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Trade

Taiwan casts net for trade deals as China blocks RCEP entry

Options include CPTPP and bilateral pact with US but political hurdles remain

As Taiwan's chance to join RCEP grew slim, President Tsai Ing-wen turned her focus to other potential trade deals. (Source photos by Reuters) 

TAIPEI -- Sidelined from the world's largest trading bloc, Taiwan is pinning its hopes on other free trade deals as it seeks to move further away from economic reliance on China.

But the self-governed island's hopes of joining groups such as the China-led Regional Comprehensive Economic Partnership or the 11-member Comprehensive and Progressive Trans-Pacific Partnership depend much on political attitudes in Beijing, Washington and Tokyo.

After signing free trade agreements with Singapore and New Zealand in 2013, Taiwan turned its focus to the Association of Southeast Asian Nations for its accession into RCEP, which accounts for about 30% of global gross domestic product.

The plan faltered as China, which claims Taiwan as part of its territory, said the island should negotiate under Beijing's "one China" principle.

While trade with RCEP's 15 members is equivalent to nearly 60% of Taiwan's total, economists say mainly traditional industries feel the brunt of being excluded from the bloc.

''About 60% of Taiwanese exports to RCEP countries fall in the tariff-free Information and Communication Technology sector under the Information Technology Agreement of the WTO, where Taiwan is a member," said Roy Chun Lee, deputy executive director, Taiwan WTO & RTA Center at Chung Hua Institute of Economic Research, a government think tank.

"On top of zero import tariffs on several products self-imposed by some RECP member countries, 72% of Taiwanese exports to these countries are subject to zero taxes," Lee added.

The remaining 28%, spanning traditional machinery, textile, metal, chemical and petrochemical sectors, face greater competition in RECP countries as they are taxed at varying rates, from less than 5% to 20%.

"RCEP ushered in Japan's first free trade deal with South Korea and China respectively," Lee said. "Both China and Japan are among Taiwan's top four export markets. Taiwan's ability to compete against Korea and China in the Japanese market and against Japan and Korea in China will be critical in the long term."

As Taiwan's chance to join RCEP grew slim, President Tsai Ing-wen upon taking office in 2016 turned her focus to the CPTPP. About a quarter of Taiwan's trade was with the CPTPP's 11 members in 2019 -- 80% of its shipments being tariff-free.

As the CPTPP's 2021 chair, Japan is seeking to bring more economies into the bloc in an attempt to reduce China's clout in the region. But Taiwan's import ban on certain Japanese food products has hindered attempts to start negotiations.

Taiwan voted in a 2018 referendum to add two years to an import ban on food from areas affected by the 2011 meltdowns in Fukushima. The ban, which recently expired, also covered the four surrounding prefectures of Ibaraki, Tochigi, Gunma and Chiba.

Taiwan's political parties are now embroiled in disputes over the lifting of an import ban on U.S. pork and beef, including Ractopamine-treated meat. The U.S. meats will be allowed into the country next month, and the Japanese food issue is expected to become the next center of debate, political analysts say.

''The current Japanese administration aims to increase exports of agricultural goods," said Kazuhito Yamashita, a former trade negotiator for the Japanese government and incumbent research director at the Canon Institute for Global Studies. "It has set a very ambitious goal, making the value of agricultural exports five times greater than the current figure. It prioritizes beef, sake, dairy products, apples, rice and what not. If there are any tariffs on those products, it will ask for their elimination."

Japan's Ministry of Economy, Trade and Industry also would likely ask for the elimination of any auto tariffs, Yamashita added.

He said Taiwan joining the CPTPP would benefit Japan because its domestic market is shrinking as its population ages and declines.

Average tariffs for Taiwanese exports to Japan stand at a relatively low 3% to 5%, and at less than 2% for industrial goods. The two neighbors do not compete in industrial goods, as Taiwan purchases a significant amount of materials, equipment and machinery from Japan, according to Taiwan's trade negotiators.

Even if Taiwan is fully compliant with CPTPP regulations, it still must contend with China, which has recently voiced in an interest in joining the bloc.

"There are some people in the Japanese government who hesitate to offend China," Yamashita said. "They may argue that Taiwan should come in after China just as was the case of WTO accession negotiations of both economies. The Japanese government must overcome the obstacle.

"If Japan decides to have the Taiwanese accession negotiation, it will have to consult with all of the existing members of the CPTPP and receive the green light from them. Japan cannot start the negotiation by itself. It must be the concerted efforts by CPTTP members."

While Australia abandoned plans for a free trade deal with Taiwan in 2018 after a warning from China, the two sides are talking again now that China is punishing Australian exports as part of its diplomatic spat with Canberra. Taiwan also needs Australia's backing for a CPTPP bid.

Taiwan officials say the island began working on complying with CPTPP regulations 10 years ago and has amended eight laws, with four others pending legislative review.

"Member states Malaysia, Peru, Chile and Brunei have not yet completed their domestic legal process for joining the CPTPP, which will be the priority of the group for now," said John Deng, Taiwan's chief negotiator. "Taiwan will submit an application at an opportune time, after assessing macro developments and feedback from member states."

The CPTPP aside, Taiwan's chances of starting protracted official trade talks with the U.S. hinge on the trade policy of President-elect Joe Biden, who has said he will not sign any trade agreements until America's domestic issues are addressed.

In mid-December, the U.S. Council of State Governments, an organization that works to shape policies in the 50 states, passed a resolution in support of starting negotiations on a trade pact with Taiwan.

The call echoed a bipartisan group of 161 U.S. Congress members that last December sent a letter to the Office of the U.S. Trade Representative calling for "work toward beginning negotiations for a bilateral trade agreement with Taiwan."

In October, 50 U.S. senators sent a letter to Trade Rep. Robert Lighthizer, urging him to begin the "formal process of negotiating a comprehensive trade agreement with Taiwan."

On December 17, a resolution expressing the sense that the US should initiate negotiations on a FTA with Taiwan was introduced both in the Senate and the House respectively.

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