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FTA: what’s in it for America?

China Post, Taiwan

FTA: what’s in it for America?

7 September 2006

A free trade agreement (FTA) with the United States is a much desired policy aim in Taiwan. It would increase Taiwan’s trade and bind the island more closely to the U.S., Taiwan’s most important ally — even if formal links are lacking. But what is in it for Americans? This, after all, is what will carry weight with Washington.

Doug Bandow addresses this question in a recently published article in the American Spectator, an opinion leader among American conservatives.

Bandow is vice president of Policy for Citizen Outreach and the Bastiat Fellow in International Economics at the Institute for Policy Innovation. He is a former special assistant to President Ronald Reagan and the author and editor of several books.

"The most important benefit of American friendship today may be access to the U.S. economy. America retains the largest, most productive, and most advanced economy on earth. Any Asian country would benefit from linking up with the U.S.," writes Bandow.

Taiwan is America’s eighth biggest trading partner, with two-way trade running about US$60 billion annually.

Indeed, the U.S. exports more to Taiwan than to Australia, Chile, and Singapore, all of which now enjoy FTAs. Despite increasing economic links between Taiwan and China, the U.S. remains the largest investor in Taiwan, while the latter is a sizable investor in America.

Bandow sees sizable advantages for U.S. exporters through an FTA, with increases in exports from about 15 to 30 percent. Among the U.S. industries that would most benefit from freer trade with Taiwan are agriculture, automotive, electrical equipment, and machinery. Taiwan already is the fifth largest destination of U.S food exports. American services, too, would gain: potentially significant opportunities would open in the education, financial, health, telecommunications, and transportation sectors. Indeed, an FTA would position U.S. enterprises to take advantage of Taiwan’s ongoing transition towards a service-oriented economy.

Intellectual property is a headache in U.S. trade with Beijing. An FTA also would provide an opportunity to better protect intellectual property, a significant boon to U.S. firms.

"Strengthening standards in Taiwan would likely aid U.S. producers in China, the great intellectual property (IP) cheater. Given the increasingly important role of Taiwanese business in China, better IP protection by Taipei would serve as an example for the PRC," says Bandow.

He also sees advantages for America by plugging into Taiwan’s network of enterprises throughout Asia, and particularly in China. "The island, with widespread economic penetration throughout Asia, would provide an obvious base for U.S. enterprises to expand their reach. Taiwan’s proximity to China and, more important, increasing economic integration with the mainland, would yield another beneficial effect. A Taiwan-U.S. FTA would indirectly boost American ties with the PRC, both investment and exports," says Bandow.

"Taiwan enjoys cultural, family, and historical ties with the mainland; Taiwanese enterprises have become major investors in China. Taipei, as an innovation center, complements the PRC, a production center," he adds.

Taiwan is the great Asian anomaly, a not-quite country that remains a potential conflict left over from the Cold War. For nearly three decades Washington recognized the Republic of China, rather than the People’s Republic of China, as the sole legitimate government of China.

President Richard Nixon opened a dialogue with the PRC and President Jimmy Carter switched formal ties from Taipei to Beijing. Since then Taiwan has existed in an international twilight zone, a commercial powerhouse officially recognized by just a couple dozen small nations. Despite a population of only 23 million, Taiwan ranks 16th in the world in terms of trade. An FTA with the U.S. would strengthen Taiwan’s position as it deals with a China determined to absorb the island.

Most obviously, such an accord would help grow the Taiwanese economy. Although the impact would be modest — a study by the Chung-Hua Institution for Economic Research predicts a two percent increase in exports and .5 percent hike in GDP — any boost would help Taiwan as it confronts its rapidly growing neighbor across the Taiwan Strait.

Moreover, the Institute for International Economics suggests that such an arrangement would further integrate Taiwan into East Asia. Enhancing Taipei’s relative economic importance and thus its political profile would increase its neighbors’ stake in regional stability.

Commenting on the implications for the geopolitical environment, Bandow says: "Even long-time U.S. allies such as Australia and South Korea have no interest in being drawn into a conflict arising from coercive Chinese action against Taipei. The tighter Taiwan’s links to surrounding nations, the higher the price everyone would pay in any military conflict. Although neighboring countries would be no more inclined to back Taiwan’s desire for a separate identity, they would be more likely to press the PRC to rely on peaceful, evolutionary developments to bring Beijing and Taipei together."

Unfortunately, opposition to free trade is rising in Washington, even among Republicans. However, the benefits of moving ahead with a U.S.-Taiwan FTA are too great to ignore. The issue is geopolitics as well as economics. Since "the great game" with China already has begun, Washington needs to use all the tools at its disposal to enhance its regional influence. That includes freer trade with America, Bandow concludes.