan, the TPP now has 12 members or po-

tential members, making it the world’s largest FTA. Given the vigorous

direction provided by the U.S., it is anticipated that the TPP trade

negotiations may be completed in 2014. The TPP has created a kind

of domino effect, speeding up the progress made in the negotiation

of other FTAs. In particular, the negotiations under the framework

of the RCEP (which grew out of the “ASEAN Plus Six” concept,

and now has 16 member states), have been accelerated, and are sche-

duled for completion in 2015. What is even more worrying for Taiwan

is that the potential membership of the TPP continues to expand;

Thailand, the Philippines and South Korea are already considering

seeking membership, and even China, which had previously been

hostile to the TPP, has begun to evaluate the advisability of joining.

All of this will lead to increased pressure on Taiwan.

In the negotiations for the China-South Korea FTA, a total of

ten rounds of talks have been completed, and the two sides have

reached consensus on many issues; there is a strong possibility that

this FTA will be finalized in 2014. If, at that time, the ECFA agreement

on trade in goods has not been signed, then the competitiveness of

Taiwanese exports in the China market will be eroded. Negotiations

are also continuing between China, South Korea and Japan for the

signing of a three-way FTA. So far, four rounds of talks have been

held; preliminary proposals regarding tariff reductions have been ex-

changed, and discussions have been held regarding the scope of the

negotiations and the guiding principles on which they will be based.

The negotiations for the TTIP agreement between the U.S. and the


EU have also already completed four rounds of talks; the basic frame-

work for the negotiations has been put in place, and the goal has

been set of completing the negotiations by 2014.

The five FTAs referred to above involve a total of 48 countries,

which between them account for 92% of Taiwan’s exports. If these

five FTAs come into effect, Taiwan will find itself facing severe com-

petitive pressure. Given the emphasis in recent FTAs on market open-

ing, industrial collaboration and trade facilitation, with strict rules

of origin and efforts to strengthen the intra-regional division of labor

and supply chain integration, it can be anticipated that, not only will

these FTAs tend to “squeeze out” Taiwan from participation in intra-

regional trade, they will also have a negative impact on Taiwan’s

role within the global division of labor.

III. Taiwan’s Strategy for Negotiating FTAs

Currently, there is still considerable disagreement between the

government and the opposition in Taiwan regarding the value of the

ECFA agreement signed between Taiwan and China. However, there

is broad consensus regarding the need for Taiwan to seek to negotiate

FTAs with other countries so as to be able to develop overseas markets

more effectively. The question is, how should Taiwan go about this?

What approach should it take? Several aspects of these questions are

considered below.

1. Overall Approach: Emphasizing Mutual Benefit

Firstly, when Taiwan is considering which countries to seek

FTAs with, it should not think only in terms of what benefits the

FTA would create for Taiwan; it should also consider the FTA from

the perspective of the other country, and think about the positive

effects that the FTA could have for that country. Economic benefits


are always the main incentive for negotiating a bilateral FTA, and

any country that opens up its domestic market pursuant to the terms

of an FTA may experience some degree of negative impact. It needs

to be made clear to the people of both countries the benefits market

opening will bring.

One of the biggest obstacles to the successful negotiation of

FTAs by Taiwan in the past has been the tendency for Taiwan to

think solely in terms of Taiwan’s own interests, and to make the

danger of Taiwan becoming economically marginalized the main jus-

tification for seeking an FTA; this kind of approach is not particularly

persuasive. For example, past efforts to explore the possibility of ne-

gotiating an FTA between Taiwan and the U.S. have failed to give

due weight to the fact that, when negotiating FTAs, the U.S. is bound

to prioritize its own interests above all, seeking to use FTAs to further

its own economic and other goals; the U.S. cannot be expected to be

particularly interested in the negative effects that not signing an FTA

would have on Taiwan. The reality of the situation is that, if Taiwan

continues to adopt a protectionist stance towards its agricultural

sector, to be cautious about opening up the manufacturing sector,

and to seek to avoid opening up the service sector, then neither the

U.S. nor any other country will have much incentive to want to

negotiate an FTA with Taiwan.

Examination of the current level of liberalization in Taiwan’s

primary, secondary and tertiary sectors shows that tariffs on industrial

products are already very low (averaging around 4%). This means

that, when negotiating an FTA with another country, even if Taiwan

offered to reduce all of its tariffs on industrial products, this would

have offer little practical benefit to the other country. However, there

are some product items where tariffs are still relatively high － such

as cars and processed foods － with respect to which Taiwan would


come under heavy pressure to make tariff cuts.

In the future, the main incentive for other countries to negotiate

an FTA with Taiwan would be to secure easier access to Taiwan’s

agricultural products markets and its service sector. Currently, all of

the countries with which Taiwan is seeking to negotiate FTAs － in-

cluding both developing nations such as the ASEAN member states

and advanced nations such as the U.S., the EU and Australia － are

major agricultural exporter nations. This means that Taiwan needs

to be prepared to allow a greater degree of market opening in its agri-

cultural sector.

As regards Taiwan’s service sector, while the service sector as

a whole has already been opened up to a considerable extent, there

are still segments where there are restrictions on the maximum per-

mitted foreign shareholding, or other barriers to entry. In a bilateral

FTA framework, these segments would need to be liberalized.

Besides market opening in particular sectors, future efforts by

Taiwan to negotiate FTAs (particularly FTAs with advanced economies)

would also necessitate structural reforms and liberalization with

respect to government procurement, pharmaceuticals approvals and

pricing, standard setting, environmental protection measures, and

competition policy, in order for the idea of an FTA with Taiwan to

be sufficiently appealing to the other country.

A further point is that the usual model for negotiating FTAs in-

volves first identifying all of the issues that need to be addressed,

and then using a process of negotiation to determine which items

can be excepted from liberalization. This is significantly different

from Taiwan’s experience with ECFA, where Taiwan was able to

specify in advance a list of areas that were not open to liberalization


(including agricultural products) before going on to discuss other

issues. Taiwan will need to adjust its approach in this respect.

In the past, Taiwan’s un-readiness to implement market opening

led some other countries to take the view that Taiwan was simply

trying to use FTAs as a tool for securing greater freedom of action

on the international sage, or to feel that “Taiwan is only interested

in negotiating FTAs, not in actually signing them.” If Taiwan is

serious about wanting to participate more actively in regional economic

integration, it needs to be psychologically prepared to implement

large-scale market opening.

2. Strategies for Establishing FTAs

A. Formulating an overall strategy for participation in regionaleconomic integration

In the future, with the impact of the formation of regional trade

blocs as a result of the TPP, RCEP and TTIP agreements, Taiwan’s

freedom of action in the international trade sphere will be even more

constrained than it is at present. Besides drawing up a timetable for

securing membership of the TPP, Taiwan also needs to formulate

concrete strategies and action plans in relation to joining the RCEP,

and responding to the impact of the TTIP and other major FTAs.

B. Engaging in consultation at an early stage, and formulatingresponse measures, with respect to those industries that willbe negatively impacted by FTAs

The China-South Korea FTA and the TPP agreement are likely

to be signed in 2014. It is also possible the China-Japan-South Korea

FTA and the RCEP will be signed and come into effect in 2015 (and

that the TPP will come into effect in 2015). Taiwan needs to formulate

response measures to help those industries that may be affected by


these agreements, and to keep companies in these industries informed

of the latest developments by strengthening communication with in-

dustry.

The TPP in particular will not only affect Taiwan’s exports; in

the future, the TPP can be expected to play a leading role in setting

the new “rules of the game” in international trade, particularly with

respect to certification standards, intellectual property rights, labor

rights protection, treatment of agricultural products, and other measures

that affect what goes on inside a country’s own borders. Significant

changes can be anticipated. Even if Taiwan is unable to secure mem-

bership of the TPP in the near future, the government should still be

undertaking preparatory research and analysis to ensure that Taiwan

is ready and prepared to secure membership at a later date.

C. Taiwan should complete the ECFA negotiations as soon aspossible, to prevent the benefits from ECFA from being diluted

The government should try to complete the remaining ECFA

negotiations as rapidly as possible. China is Taiwan’s largest export

market; both South Korea and Japan are major competitors for Taiwan.

If Taiwan is unable to secure first-mover advantage in the Chinese

market, the negative impact on Taiwan will be severe. ECFA needs

to be brought into full effect before the signing of the China-South

Korea FTA and the China-Japan-South Korea FTA, and the earlier

the better, otherwise much of the potential benefit from ECFA will

be lost. Not only will Taiwanese exports to China become less com-

petitive, Taiwan’s ability to attract foreign investment may also be

negatively impacted.


D. Taiwan needs to formulate response strategies in advance inrelation to the potential interaction between the China-SouthKorea FTA, the China-Japan-South Korea FTA, and ECFA

There is a high degree of overlap between the China-South Korea

FTA, the China-Japan-South Korea FTA, and ECFA. China is Taiwan’s

largest export market, while South Korea is a major competitor with

Taiwan in the petrochemical, machinery and IT sectors. If progress

in the ECFA negotiations lags behinds the China-South Korea FTA

and China-Japan-South Korea FTA, then this could have a severe

negative impact on Taiwan. Taiwan needs to formulate negotiating

strategies in advance with regard to the interaction between the China-

South Korea FTA, the China-Japan-South Korea FTA, and ECFA.

For example, with regard to those product items in which competition

between Taiwan and South Korea is particularly intense, Taiwan

should insist that China open up its markets to Taiwanese to a greater

extent than to South Korean products.

3. The Issues for Industry

A. Taiwan should be working actively to secure FTAs with itsmajor export markets, with the aim of boosting production

Viewed in terms of Taiwan’s macroeconomic growth, the signing

of FTAs with Taiwan’s major export markets － such as the EU, AS-

EAN, Japan and the U.S.－ would have the biggest positive impact

on GDP growth and in terms of boosting manufacturing output. It

would also do most to help reduce Taiwan’s over-reliance on exports

to China. Viewed strictly in terms of the macroeconomic benefits to

Taiwan, therefore, Taiwan’s first priority － after completing the

ECFA negotiations － should be to seek FTAs with the EU, ASEAN,

Japan and the U.S.; securing membership of the TPP and RCEP

should help Taiwan to achieve this goal.


B. From the perspective of job creation, Taiwan should be workingto negotiate FTAs with its main trading partners for trade inservices

As the service sector now creates far more jobs than manufac-

turing, if Taiwan wants to exploit FTAs to create new jobs within

Taiwan, then it should seek to focus on negotiating FTAs with the

countries with which it has the largest volume of trade in services,

such as the U.S., the EU, and Japan.

C. FTAs are not a “magic bullet” for boosting export competi-tiveness; Taiwan needs to get the fundamentals of industrialdevelopment right as well

Although, as in other countries, the signing of FTAs will change

the structure of Taiwan’s production, imports and exports, funda-

mentally speaking FTAs cannot be expected to have a dramatic impact

on the international competitiveness of Taiwan’s exports, that is to

say, Taiwan cannot expect that FTAs alone will make industries that

lack international competitiveness suddenly be able to compete ef-

fectively in international markets. At best, FTAs can stimulate a re-

allocation of resources that helps to enhance overall labor productivity.

The government’s goal in promoting the signing of FTAs should be

limited to helping Taiwan’s business enterprises to compete on a

level playing field with foreign companies. If Taiwan wants to enhance

the overall competitiveness of its industries and its exports, it will

need to focus on strengthening R&D, upgrading technology, developing

strong brands and the like.

4. Service Sector Development

Besides promoting the development of strong brands in the

service industries, Taiwan also needs to give more weight to promotion

of service sector development within its overall economic policy.


Service sector market opening has become a core element in FTAs.

In the past, Taiwan’s economic growth was driven largely by the

manufacturing sector development. Even though the Gross Domestic

Product (GDP) of the service sector had already surpassed that of

the manufacturing sector by the early 1980s, the promotion of de-

velopment in the service sector continued to receive less attention

from the government than development of the manufacturing sector.

By the late 1990s, Taiwan was starting to face intensifying competition

from emerging economies, and its competitive advantage in manu-

facturing was under threat; the manufacturing-focused economic de-

velopment strategy on which Taiwan had relied for so many years

was called into question. In order to keep pace with the changing

times, and with the transformation that has taken place in Taiwan’s

industrial structure, in recent years the Taiwanese government has

gradually moved away from the industrial policy it followed in the

past, which emphasized manufacturing at the expense of the services

sector, and has begun to formulate new policies aimed at fostering

service sector development. In particular, Taiwan needs to focus on

promoting adoption of technology and internationalization in the

service industries, in line with the government’s policy of “promoting

servitization of manufacturing, e-enablement of service industries,

internationalization, and specialization of traditional industries.”

IV. Conclusions

Faced with the growing trend towards regional economic integ-

ration, countries throughout the world have accepted the need for

liberalization. For example, South Korea has lost its fear of market

opening, and is in fact hoping to leverage FTAs to develop global

markets. According to South Korea’s recently announced new foreign

trade development strategy, in the future, besides the FTA that is cur-

rently being negotiated with China, South Korea will also be seeking


to negotiate FTAs with ASEAN member nations Indonesia, Vietnam

and Malaysia, and with other emerging economies. The South Korean

government has set a target of having exports to countries with which

South Korea has an FTA account for 85% of the country’s total

exports by 2023. By then, South Korea will have built up a compre-

hensive network of FTAs, and Taiwan will be facing severe competition

from its rival. In Japan, the third of “three arrows” growth strategies

announced by the Japanese government includes market opening,

structural refor ms and the promotion of FTAs as key elements in

the strategy. Japanese Prime Minister Shinzo Abe has stated that

market opening is needed to enable Japanese firms to benefit from

liberalization, so that the Japanese economy as a whole can be re-

vitalized.

China is also working actively to expand its network of FTAs.

Besides encouraging Chinese corporations to expand overseas, the

Chinese government has established the China (Shanghai) Pilot

Free Trade Zone, to serve as a test-bed for full-scale liberalization.

Several Asian nations whose markets are significantly less open

than Taiwan’s － such as Malaysia and Vietnam － have already

joined the TPP, and have accepted the need for greater liberalization.

By comparison with the determination to implement market

opening that is being displayed by other East Asian and Southeast

Asian nations, Taiwan’s progress in securing greater participation in

regional economic integration has been slow, and attitudes in Taiwan

also lag behind. There is still considerable opposition to liberalization

within Taiwan. There is a widespread attitude that Taiwan should be

able to expand into international markets without having to open up

its own domestic market. Fear of China has also tended to slow the

pace of liberalization. Taking the negotiations over the ECFA service

trade agreement as an example, the extent of the market opening that


Taiwan would implement with respect to China is no greater than

that currently implemented with respect to other foreign countries,

and significantly less pronounced than would be required under the

terms of most FTAs. If even this type of limited market opening

sparks panic over the potential loss of millions of jobs and the idea

that it will cause serious harm to Taiwan’s economy, then how can

Taiwan expect to compete effectively in global markets in the future?

Liberalization is already an unstoppable global trend. If Taiwan

continues to resist market opening and drag its feet, then it cannot

expect to have any success in negotiating FTAs with other countries.

No other country is going to be interested in negotiating an FTA with

a nation that holds to protectionist, blinkered attitudes.

Faced with the incoming tide of regional economic integration,

if Taiwan cannot achieve a significant breakthrough, it risks becoming

the biggest loser from integration within the East Asia region. Given

the steady intensification of economic integration both within East

Asia and globally, Taiwan needs to start working actively to explore

opportunities for negotiating FTAs with other countries (including

completing the ECFA negotiations with China), in order to leverage

market opening to maintain Taiwan’s competitiveness. At the same

time, Taiwan needs to move away from a production-oriented mindset

to a market-oriented mindset, to overcome the obstacles to continued

growth that the export-oriented economic growth strategy of the past

has created. Taiwan also needs to abandon its traditional emphasis

on manufacturing at the expense of the service sector, and work

actively to develop its service industries, so as to stimulate the

beginning of a new era of rapid economic growth.


References

English

Books

Katada, Saori N. & Mireya Solis, eds., 2008. Cross Regional Trade

Agreements: Understanding Permeated Regionalism in East

Asia. Berlin: Springer.

Journal Articles

Antkiewicz, Agata & John Whalley, 2005/10. “China’s New Regional

Trade Agreements,” The World Economy, Vol. 28, No. 10, pp.

1539-1557.

Lee, Jong-Wha, Innwon Park & Kwanho Shin, 2008/12. “Proliferating

Regional Trade Arrangements: Why and Whither?” The World

Economy, Vol. 31, No. 12, pp. 1525-1557.

Whalley, John, 2008/4. “Recent Regional Agreements: Why So Many,

Why So Much Variance in Form, Why Coming So Fast, and

Where Are They Headed?” The World Economy, Vol. 31, No.

4, pp. 517-532.

Online Resources

Crawford, Jo-Ann & Roberto V. Fiorentino, 2005. “The Changing

Landscape of Regional Trade Agreements,” Discussion Paper,

No. 8, pp. 1-33, World Trade Organization, <http://www.wto.

org/english/res_e/booksp_e/discussion_papers8_e.pdf>.

European Commission, 2006. “Global Europe: competing in the

World: A Contribution to the EU’s Growth and Jobs Strategy,”

Trade－European Commission, <http://trade.ec.europa.eu/doclib/

docs/2006/october/tradoc_130376.pdf>.


Chinese

Books

Chu, Cyrus C. Y., ed., 2009.《ECFA：開創兩岸互利雙贏新局面》.

Taipei: Prospect Foundation.

Chen, Tain-jy ed., 2010.《不能沒有 ECFA：東亞區域經濟整合對

臺灣的挑戰》. Taipei, Prospect Foundation.

taiwan’s participation in regional economic integration an

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