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Economics Minister Chang Chia-juch:

Taiwan Can't Say 'No' to Free Trade


Taiwan Can't Say 'No' to Free Trade


In this exclusive interview, Taiwan's Minister of Economic Affairs argues candidly that while free trade agreements are bound to hurt, bowing out of them is not an option.



Taiwan Can't Say 'No' to Free Trade

By Hsiang-Yi Chang
From CommonWealth Magazine (vol. 546 )

The Cross-strait Agreement on Trade in Services outlined under the ECFA framework has elicited all kinds of controversy. Minister of Economic Affairs Chang Chia-juch frankly concedes that neither the trade in services pact nor a proposed agreement on the trade in goods can offer Taiwan benefits alone without any risks. In fact, their economic effect may be more defensive than offensive, and they could have considerable impact on Taiwan's weaker industries.

Nevertheless, Taiwan cannot afford to say "no" to free trade, given the reality of the international trade climate. Rather, she must prevent being marginalized via the normalization of cross-strait trade and further entry into such free trade agreements (FTAs) as the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP).

Excerpts from our exclusive interview with the minister follow:

After years of hard work, Taiwan finally joined the World Trade Organization (WTO) in 2002. Why did we want to join? Largely because we were afraid of being marginalized. And the reasoning is exactly the same for other free trade agreements, including ECFA (the cross-strait Economic Cooperation Framework Agreement).

As the WTO's current membership has reached 159 countries, it is difficult to attain consensus, so countries with close trading ties are strengthening their mutual cooperative relationships via FTAs. If we don't get into this new game, we'll lose the latest round of trade competition.

China is Taiwan's largest export market and the country with which Taiwan has its largest trade surplus. Furthermore, it would be impossible for us to skip past China and develop closer trading ties with other countries on our own. This is the inescapable reality.

Normalize China Trade to Take Initiative

China is the most important market in the Asia Pacific, so to be perfectly frank, other countries cannot afford to ignore China's objections and enter into FTAs with Taiwan. Instead, the only way is for Taiwan to establish normal trade relations with China. Having been personally involved in the negotiations, I know very well that New Zealand and Singapore signed FTAs with us precisely because there was no resistance from China.

On the diplomatic side, it is true that China tries to block our entry into international organizations. However, when it comes to trade she seeks to develop closer ties with Taiwan, naturally to win hearts and minds, but also due to the real need for products and know-how.

Right now we take a trilateral approach to the signing of FTAs. In other words, we establish normalized relations with China on the one hand, while joining international free trade agreements together.

Currently, Taiwan has an annual trade surplus of around US$80 billion with China (including Hong Kong), compared to a total combined trade surplus with all our other major trading partners of just US$30 billion. But this advantage will not last forever.

The simplest example is that under the ECFA early harvest list, certain products are granted reduced or exempted tariffs, so in theory, having a price advantage, the volume of cross-strait exports should increase. However, others also supply the same product, so if the competitor reduces the price by the same amount while offering better quality, we lose market share all the same.

If other countries all sign FTAs with one another, then the competitiveness of your goods and services drops, unless you keep up. "ASEAN plus one" has just about taken shape, and Korea is aggressively going after a free trade agreement with China. We can flatly state that Taiwan cannot rely too heavily on the China market. However, there is no way Taiwan is going to give up its US$80 billion trade surplus with this market and allow her competitors to rapidly pass her by.

Weak Industries Have No Other Choice

We take a defensive tactic towards the China market to prevent being outstripped by other countries. However, in another sense, normalizing trade relations with China and further establishing ourselves globally are the keys to shifting from a defensive posture to going on the offensive.

Honestly speaking, Taiwan gets the same thing from free trade agreements whether we sign them with China or anyone else. There is no way they only have benefits and no cost; they benefit those with competitive advantages, whilst those that cannot cope get weeded out.

Therefore, weak industries cannot just maintain the status quo. Weak industries have only two roads to travel. One is transformation and upgrading; the other is getting eliminated. The rules apply the same way anywhere on earth.

However, we must recognize that Taiwan can no longer afford to say "no" to free trade. So given this fact, we must ask ourselves how the government can use guidance and relief measures to minimize the negative impact of free trade.

The government has earmarked NT$98.21 billion to guide weak industries through industrial transformation as part of a program that was initiated when Taiwan entered the WTO. Numerous businesses in such areas of the textiles industry as towels and socks, for example, felt the impact of the WTO's opening to these products, yet under the guidance of relevant government agencies, quite a few of them managed to stage successful transformations.

In the event of failed transformation, the government offers damage relief to affected businesses, as well as antitrust measures to counter dumping. The government will continue to publicize our related efforts, and in future talks will work to secure the most advantageous conditions for Taiwan based on overall considerations.

Translated from the Chinese by David Toman