Development of Regional Trade Agreements and Taiwan’s New Challenge

1. Development of Regional Trade Agreementsand Taiwan’s New Challenge Hsin Chang Lu Department of International Business National Taiwan University

2. Motivation • Reasons for rapidly evolving landscape of economic cooperation within East Asia, EU and across the Oceans • Lack of assessing its vital importance, especially in ways to implement and consolidate between the existing RTAs • Under such circumstance, which role can Taiwan choose to play?

3. Introduction • A new world order under G2 (the US and PRC) • The financial crisis of 2009 leads to fiscal restructuring and stricter bank regulation, worldwide fiscal expansion along with the purchase of debts by China, Germany, and Japan, issued by Western countries • Unfortunately, the joint efforts for a better world have been diverted from economic recovery and improvement in social well-being since to anew competition for world leadership

4. Changing Attitudes toward RTAs • Regionalism has been widely accepted ever since and become the building blocks to paralleling a multilateral trading system. • Whether RTAs promote trade depends on contribution to momentum towards global trade liberalization (Krueger, 1999). • Recent APEC Forum in Washington D.C. in March 2011 aimed to build a “seamless regional economy.”

5. Changing Attitudes toward RTAs , continued FTAs now appear to have the intent of strengthening relationships among allied trading partners. EU, Japan, United States and China have all proposed relevant security policies to address their own needs. It is of interest thereby to identify recent trends in economic cooperation pacts and to assess their importance in the near future.

6. From RTAs toward Multilateral Liberalization • Favorable arguments: • Firstly, RTAs tend to “built-in” unilateral liberalization that member governments cannot achieve otherwise, say by creating export-oriented constituencies; • Secondly, the formation of RTAs can increase the efficiency and imagination of multilateral negotiations.

7. From RTAs toward Multilateral Liberalization , continued • Frankel, Stein and Wei (1995) • Firstly, the negotiation process provides opportunities for manipulation by special interests; • Secondly, the negotiation process draws on scarce negotiator resources and political energy, which may delay the multilateral process of the support it requires.

8. Organization of this Talk • I. Recent Development of Regional Trade Agreements • II. Some Causal Reasoning behind Successful Completion of Major RTAs • III. Relevancy of ECFA and Taiwan’s Role to Play in the Near Future • IV. Conclusion

9. I. Recent Development of Regional Trade Agreements

10. Mega-Regional Trade Agreements • Three being negotiated: the TPP, RCEP and the EU-US Transatlantic Trade and Investment Partnership (TTIP). • TPP’s membership is 12 to date (US, Mexico, Canada, Chile, Peru, Australia, New Zealand, Japan, Singapore, Brunei, Malaysia and Vietnam). • RCEP’s members are the ASEAN 10 countries plus China, Japan, South Korea, India, Australia and New Zealand.

11. WTO vs. Regional Trade Agreements China U.S.A US continuesto urge for across-the-board negotiations by WTO members. • Take the lead in Asian affairs. The top priorities: regulatory coherence, administrative harmonization and regional cooperation.

12. Making of RTAs with Many Purposes • EU, USA and Mainland China deem RTAs as an effective approach to integrate and/or strengthen cooperation with other economies. • Japan takes RTAs a sense of political trust among countries, which will expands Japan's global diplomatic influence and interests. • Singapore and Korea come out successfully in signing EU and the USA as closer economic partnership.

13. Evolution of FTAs in Asia • The experience in East Asia was tested quite positively after several economic crisis. • The recent proliferation of FTAs in East Asia is very striking: 1) Achievement of six ASEAN-plus one 2)“P4” (Singapore, New Zealand, Chile and Brunei) 3) “P5” (with the participation of the United States) and turning into the TPP.

14. Attempts of TTIP and TPP • TTIP and TPP actively cover for all goods, services, investment and government procurement. • Their intention go deeper into administrative procedures and disciplines on intellectual property, food safety and technical standards, even including custom rules to facilitate supply chains and e-commerce.

15. Investment in Chapter II of TTIP • EU primary goal is to create a new type of investment agreement along with the concern of investment protection. • Karel de Gucht April 2014 • To make sure that governments can make trade negotiation in the public interest while providing for investment protection, EU just launched a consultation to seek public opinions about how to do it right. 2020/1/1 (c) Julien Chaisse (CUHK Law) 15

16. The three mega regional integration initiatives show diverse FDI trends • The combined share in global FDI inflows of the United States and the EU, which are negotiating the formation of TTIP, nearly halved from 56% during the pre-crisis period to 30% in 2013. • The share in global FDI inflows of the 12 countries participating in the TPP negotiations was 28% in 2013, markedly smaller than their share in world GDP of 40%.

17. The three mega regional integration initiatives show diverse FDI trends, continued • RCEP, which is being negotiated between the ten ASEAN Member States and their six FTA partners, accounted for more than 20% of global FDI flows in recent years, nearly twice as large as at the pre-crisis level.

18. Potential Harm From Major FTAs ? As shown by the leaked documents pertaining to the TPP, ddeveloped countries offer access to its still-protected or newly created markets in exchange for more stringent IP protection. By offering preferential access, the expansion of IP protection can result in more harm than good. Selfish exchange The merits of trade in benefitsliberalization

19. China-ROK Free Trade Area • In November 2004, unofficial feasibility study on China-ROK FTA was proposed during the APEC Summit Meeting held in Chile. • China and ROK then decided to upgrade the unofficial study to a study jointly made by government, business and academia in November, 2006. • Chinese Premier Wen Jiabao and President of South Korea Lee Myung-bak announced to wrap up China and ROK joint study in June 2010.

20. China-Japan-Korea FTA • Dated back in 2002, the leaders of China, Japan and Korea all agreed to carry out the non-governmental academic research on China-Japan-Korea FTA. • From 2003 to 2009, the research institutes of the three nations made a comprehensive and in-depth analysis about the feasibility.

21. China-Japan-Korea FTA, continued • In October of 2009, a consensus was reached to initiate a joint research by Government, Enterprises, and Universities on China-Japan-Korea FTA. • The first session of joint research conference was held in Seoul, Korea, in April 2010. • The 2nd Session of Joint Research on FTA was held from September 1 to 3, 2010 in Tokyo, Japan. • The 3rd Session with a focus on issues of trade in services and investment was held in Weihai, Shandong Province of China from December 1 to 3, 2010.

22. Korea and Japan FTA • The negotiation was launched in December 2003 for a total of six round meetings under a joint study. • Yet it was stopped at the completion of the joint study from November 2004 to May 2008. • Then it was resumed again in June 2008 of working level negotiation. Both parties met again and got into 1st round Director-General-Level Consultation on the operation of possible Korea-Japan FTA. • In February 2011, the foreign ministers of both countries agreed to resume the negotiation in April this year.

23. On North East Asia RTAs • Historical tensions, competing implicitly to lead in East Asia, and clashes over island territory restrict for strengthening cooperative relations. • The deal making between Japan and Korea is not clear. Japan seems interested more in a multilateral setting with vital partnership outside of Asia. Besides, the tension between Japan and China, and Korea and Japan respectively is still hard to be overcome.

24. On North East Asia RTAs, continued • It seems more positive between Korea and China. The completion of the joint study was at half of the length of time relative to other FTA proposals. • Recent report in Chengdu also confirmed the intention for both sides to kick into final stage of negotiation.

25. II. Some Causal Reasoning behind Successful Completion of Major RTAs

26. A Measure of FTAs in Force • This can be calculated in number of FTAs in force relative to potential number of contracts to be proposed in a specific area.   • We apply some selective criterion to come out with a narrow set of trade active countries: First, to include most active countries as clusters; Second, to include only countries that are eager to look for FTA opportunity; Third, to exclude countries that do not have a chance to sign with more than two clustering countries.

27. A Measure of FTAs in Force, continued • The set of countries included amounts to 62. The ratio comes out at 38.9%. • The higher ratio means higher coverage of FTAs. Likewise, the higher coverage means higher bilateral trade relationship with other countries. • To which direction can we improve of this simple measurement most fast?

28. 開放貿易服務業的測度指數

29. Contributing Factors to the Deal Making of FTAs • i. Comprehensiveness: Elimination of tariffs and non-tariff barriers of all sorts in all areas. • ii. Consistency with WTO rules: Compliance with spirits of the WTO and with all the requirements stipulated in Article XXIV of the General Agreements on Tariffs and Trade (GATT) 1994 and Article V of the General Agreements on Trade in Services (GATS).

30. Contributing Factors to the Deal Making of FTAs , continued • iii. Consideration of political sensitive sectors: Addressing the sensitivities of countries involved and offering with concrete and proper solution. • iv. Substantial liberalization: Significant liberalization beyond the level of liberalization commitment within the framework of the WTO. • v. Sustainable development: Appropriate reflection of the international efforts to promote sustainable development, such as in the area of energy and climate control.

31. The Proliferation of FTAs in East Asia • A natural consequence of the region’s need to increase mutual trust and to expand trade in the absence of a Doha-round agreement. • It also comes at a time when round-about production is extended very much and shipping of intermediates becomes more frequent.   • Besides, a low-tariff policy under FTAs benefits foreign affiliates through shipping home of foreign production and so the domestic investors as foreign direct investment becomes common.

32. Contributing Factors to the Deal Making of FTAs , continued • Businesses located in countries left out from major FTAs are at a competitive disadvantage. How can one use the eagerness not to be left out? • On the other hand, it is a painful process for businesses in an economy to go through structural adjustment as the benefits from trade openness are not distributed immediately and evenly.

33. Japan and Australia EPA • As Japan account for 11% of Australian agricultural export, Japan’s concession on agricultural products is critical for the deal. • For the first time, Japan’s frozen beef tariff will fall from 38.5 to 30.5 per cent in the first year, then slowly reduced to 19.5 per cent over the following 18 years. • This is a strategic play by Japan as well. A preemptive deal with Australia would lead to a possibility for US compromise on beef tariffs.

34. III. Relevancy of ECFA and Taiwan’s Role to Play in the Near Future

35. ECFA and its Relevance in Northeast Asia FTAs • Question: Can ECFA help speed up FTAs in Northeast Asia? • The risk to concentrate production at one location has been shown detrimental after the earthquake in Japan.  Besides, multiple sourcing as well as stretching the supply chain can lead to best use of resources and leveraging comparative advantage from various sources.  

36. ECFA and its Relevance in Northeast Asia FTAs , continued • The pattern summarized from successful FTAs indicates that countries at disadvantage and at a hard time, tended to propose first to win support from the strong countries with upper hand.   • If proposals for FTAs were accepted by strong countries, the next development is to see that neighboring countries choose jump in the bandwagon of FTA process. • Thus, ECFA might serve as a good substitute for either county in the Northeast Asia to circumvent trade barrier and diversify investment risk, one way or the other.  

37. Bid for FTAs and Taiwan’s Opportunity • The recent deals struck with Singapore, New Zealand, and China can serve as stepping stones for Taiwan to explore its full potential in regional affairs. • The remained challenges for Taiwan: 1) The exclusion from regional FTAs 2) The unknown future of extension through ECFA

38. Taiwan’s Role to Play in the Near Future • What is the right approach to conduct Taiwan’s attempt in regional integration? • How can the influence of China factor be contained somewhat?

39. Possible Suggestions: • Open further to trade and Investment unilaterally • Follow WTO Rules closely • Ask for extension and application of favors in most China Involved RTAs • Help to smooth out the conflict between China and the USA

40. 服務業發展的四種模式(GATS) (Mode 1) (Mode 4) (Mode 3) (Mode 2)

41. 高水平醫療保健-慈濟 建議策略

42. IV. Conclusion

43. Concluding Remarks • This study may help related economies to realize the full potential of East Asian regional trade agreement and facilitate in an eventual transition to more liberal trade globally. • How far can ECFA lead Taiwan into necessary changes and reforms?  There is no set of rules to follow but allows of good wishes and active imagination!

44. Concluding Remarks , continued • Every economy needs compelling reasons to persuade and win support from the domestic interest groups.   • Right after China signed an accord with ASEAN in 2005, Japan agreed to sign into the same deal within three years.  When the US proposed to sign TPP with South countries, Japan starts to show its interest to join.  

45. Concluding Remarks , continued • To address the consequences of economic powers pushing a strategic IP agenda, a revision of WTO rules is in urgent need. • In essence, free trade should be considered on its own merits. As the forced trade-off of developing countries is anti-development and detrimental to world economic health.

46. The end!