Monday, June 23, 2014

Implications of Taiwan to Become a Member of Trans-Pacific Partnership

Darson Chiu

            It has long been discussed and stressed how important it is for Taiwan to join the Trans-Pacific Partnership (TPP) agreement. Main arguments by Taiwanese governmental and academic circles were about how Taiwan would be seriously marginalized without a TPP membership due to the fact that Taiwan was a heavily external trade oriented economy. However, those arguments were derived from the perspective of this island but others. I doubt and wonder how these Taiwan-centered arguments can even be convincing to existing TPP members. It is noted that to become a member of TPP will take a consensus from existing members. That simply means it only takes one vote to exclude Taiwan out of the integration process. Therefore, in order to convince all members to receive Taiwan, how Taiwan's membership can bring economic benefits to the entire region would be the key.

            There are actually several major reasons why the existing members of TPP agreement should invite and welcome Taiwan to join this multilateral trading process. Taiwan's participation in the TPP can indeed add to their national interests.

            First, Taiwan's membership in TPP can help strengthen the supply value chains in the region of Asia Pacific. Taiwan has been intensely and deeply integrated in the value chains of Asia-Pacific region. The most obvious evidence would be Taiwan's exports structure. Above 70% of Taiwan's annual exports to other regional destinations would be intermediate goods. In addition, more than 50% of Taiwan's exports orders have been produced overseas, mostly in economies of Asia-Pacific region. If Taiwan is not joining the TPP, the process will very likely make the supply value chains to shift and eventually push Taiwan away. Why does it even matter to other TPP members? A new set of supply value chains generated by economic policies or treaties will not be able to create as much economic welfares for the entire region as the origin set of chains caused by the natural rules of supply and demand by economic theory. For that reason, Taiwan's status in supply value chain and its membership in TPP will benefit the region and help more optimally allocate regional resources.

            Second, TPP as the trading rules charted and set mainly by the United States of America would be used to supervise and manage US's East Asian trading partners. Before the formation of TPP, the US had been stressing the significance and consequences of Trans-Pacific imbalances (TPI). Some US trade experts believed that the reason why US had to suffer from huge trade deficits only because some East Asian counterparts that did not play fair. Issues such as protection in intellectual property rights (IPR) and vested interest of state-owned enterprises (SOE) would be the cases in point. When the US paid its attention to the so called "high quality" TPP, it is sensible that the US seized the chance and used the original P-4 agreement as a mechanism to take care the long-lasting matter. In a nutshell, the purpose of TPP is to deal with the problem of TPI. For that reason, main contributors to TPI such as China, Japan, South Korea, and Taiwan should all be included in the high quality process. Japan has already attended the negotiations of TPP. The US has also extended its welcome for South Korea to join in. China has announced in public that it will not rule out the possibility to take part in the TPP in the future. With the inclusion of Taiwan, the TPP can better be utilized to manage TPI. This is more of a US based reason. However, the US is now leading the TPP negotiations. Although a TPP membership requires a consensus, a solid support from the US will certainly make a difference.


            Third, TPP members will gain further access to the market of Taiwan with Taiwan's participation in TPP in the future. According to the 2013 WTO Tariff Profiles database, the simple average most favored nation (MFN) applied tariffs in Taiwan stands at 6.1% in general, 16.4% for agricultural goods and 4.5% for non-agricultural products. By comparison, the simple average MFN applied tariffs of current 12 TPP members on average would be 4.4% in general, 8.4% for agricultural goods and 3.8% for non-agricultural products. Therefore, Taiwan's TPP membership will come with the function of peer pressure that can help speed up Taiwan's pace in liberalizing its market and lower the barriers for TPP members. In other words, Taiwan's TPP membership will help Taiwan to speed up its economic reform for sure. As most TPP members are Taiwan's close economic partnership, they probably are more willing to work with an open economy.

            Fourth, Taiwan's membership in TPP will certainly help other TPP members to access to the market of Mainland China. Taiwan is the Asian economy that understands the Chinese market better than any others. Taiwan shares the same language, customs, and cultures, etc with China. Taiwanese businessmen have long been investing in China and doing business with the Mainland Chinese public as well as private sectors. Although the Taiwanese market implies a rather small size one with a population of only 2,300 million, it's actually a gateway to the world potentially biggest market with 1.3 billion populations. The cross-Strait Economic Cooperation Framework Agreement (ECFA) will also help Taiwan to better serve as the role as a platform to conduct economic activities with the world's second largest economy. This reason only sustains if Taiwan becomes a TPP member and China does not or both China and Taiwan join the TPP together. We shouldn't discard the likelihood of China and Taiwan becoming TPP members at the same time. Both sides of the Taiwan Strait joined the WTO, APEC, and even PECC in chorus could be good models to duplicate

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