Finance counsels

Taiwan needs to seal a free trade agreement with China to ensure the island can compete with regional rivals in global markets, according to the island’s official who is leading the talks.

Taiwan has been unable to join in a wave of bilateral or multilateral free-trade agreements in recent years because China regards the island as a rebellious province. Trade talks with Singapore and Japan in the past had failed because those countries didn’t want to offend China, said Chiang Pin-kung, chairman of the Taipei-based Straits Exchange Foundation.

A deal “will reduce the political reservations of these countries and they will be more willing to sign free-trade agreements with us,” he said in a Feb. 5 interview. Taiwan aims to sign an accord with China “before the first half of this year because it is so vital to Taiwan’s economy.”

President Ma Ying-Jeou in his New Year’s Day message warned that free-trade agreements in Asia risk marginalizing Taiwan, which with North Korea is one of only two countries in the region that haven’t secured a deal. Technology companies such as Taiwan Semiconductor Manufacturing Co. and AU Optronics Corp. may be particularly at risk from a trade deal between China and South Korea.

China and Hong Kong combined is Taiwan’s largest overseas market, accounting for 40 percent of the island’s $203.7 billion of exports last year. Overseas shipments of flat screens, computer chips and other electronics goods made up about 28 percent of the total. Asean, which represents a quarter of the world’s population, accounts for 15 percent of Taiwan’s exports, Chiang said.

‘Disadvantage’

“Without free trade agreements with other countries, Taiwan is at a disadvantage as its exporters face higher costs and tariffs,” Cheng Cheng-mount, a Taipei-based economist at Citigroup Inc. said. “If Taiwan can sign an agreement with its toughest critic, China, then other countries will have less objections to sign similar pacts with Taiwan.”

There were only three free trade agreements between Asian countries in 2000, a figure that jumped to 58 by last year, President Ma said in his address. Regional trade accounts for more than half of Asian nations’ total trade, he said.

China signed an accord with the 10-member Association of Southeast Asian Nations that came into force Jan. 1, scrapping tariffs on about 90 percent of goods. Six Asean members enjoy zero-tariffs. Taiwan exporters are subject to an average 9 percent tariff, Chiang said. The value of China’s trade with Asean has surged sixfold over the past decade, reaching $193 billion in 2008. Korea-China trade was $75.5 billion.

“We have to speed up negotiations to get more fair competition in the region,” said Chiang, who is also a vice chairman of the ruling Kuomintang party.

Only Five

Taiwan has signed only five free trade agreements with its 23 diplomatic allies, namely Guatemala, Panama, El Salvador, Nicaragua and Honduras. Those five account for less than 1 percent of the island’s total trade.

China and Taiwan last month started formal negotiations on a proposed Economic Cooperation Framework Agreement aimed at boosting economic and trade ties. The two sides have agreed the accord would include trade in goods and services, as well as a so-called “early harvest list” of industries that would be first to enjoy lower tariffs.

The pro-independence Democratic Progressive Party opposes the proposed trade pact, arguing it would cost jobs and increase Taiwan’s dependence on China. About 100,000 people rallied in the city of Taichung in December to protest the China policies of Ma’s ruling Kuomintang, or nationalist, party. The KMT ruled Taiwan for most of the past five decades after they fled to the island following their defeat at the hand of Mao Zedong’s communists in 1959.

Fresh Start

Cross-strait dialogue between Taiwan and China resumed in June 2008, a month after Ma took office. Discussions were frozen in 1999 after China objected to an assertion by then president Lee Teng-hui that relations should be described as “state-to- state.” The central government in Beijing claims the island and has threatened force to impose unification.

Taiwan and China in December agreed to boost cooperation in fishing, agriculture and industrial goods at the fourth cross- strait talks as ties reached their warmest in 60 years. The two sides in November signed three memoranda of understanding to ease access to each other’s banking, securities and insurance industries.

A study by the government said the accord with China would help boost the island’s economic growth by as much as 1.72 percentage points, spur exports and create more than 260,000 jobs. Export accounts for more than two-thirds of Taiwan’s economy, which has shrunk for the past five quarters, the longest contraction since at least 1961.

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