How will failure to sign ECAs with major trading partners impact the economic development of Taiwan?
As Taiwan has an export-oriented economy, the most important strategic goal of the Government in promotion of external trade policy is to foster favorable international business environment for Taiwan’s businesses via trade negotiations with major trading partners at multilateral and bilateral fields, so as to maintain and strengthen the international competitiveness of Taiwan, to increase export, and to create more job opportunities.
Nevertheless, as the Doha Round of negotiations of the WTO has seen sluggish progress over the recent years, many countries have turned to active launching of ECAs to strengthen national competitiveness in international markets. With interference from political factors, Taiwan has been impeded from launching ECAs with major trading partners. This results in significant impacts on the overall economic development of Taiwan:
1. Weakened export competitiveness of products from Taiwan: As zero tariff treatment is applicable for most products between signatories of an ECA, export competitiveness of businesses of Taiwan has been severely impacted. For instance, when the EU-South Korea FTA entered into force, exports from Taiwan to the EU such as apparel, LCD-TVs, and bicycles respectively face 12%, 14%, and 15% in tariffs, while those of South Korea enjoy a zero tariff treatment. In an era of micro-profit with fierce competition, said high tariffs severely and adversely impact the competitiveness of Taiwan’s industries, which may consider relocation of factories to consolidate their export markets, resulting in industry flight and unemployment.
2. Reduced willingness of businesses in investing in Taiwan: When an ECA is signed, the removal of tariff and non-tariff barriers to trade between the signatories allows for expanded intra-regional market and for reduced number of intra-regional restrictions having an impact on investments, thus creating favorable conditions for various arrangements of trans-national production and industrial division of labor, thereby attracting increased amount of foreign direct investments (FDI). Conversely, failure by Taiwan to launch ECAs with primary sources of FDI will adversely affect the willingness of businesses of these countries in making investments in Taiwan.
3. Impeded momentum in reformation of economic system of Taiwan: Several countries such as South Korea, Malaysia, and Vietnam have initiated the modernization of economic systems thereof via the launching of ECAs. The inability of Taiwan to overcome obstacles to the launching of ECAs has adversely affected the momentum in the reformation of domestic economic system. This will not only impede Taiwan’s efforts in bringing economic and trade systems thereof in line with international standards, but also affect Taiwan’s attractiveness towards foreign capital.
4. Marginalization in the trend of regional integration: with countries using ECAs to form economic alliances and to get a hold on the resources required for economic development (such as energy), the substantive relations between Taiwan and its major trading partners will see relative weakening, which is unfavorable for Taiwan in terms of its position in international trade and sustained economic development.
In conclusion, the trend of regional economic integration over the recent years has incurred on Taiwan a gradual loss in the international competitiveness, a drop in international trade rakings, reduced foreign investments, flight of businesses and industries, and rising domestic unemployment rate, thus resulting in extremely adverse impacts on the economic development and national welfare of Taiwan.