Darson
Chiu
Introduction
The
free trade agreement between Taiwan and New Zealand is a signature trade deal
especially for Taiwan. Taiwan and New Zealand have very different economic
structures; said trade deal can certainly benefit both nations and optimize
their diverse comparative advantages. Nevertheless, more participants will create
more benefits not only in theory but also in practice. As New Zealand is a
critical member major multilateral free trade agreements of Asia-Pacific,
helping Taiwan to join in those processes will enhance New Zealand’s economic
welfare.
ANZTEC
ANZTEC
is the agreement between New Zealand and Taiwan (the Separate Customs Territory
of Taiwan, Penghu, Kinmen, and Matsu) on economic cooperation. ANZTEC was
signed on 10th July 2013 and came into force on 1st
December 2013. It is indeed a signature free
trade agreement especially for Taiwan. It is the very first trade deal that
Taiwan has achieved with a country that does not have diplomatic relations
with. It is the second trade deal that Taiwan has signed with an Asia-Pacific
Economic Cooperation (APEC) member economy; the economic cooperation framework
agreement (ECFA) ought to be the first trade deal that Taiwan has signed with
an APEC member.[1]
Before that, Taiwan had completed free trade agreements with 5 allies, Panama, Guatemala, Nicaragua, El Salvador, and Honduras.[1] However, none of these 5 diplomatic allies has significant economic and trade relations with Taiwan. In addition to that, ANZTEC can lead to more desirable objectives that have been on Taiwan’s wish list. New Zealand is not only an APEC member but also enjoys the membership of both Trans-Pacific Partnership (TPP) and Regional Comprehensive Economic Partnership (RCEP), two most significant mega-FTAs in the region of Asia-Pacific.
[1] The early harvest of ECFA was signed on June 20, 2010 as the first
economic cooperation agreement that Taiwan has signed with its major trading
partner.
[2] Taiwan-Panama FTA was signed and in effect on January 1, 2004.
Taiwan-Guatemala FTA was signed and in effect on July 1, 2006. Taiwan-Nicaragua
FTA was signed and in effect on January 1, 2008. Taiwan-El Salvador-Honduras
FTA was signed and in effect on July 30, 2008.
Because
join in TPP, RCEP or even the Free Trade Area of Asia-Pacific (FTAAP) has been
the most important priority of Taiwan with respect to its trade-oriented
economic structure, Taiwan has been striving for support from existing members.
Taking part in those multilateral processes requires consensus of all existing
members, ANZTEC can be viewed as a very first step for Taiwan towards those
processes.
Economic Overview
Table 1. Economy Overview of Taiwan and
New Zealand as at 2015
Taiwan
|
New Zealand
|
Ø
GDP- US$ 522.95 billion
Ø
Population- 23.49 million
Ø
Exports/GDP- 64.58%
Ø
Major Exports Items: Machinery
& electrical equipment (57.14%), basic medals and articles (9.68%),
Plastic and rubber articles (8.03%), Chemicals (6.91%)
Ø
Major Destinations: China
(27.89%), Hong Kong (14.87%), USA (13.12%), Japan (7.44%)
Ø
Imports/GDP- 51.58%
Ø
Major Imports Items: Machinery
& electrical equipment (35.58%), Minerals (17.59%), Chemicals (10.84%),
Basic Medals and articles (8.14%)
Ø
Major Origins: China (19.15%),
Japan (16.44%), USA (12.35%), Korea (5.69%)
|
Ø
GDP- US$ 172.27 billion
Ø
Population- 4.59 million
Ø
Exports/GDP- 28.29%
Ø
Major Exports Items: Dairy
(24.11%), Meat (13.92%), Forestry (7.17%), Wool (1.74%)
Ø
Major Destinations: Australia
(17.64%), China (17.02%), USA (11.83%), Japan (6.07%)
Ø
Imports/GDP- 27.67%
Ø
Major Imports Items: Machinery
& electrical equipment (22.21%), Transport equipment (15.47%), Mineral
fuels (10.02%)
Ø
Major Origins: China
(19.52%), Australia (11.89%), USA
(11.78%), Japan (6.59%
|
Source: Economist Intelligence Unit
(EIU) country data retrieved on 10 October 2016.
Taiwan’s size of population is roughly 5
times as large as New Zealand’s population, and Taiwan’s economic size is about
3 times bigger than New Zealand’s GDP. New Zealand has higher income per capita
around US$ 38,000 every year compared with Taiwan’s per capita income standing
at US$ 23,000. In terms of purchasing power parity (PPP), then Taiwan’s income
level is higher at about US$ 47,000, and New Zealand is at US$ 37,000.
As at the year of 2015, Taiwan’s degree
of economic reliance on trade was 116.16%, whereas New Zealand was at only
55.96%. That means trade is much more important for Taiwan’s economy. Comparing
the PPP and reliance on trade, many have argued that Taiwan’s exchange rate
policy has been in favor of exports but internal demand.
As for major export and import items, we
can see that New Zealand’s strengths are in its agricultural sector. By
comparison, Taiwan’s comparative advantages are with information and technology
and manufacturing sectors. Export and import items of New Zealand are very
different, but export and import items of Taiwan are almost in the same
categories. That implies that Taiwan’s exports would be mainly intermediate
goods, IT parts and components.
Bilateral
Trade
Table
2. Bilateral Trade between Taiwan and New Zealand as at 2015
Taiwan
|
Zealand
|
Ø Taiwan
exports to New Zealand- US$ 0.44 billion
Ø Major
items: Machinery and electrical equipments; Plastic and rubber articles; Steel
and products; Transport equipment; and Medals and articles.
|
Ø New
Zealand exports to Taiwan- US$ 0.84 billion
Ø Major
Items: Dairy products; Meat; Fruits and nuts; Forestry related products; Organic
chemical products.
|
Source:
Customs Administration, Ministry of Finance, ROC.
Refer to the bilateral trade between
Taiwan and New Zealand of the year of 2015 as an example, Taiwan’s exports to
New Zealand at the total value of US$0.44 billion, and imports from New Zealand
stood at US$ 0.84 billion giving a trade deficit of US$ 0.4 billion. Compared
with the year of 2014, Taiwan’s exports to New Zealand decreased by 6.6%;
imports also dropped by 7.6%. It is not because the ANZTEC has not helped
promote bilateral trade between Taiwan and New Zealand. It is mainly because
the deflationary impact triggered by the plunging crude oil price causing the
shrinking overall global demand. The crude oil price started to fall in June
2014, the second year of ANZTEC entry into force. Because of slowing down
global economic growth, the economic effect of ANZTEC has not been very
evident. Although in theory, the free trade agreement will certainly help
promote trade between signed members and as a result, pick up economic growth;
however, the tepid global and regional growth in a way offset the expected
outcome.
From table 2, we can also see that
export items of these two nations are very different, whereas the FTA will
further encourage participant members to allocate their strengths and resources
on sectors with comparative advantages.
GVC
Participation Index
In addition, their export structures are
very different. As Taiwan’s export and import categories are almost the same as
listed in table 1 meaning Taiwan has been exporting intermediate goods. By
referring to the OECD global value chain participation index, we can see Taiwan’s
GVC participation index is the highest among all Asia-Pacific countries. By
comparison, New Zealand’s GVC index is the lowest among all countries. The
index is defined as share of gross exports in fragmented production processes.
It means 70.99% of Taiwan’s exports would be intermediate goods, and only 34.1%
of New Zealand’s exports are parts and components. From this perspective,
Taiwan is more integrated into economic cooperation processes by market
mechanism, despite the fact that Taiwan’s participation in rule based
integration is insufficient to back up its external trade and economic
activities.
Table
3. GVC Participation Index-Share of Gross Exports in Fragmented Production
Processes (%)
Australia
|
43.81
|
Canada
|
34.78
|
Chile
|
52.21
|
Japan
|
47.75
|
Korea
|
65.03
|
Mexico
|
41.79
|
New Zealand
|
34.10
|
USA
|
39.83
|
China
|
46.06
|
Indonesia
|
43.72
|
Brunei
|
43.72
|
Taiwan
|
70.99
|
Malaysia
|
65.57
|
Philippines
|
66.65
|
Singapore
|
70.66
|
Thailand
|
52.82
|
Viet Nam
|
51.35
|
Hong Kong
|
55.79
|
Source:
OECD database retrieved on 7 October 2016.
As Taiwan and New Zealand
present two very diverse manufacturing structures reflected on their major
exporting goods and GVC indices. That implies there’s room for further
cooperation. We should confirm such implication by referring to export
similarity index in the world market. As the index approaches 1, which means that
two countries are exporting goods that are 100% similar. When the index closes
to 0 that means two countries are exporting totally different goods. In short,
the higher the index, the more likely they are in competition. On the other
hand, the lower the index, there is more room for cooperation.
Table 4. Export Similarity Index
Taiwan
|
China
|
Japan
|
Korea
|
ASEAN
|
India
|
Australia
|
New Zealand
|
|
Taiwan
|
0.76
|
0.67
|
0.80
|
0.73
|
0.45
|
0.24
|
0.30
|
|
China
|
0.76
|
0.60
|
0.73
|
0.72
|
0.55
|
0.27
|
0.36
|
|
Japan
|
0.67
|
0.60
|
0.76
|
0.54
|
0.40
|
0.23
|
0.29
|
|
Korea
|
0.80
|
0.73
|
0.76
|
0.72
|
0.47
|
0.25
|
0.31
|
|
ASEAN
|
0.73
|
0.72
|
0.54
|
0.72
|
0.53
|
0.37
|
0.39
|
|
India
|
0.45
|
0.55
|
0.40
|
0.47
|
0.53
|
0.37
|
0.35
|
|
Australia
|
0.24
|
0.27
|
0.23
|
0.25
|
0.37
|
0.37
|
0.40
|
|
New Zealand
|
0.30
|
0.36
|
0.29
|
0.31
|
0.39
|
0.35
|
0.40
|
Source: REI Study, Taiwan Institute of Economic Research.
The indices of most East
Asian economies are above 0.5 meaning they are more in status of competition.
That also explains why Korea has been taking Taiwan’s market shares in most
export destinations and why China’s import substitution policy has been causing
a serious damage on Taiwan’s economy.[1] As the index between
Taiwan and New Zealand is only 0.3, they are in perfect conditions for economic
cooperation.
Tariffs Removal of ANZTEC
The ANZTEC delivers removal
of tariffs on 94.5% of New Zealand’s exports to Taiwan and 99% of Taiwan’s
exports to New Zealand as soon as the deal comes about. As for the rest of the items, Taiwan will
take a gradual step to remove tariffs.
However, 11 items related to rice will be excluded from the tariffs
removal list. New Zealand will remove all tariffs by next year. It seems to be
a very good deal for Taiwan, but Taiwan has been having deficits when trading
with New Zealand.
Table 5. Tariff
Profiles-Members of TPP, RCEP, & TTIP and Taiwan (%)
RCEP
|
TPP
|
||||||
Members
|
Total
|
Ag
|
Non-Ag
|
Members
|
Total
|
Ag
|
Non-Ag
|
Australia
|
2.7
|
1.2
|
3.0
|
Australia
|
2.7
|
1.2
|
3.0
|
New
Zealand
|
2.0
|
1.4
|
2.2
|
New
Zealand
|
2.0
|
1.4
|
2.2
|
Japan
|
4.2
|
14.3
|
2.5
|
Japan
|
4.2
|
14.3
|
2.5
|
Brunei
|
1.2
|
0.1
|
1.3
|
Brunei
|
1.2
|
0.1
|
1.3
|
Malaysia
|
6.1
|
9.3
|
5.5
|
Malaysia
|
6.1
|
9.3
|
5.5
|
Singapore
|
0.2
|
1.1
|
0.0
|
Singapore
|
0.2
|
1.1
|
0.0
|
Vietnam
|
9.5
|
16.3
|
8.4
|
Vietnam
|
9.5
|
16.3
|
8.4
|
China
|
9.6
|
15.2
|
8.6
|
USA
|
3.5
|
5.1
|
3.2
|
India
|
13.5
|
33.4
|
10.2
|
Peru
|
3.4
|
4.1
|
3.3
|
Korea
|
13.3
|
52.7
|
6.8
|
Canada
|
4.2
|
15.9
|
2.2
|
Indonesia
|
6.9
|
7.5
|
6.7
|
Chile
|
6.0
|
6.0
|
6.0
|
Philippines
|
6.3
|
9.9
|
5.7
|
Mexico
|
7.5
|
17.6
|
5.9
|
Thailand
|
11.6
|
31.3
|
8.3
|
||||
Laos
|
10.0
|
20.1
|
8.3
|
||||
Myanmar
|
5.6
|
8.6
|
5.1
|
||||
Cambodia
|
11.2
|
14.9
|
10.6
|
Taiwan
|
6.5
|
16.7
|
4.8
|
Source: WTO Tariff Profiles 2015.
The most recent tariff
profiles retrieved from the WTO show that the tariff ratios on average in New
Zealand have already been lower than most Asia-Pacific countries. When New Zealand started to liberalize its
agricultural sector in the 1970s, many New Zealand farmers went bankrupt.
However, bringing in competition has made New Zealand’s agricultural sector
extremely strong and competitive. From such perspective, the model of New
Zealand’s agricultural liberalization would be a good model for Taiwan to adopt.
After all, protection will not lead to reform, and postponing reform will make
certain sectors even more defenseless.
General Equilibrium Test Results
Table 6 shows a general
equilibrium test conducted by the WTO & RTA Center of Chung-Hua Institute
for Economic Research; the results show that both Taiwan and New Zealand will
acquire economic benefits from the ANZTEC. And the benefits can be significantly
expanded with further liberation in all sectors. The results imply that the
transaction costs derived from liberalization would be less compared with the
potential benefits generated by liberalization.
Table 6. ANZTEC CGE Test Results
Scenario
|
Scenario 1
|
Scenario 2
|
Scenario 3
|
Growth rate
|
First year of ANZTEC in effect
|
Fourth year of further liberalization
|
Twelfth year of full promised liberalization
|
Taiwan GDP
|
+0.01%
|
+0.03%
|
+0.08%
|
New Zealand GDP
|
+0.14%
|
+0.16%
|
+0.18%
|
Taiwan Exports
|
+0.11%
|
+0.18%
|
+0.22%
|
New Zealand Exports
|
+0.28%
|
+0.32%
|
+0.32%
|
Taiwan Imports
|
+0.12%
|
+0.21%
|
+0.26%
|
New Zealand Imports
|
+0.50%
|
+0.63%
|
+0.66%
|
Source: WTO & RTA Center, Chung-Hua Institute for Economic
Research.
Another CGE test conducted
by Lee and Itakura (2015) shows that there would be negative economic impacts
on Taiwan if Taiwan cannot join the second wave of TPP. However, the impact can turn into positive if
Taiwan is included in RCEP.
Nevertheless, the economic welfare can be maximized when Taiwan gains
membership of both TPP and RCEP. Also, we can see New Zealand’s welfare can be
further expanded as more members join in those multilateral processes.
Table 7. TPP CGE Test Results[2]
%, Percentage deviations
in economic welfare
|
TPP 13 (TPP 12+South
Korea)
|
TPP 16 (TPP13+Indonesia,
Philippines, Thailand)
|
TPP 19 (TPP16+China,
India, Taiwan)
|
Japan
|
0.24
|
0.64
|
0.87
|
China
|
-0.07
|
0.12
|
0.58
|
South Korea
|
0.55
|
1.71
|
3.09
|
Taiwan
|
-0.05
|
0.46
|
2.35
|
Singapore
|
0.40
|
1.40
|
2.06
|
Malaysia
|
0.47
|
1.20
|
1.24
|
Vietnam
|
1.50
|
2.79
|
2.94
|
Australia
|
0.15
|
0.53
|
1.61
|
New Zealand
|
0.31
|
0.88
|
0.91
|
USA
|
0.05
|
0.12
|
0.16
|
Canada
|
0.30
|
0.57
|
0.73
|
Mexico
|
0.44
|
0.82
|
0.73
|
Chile
|
0.33
|
1.16
|
1.83
|
Peru
|
0.13
|
0.35
|
0.53
|
Source: Lee and Itakura (2015).
Conclusions and Suggestions
From economic modeling test
results as well as major items of external trade, it is very obvious that the
economic structures of Taiwan and New Zealand are different and ought to be complimentary;
therefore, cooperation between these two nations will lead to more optimal
allocation of their limited resources as their comparative advantages can be
maximized.
From the past history, it is
the fact that liberalization has made the agricultural sector of New Zealand more
competitive and resilient despite there could be transaction costs to some
certain extent during the transition period. Taiwan’s economic growth has been
very slow since the second quarter of 2015, and New Zealand’s liberalization
model would be a good model for Taiwan’s adopt. There are certain sectors of
Taiwan, which are still over protected, and many have argued that
liberalization is the way and only way to restructure Taiwan’s industries and revitalize
Taiwan’s economy.
Evidences have showed that ANZTEC
generates benefits for both nations; more benefits are created as sectors are
further liberalized. Regarding the outlook of future cooperation, New Zealand
is a critical member of both TPP and RCEP, helping Taiwan and more countries to
join in will enhance New Zealand’s economic welfare.
(Dr. Darson Chiu is the
Director General of CTPECC.)
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