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Convincing Washington to sign a trade deal

Taipei Times, Taiwan

Convincing Washington to sign a trade deal

By Kuo Kuo-hsing


19 June 2006

Recently, the Research and Planning Committee of the Ministry of Foreign Affairs invited American Chamber of Commerce in Taipei (AmCham) executive director Richard Vuylsteke to a conference discussing win-win strategies for negotiating a Taiwan-US free trade agreement (FTA). The ideas discussed at that meeting suggest that an FTA will be in both sides’ interests.

First up, the establishment of a negotiation mechanism will strengthen Taiwan’s influence in Washington through US businesspeople operating here. China’s suppression of Taiwan’s political and diplomatic affairs on the international stage has seriously limited Taiwan’s economic and trade space. Perhaps the government should learn from the Office of the US Trade Representative and set up a mechanism for economic and trade talks integrating Taiwan’s strategic and negotiation resources.

We can contact well known US enterprises investing or operating in Taiwan and ask their head offices to help push for the signing of an FTA. In turn, this will help improve cooperation on research, development and technology transfers between the two sides’ high-tech industries.

A Taiwan-US FTA will help the US reduce its trade deficit with China, which rose to US$201.6 billion last year. US President George W. Bush’s administration has vowed to reverse the situation.

In response, we should stress that Taiwanese companies are the most competitive foreign firms operating in China. If we use the trade specialization coefficient (TSC) as an international competitiveness index, then Taiwan’s TSC with China for last year was 0.6. South Korea’s TSC with China was 0.37, Japan’s was 0.09, and those of Singapore, Germany, the US and Hong Kong were all negative.

This proves that internationally, Taiwanese businesses are the most competitive in China and Taiwan has the largest vertical labor division advantage of all countries. Therefore, if US businesses, out of their own self interest, can push for a Taiwan-US FTA, Taipei will provide its wealth of experience in doing business with China, thus helping the US reduce its trade deficit.

The government must entrust academia with the task of studying the concrete increase of US exports to China after a Taiwan-US FTA is signed. By doing so, the US will realize that Taiwan is indeed the strategic partner that best helps its businesses explore the Chinese market. This is one of the country’s major incentives when trying to convince Washington to sign an FTA.

A Taiwan-US FTA would provide impetus to open direct links. The US has repeatedly delayed negotiations with Taiwan, claiming that it does not have sufficient manpower since it is engaged in FTA talks with South Korea, Malaysia and Thailand. Vuylsteke, however, pointed out that Taiwan’s failure to completely open direct links is the main reason the US has refused to negotiate. To this, if the US signed a FTA, thereby creating another way out for Taiwanese capital, then the Taipei would feel more at ease about opening direct links.

Another consideration is that Taiwanese and South Korean products are highly replaceable in the world’s major markets. If the US hopes to speed up the negotiation of an FTA with South Korea, it should negotiate with Taiwan in order to put pressure on Seoul — thereby killing two birds with one stone.

Taiwan is a typical small economy that has always relied on the support of exports for economic growth. Therefore, it is imperative that we begin FTA talks with the US, Japan, Singapore and other major trade partners in order to break through the country’s international economic and trade marginalization.

Kuo Kuo-hsing is vice dean of academic affairs at Kainan University.

Translated by Eddy Chang