Tuesday, December 25, 2012

Taiwan Still Waiting for ASEAN FTAs

Overlooked in this month’s news of an agreement on expanding ASEAN-India FTA to cover services and investment and the EU and Singapore reaching agreement on a bilateral FTA is the absence of a major trading partner in ASEAN’s FTAs: Taiwan.  Taiwan has been pursuing FTAs with ASEAN and its members for several years now, with talks on a Taiwan-Singapore FTA having started in May 2011.   Yet until now Taiwan has yet to sign a single FTA with ASEAN or its members.

Almost all of ASEAN's other main trading partners, including Japan, Korea, China, India, Australia, the United States and now the EU, either have or are negotiating free trade agreements with ASEAN or its individual members. Taiwan  had been excluded primarily because of objections from China.   As a result, Taiwan’s agreements are limited to certain countries that recognize Taiwan as the government of China: El Salvador, Guatemala, Honduras, Nicaragua and Panama. 

Overcoming China’s objections was a major justification for the Economic Cooperation Framework Agreement (ECFA) between China and Taiwan.  Taiwan, negotiating as a separate customs territory (as per its WTO membership) concluded the agreement in 2010 with China, resulting in much closer investment and trade ties.  Taiwan President Ma Ying-jeou had indicated that with economic relations with China stabilized, Taiwan could pursue FTAs in the region, particularly with those countries which had their own FTAs with China.

Negotiating a sui generis FTA with ASEAN is a necessity.  Taiwanese investors and exporters have no FTA benefits or protections in ASEAN.  The ASEAN-China FTA would not apply to Taiwan, either, because of Taiwan’s status as a separate customs territory.  Although the initial ASEAN-China FTA agreement on trade in goods referred only to an undefined “China,” later agreements clearly specified that “China” referred to mainland China.  The option of having Taiwan accede to the ASEAN-China FTA, as has been proposed for Hong Kong, would be both a non-starter politically in Taiwan and difficult for ASEAN members.

The delay in getting FTA deals done with ASEAN will eventually limit Taiwan’s negotiating room.    China and other trading partners are negotiating the Regional Comprehensive Economic Partnership (RCEP) agreement to harmonize the FTAs with ASEAN.  Hence if Taiwan eventually does negotiate an FTA with ASEAN, that agreement will largely incorporate the RCEP terms, a process in which Taiwan has not participated.

Similarly, the delay in concluding an FTA deal with Singapore has become somewhat distracting, with many in the Taiwan media claiming that the delay is the result of pressure from China or diplomatic tensions with Singapore.   More likely the delay is due to the usual give and take of trade negotiations.

Nevertheless, ASEAN and Taiwan hopefully will get their FTA negotiations going, before the end of the Ma administration in Taiwan.  Taiwanese business is losing out on trade and investment with ASEAN members, and the continuing goose egg for Taiwan’s FTA talks risks becoming a political embarrassment for President Ma.  For ASEAN and its members, concluding FTAs with Taiwan would help encourage trade and investment, as well as improve relations with one of the claimants to the South China Sea dispute. We’ll have to see if 2013 brings greater clarity to the situation.