In the year of 2009, Taiwan's real GDP growth went down by 1.8%. Before then, nobody had seriously expected the global financial crisis could have hit Taiwan's economy so badly. When the sub-prime crisis began in the second quarter of 2007, the markets did not see it coming at all. They even claimed that economies in Asia would be resilient enough to be decoupling from the western economies and immune from the crisis. After the "wrong guess", woe betided. Before the crisis, we had never stopped stressing how globalization would be an inevitable trend. How could we be so naive for even buying said decoupling horse feather?
Significance of Trade for Taiwan's Economic Growth
Nevertheless, Taiwan's growth bounced back in the year of 2010 with a surprisingly 10.8%. How did Taiwan make it? The answer would be trade. In 2009, Taiwan's exports growth declined by 8.7% and imports down by 13.1%. However, Taiwan's exports grew by 25.6% and imports mounted by 27.7% the next year. From the readings, we note that international trade is simply a two-edged sword. The crisis hit Taiwan's economy through trade, whereas trade is also a solution for Taiwan to recover from the ditch.
The 2010 momentum actually lasted for one year as Taiwan had a fine economic performance in 2011 with a 4.2% GDP growth and a 4.5% exports growth. However, it is noteworthy that imports and gross fixed investment of Taiwan both grew negatively by 0.5% and 2.3% in that order. The next two years, 2012 and 2013, the Taiwanese government received more blames than praises. The GDP growth rates of 2012 and 2013 were only 1.5% and 2.2% respectively, and exports failed to serve as the most powerful engine for Taiwan with respect to sluggish imports and fixed investment then.
On top of that, the growth of 2012 and 2013 were both lower than the world average. In exploring potential reasons for Taiwan's economic slowdown, one eye catching explanation pops up, Taiwan have had not enough free trade agreement (FTA) coverage. Many argued that Taiwan had been losing market shares overseas to South Korea due to the fact that South Korea owned FTA coverage of nearly 35%, and Taiwan barely came up with 5%. If that is the case, the solution is pretty much there. That indicates that Taiwan need to join as many as regional economic integration (REI) processes as it can to regain the market shares and push forward its critical exports.
Striving for REI Processes
Because joining the processes of REI has been recognized as the key to revive Taiwan's economy, eyes are on major processes such as the Trans-Pacific Partnership (TPP) and Regional Comprehensive Economic Partnership (RCEP). A more visionary way to put it would be it is so essential to join TPP and RCEP; both tracks might lead to the ultimate Free Trade Area of Asia Pacific (FTAAP) that includes all APEC member economies.
Besides those multilateral processes, Taiwan has also been working hard to strike bilateral deals besides those existing ones with El Salvador, Honduras, Guatemala, Nicaragua, and Panama. The Cross-Straits Economic Cooperation Framework Agreement (ECFA) between Taiwan and China was signed in June 2010. The bilateral agreement for Taiwan with New Zealand (ANZTEC) was signed in July 2013. Another bilateral treaty with Singapore (ASTEP) was also signed in November 2013.
The 5 Central American allies actually do not have very close trade and economic relations with Taiwan. By comparison, China, New Zealand, and Singapore are way more significant trading partners for Taiwan. Therefore, the Taiwanese government did make certain accomplishment in terms of bilateral deals. However, what really matters when it comes to regaining market shares would be multilateral; 4 out of Taiwan's 5 major trading partners are with TPP or RCEP. Does Taiwan stand a chance to become a member of either one?
When TPP was still P4, an agreement between Brunei Darussalam, Chile, Singapore and New Zealand; it is also the very first multilateral FTA linking Asia, the Pacific and the Americas. The P4 came into force in 2006, before the sub-prime crisis taking place. At that time, Taiwan did not pay attention to its great potential until the US decided to attend and dominate it. The first round of TPP negotiation was launched in March 2010. It now has 12 members including Taiwan's major trading partners such as the US and Japan. As part of competitive liberalization, the RCEP was initiated in November 2012 and started its first round negotiation in May 2013. The RCEP also comprises of Taiwan's important trading partners, namely China and ASEAN. It does not take a wise man to even be aware of that both TPP and RCEP are vital for Taiwan's economy.
The Cross-Straits ECFA has not yet been concluded. And we are not sure if joining TPP will compromise the conclusion of ECFA. Joining RCEP requires China's support as it is very obvious that China has been dominating this process. In a nutshell, Taiwan needs a green light from China to become part of both TPP and RCEP. For that reason, a feasible strategy for Taiwan would be to conclude ECFA first. Second, try to utilize the FTA natures of enlargement, docking and merging to join RCEP. Third, use the same format of joining PECC, APEC, and WTO to attend TPP. That is both sides of the Taiwan Straits join TPP in concert.
Will REI Guarantee Economic Growth?
International trade is nothing more than a game of comparative advantage. It will not be a fair game when Taiwan has to play it by facing certain barriers while other players do not need to. However, playing a fair game does not guarantee winning a game. The European Union used to be a role model of REI. Certain EU members even went one step further to forge a monetary union. In terms of depth, EU or Euro zone are more integrated than all FTAs. However, it is very clear that EU or Euro does not assure all members to grow and prosper.
Joining REI processes is not a sufficient condition for Taiwan's economic growth. However, Taiwan will certainly lose exports competitiveness without enough FTA coverage. Taiwan needs to make sure the game will be played fair; nevertheless, trying to win the game should be the next agenda item. And that's another story.