This July 10 government officials and international media gathered in the international conference hall at the Ministry of Transportation and Communications to watch via video linkup as Charng Yii-lih, director of the Taipei Economic and Cultural Office in Wellington, New Zealand, and Stephen Payton, director of the New Zealand Commerce and Industry Office Taipei, signed an economic cooperation agreement (ANZTEC) between Taiwan and New Zealand in Wellington.

"This is a huge step for Taiwan," said Minister of Economic Affairs Dr. Chia-Juch Chang with a big smile. It had been a long time coming.

First Country without Diplomatic Ties to Ink FTA

New Zealand is the first nation without formal diplomatic ties to Taiwan to conclude a free trade agreement with the country. It also takes on additional significance as the first to do so using Taiwan's official title under the WTO, the "Separate Customs Territory of Taiwan, Penghu, Kinmen, and Matsu."

"We are the first to have a trading agreement with the trio – all three of the greater China economies (China, Hong Kong and Taiwan)," Payton proudly told CommonWealth Magazine. "New Zealand is always keen to be one of the early movers in terms of negotiating with our trading partners, and this is a great example."

This agreement is Taiwan's most significant move toward regional trade liberalization since the cross-strait Economic Cooperation Framework Agreement (ECFA) with China.

"Now the government can finally lift its head up a bit," says Yen Chen-shen, a research associate at the Institute of International Relations at National Chengchi University. Prior to the ECFA agreement three years ago, the government pulled out all the stops to promote its purported benefits, "And now, the predictions have come true," says Yen.

Admittedly, the inking of the pact between Taiwan and New Zealand is closely related to the recently concluded Cross-Strait Agreement on Trade in Services.

"I can say for certain that if cross-strait relations weren't improving and the cross-strait service pact hadn't been reached, this deal between Taiwan and New Zealand would not have been made," an official familiar with trade negotiations opined.

A comparison of bilateral trade volume between Taiwan and New Zealand shows that New Zealand stands to gain the most. Taiwan is the eighth biggest importer of New Zealand agricultural products, to the tune of 60 percent of its milk powder and cheese, and over 80 percent of its kiwi fruit. In contrast, New Zealand is only Taiwan's thirty-ninth biggest export market.

Strong Peripheral Benefits

"Taiwanese industrial products are very competitive in New Zealand," relates Lien Ching-chang, deputy director-general of the Industrial Development Bureau. New Zealand relies on imports for most of its industrial finished products, and last year New Zealand imported over US$600 million worth of industrial products from Taiwan for year-on growth of 20 percent over 2011. The elimination of tariffs when the free trade agreement goes into effect will give Taiwan a definite boost.

The benefits to Taiwan actually exceed what the trade figures show, as the Financial Times headline on the trade pact, "Small Economics, Big Politics," suggests.

Impact 1: Future Foreign Trade Talks

Apart from another free trade agreement with Singapore that is all drawn up and ready to go, Yen Chen-shen believes that Taiwan's next move should be to set its sights further afield to New Zealand's competitors.

Chile and Australia are the likeliest next moves for Taiwan.

Both located in the Southern Hemisphere, Chile and New Zealand export similar products to Taiwan, including wine, cherries and apples. "Chile ranks fifth in Taiwan's imported red wine market, and they are eager to move up further. When tariffs for New Zealand wine are phased out, Chile can be expected to push harder," says Roy Chun Lee, deputy director of the Taiwan WTO & RTA Center at the Chung Hua Institution for Economic Research.

Furthermore, situated on the other side of the globe, Chile does not occupy a particularly sensitive position in relation to power maneuvers in the Asia Pacific region, so given the subjective and objective advantages, Taiwan should seize the opportunities at hand with Chile, Lee avers.

A number of regional trade experts note that the likelihood of inking pacts with distant smaller countries is far higher than going straight after big nations. Chile, for example, was the first country to sign a free trade agreement with South Korea, in 2004.

Impact 2: Taiwan's Competitors Will Speed Up Their Own Trade Talks

After initiating free trade negotiations just last May, China and Korea reached the sixth round of talks in Pusan in early July of this year. Other counterparts involved in free trade talks with Korea include Canada, Mexico, Australia, Indonesia and Vietnam.

"If we keep stalling, our advantages will disappear," asserts Chun-fu Chang, director general of the Bureau of Foreign Trade, Ministry of Economic Affairs. Chang's biggest fear is slow progress in trade negotiations.

With furrowed brow, he explains that many business executives are anxious, as the longer the ECFA negotiations drag out, the more aggressive competitors become, steadily eroding Taiwan's advantages.

Negotiators for China and Korea are optimistic that the two sides will reach a free trade agreement as soon as next summer.

In light of such developments, Taiwan cannot afford to remain on the sidelines of the regional trade battlefield. Once she is warmed up, she should get right out onto the playing field.

Translated from the Chinese by David Toman