Taiwan to speed up cross-strait trade talks to counter FTA: gov’t
In response to the ChinaSouth Korea free trade agreement ( FTA) news yesterday, Cabinet spokesman Sun Lihchyun ( ) said that the agreement will indeed send shockwaves through Taiwan’s industry, and proposed that the government should quickly speed up trade agreement negotiations with China and other countries.
South Korea and China finished signing the FTA yesterday, and the deal will be implemented once both countries’ parliaments approve it, which is likely to be before the end of this year.
Apart from saying that Taiwan should quickly negotiate trade agreement terms with neighboring countries, Sun also encouraged the Legislative Yuan to examine the Cross-Strait Agreement Supervisory Act as soon as possible.
Sun stated that as Taiwan and South Korea share fungible products, it would be difficult to re-establish ties once supplydemand chains are broken.
Huge Effects in Long Term:
While the FTA between China and South Korea will not severely affect Taiwan’s economy in the short term, the Ministry of Economic Affairs (MOEA, ) estimates that the negative impacts will become evident in the long term, due to the similarities between Taiwan and South Korea’s industry make-up.
The MOEA stated that once the agreement comes into force, after 20 years Taiwan- made products’ substitution rate will rise to between US$2.341 billion and US$6 billion. The display panel industry will take the brunt, with the substitution rate rising to between US$1.45 billion and US$3.084 billion.
Apart from the Cross-Strait Agreement Supervisory Act, which is still “stuck in the legislative examination procedure,” and the trade in goods pact that had undergone ten sessions of negotiations, officials believe talks regarding open- market operations and tax cuts are still sluggish.
According to a report released by the Chung- Hua Institution for Economic Research ( ) , Taiwan’s Real Gross Domestic Product ( GDP) will drop around 0.04 percent during the first year of the ChinaSouth Korea FTA tax cut, and its real GDP will face another plummet of 0.13 percent and 0.15 percent after 10 years and 20 years, respectively.
Affected industries include petrochemicals, textiles and clothing, glass, steel, automobiles, polarizers, panels and machine tools. Tariff reduction between the two countries will not be implemented instantly once the agreement is in place. For example, in the case of the display panel industry, a 2.5-percent tariff cut will be implemented in the ninth year of the FTA enforcement, while a zero tariff reduction will begin in the 10th year, according to the MOEA.
The MOEA pointed out that South Korea will effectively expand its investments in China in order to increase its market share, and effectively push Taiwan products out of China should no further measures be taken.
To tackle the potential impact of the China-South Korea FTA, the MOEA emphasized the importance of entering the TransPacific Partnership, the Regional Comprehensive Economic Partnership and an agreement of economic partnership with China.