In the News

Meeting the South Korean challenge

• Publication Date：10/24/2011
• Source： China Times

The U.S.-South Korea free trade agreement, approved by Congress Oct. 12 for implementation Jan. 1, is a serious threat to Taiwan’s export-based economy. South Korea is Taiwan’s main export competitor, and it has put itself at the heart of a free trade network.

South Korea's FTA with the EU went into effect in July, and it has similar pacts with the Association of Southeast Asian Nations, Singapore, Chile, the European Free Trade Association, India and Peru.

The ROC government and Taiwan industry must recognize and respond to this crisis.

Under the EU and U.S. agreements, within three to five years duties on more than 97 percent of all products will be eliminated. According to estimates from the Korea Institute for International Economic Policy, the FTA with the EU will lead to a jump of 12 billion euros (US$16.67 billion) in exports to Europe, a short-term gross domestic product increase of 2.02 percent and long-term gain of 3.06 percent, as well as short-term expansion of 300,000 jobs and 600,000 in the long-term.

KIEP forecast the Seoul-Washington FTA will boost exports to the U.S. by 7 percent to 20 percent, the GDP by 5.56 percent and jobs by 350,000.

The U.S. and EU are Taiwan’s third and fourth largest trading partners, but now South Korea’s products will be tariff-free, while Taiwan’s continue to pay from 5 percent to over 10 percent. The Ministry of Economic Affairs has predicted that these two South Korean deals will lead to export losses for Taiwan’s plastics, textiles, petroleum, machinery and optics industries to the tune of NT$500 billion (US$17.09 billion)—the U.S. accord accounting NT$350 billion and the EU pact NT$150 billion.

In the rivalry between Taiwan and South Korea, with their similar economic structures, Taiwan has been steadily losing ground over the last 10 years. In 1996, prior to the Asian financial crisis, Taiwan’s exports, valued at US$115.9 billion, were roughly 90 percent of South Korea’s US$129.7 billion. This figure fell to 74 percent in 2003 and 66 percent in 2007, and to only 56 percent in the first three quarters of this year.

Clearly, the gap is widening at an ever-increasing rate, due to South Korea’s more well-balanced export structure and successful branding, as well as its many FTAs.

The U.S. has given no definite response to Taiwan’s repeated requests to negotiate an FTA or similar economic agreement. To compensate for losses in the European and U.S. markets, domestic producers have responded by uniformly calling for the greater opening within Beijing's through the Cross-Straits Economic Cooperation Framework (ECFA), adding more goods to the pact’s tariff-free list.

The U.S. delay in negotiating a trade agreement is in effect pushing Taiwan toward mainland China, as it leaves the country with no option but to appeal across the strait for help, thus integrating its economy even more closely with the mainland Chinese sphere.

The government should work even harder to secure trade pacts with the EU, U.S. and other major economies, while simultaneously expanding the benefits of ECFA. If Taiwan continues to be marginalized in this type of regional accord, to survive businesses may have to move their plants to other countries that enjoy zero tariffs.

Companies will have to continue upgrading competitiveness, improving market positioning and distinguishing their products from competitors’, or they will be eliminated.

Even if the government succeeds in getting more products onto ECFA’s duty-free list, mainland China and South Korea will soon become free trade partners through ASEAN plus three—mainland China, South Korea and Japan. At that time, the advantages Taiwan has gained through ECFA will gradually disappear. Now is the time to take action. (THN)

(This commentary originally appeared in the China Times Oct. 15.)

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