The Agreement between Singapore and the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu on Economic Partnership (ASTEP), signed Nov. 7, is the first free trade agreement Taiwan has signed with another country since a similar pact was signed with New Zealand in July this year. The Taiwan-Singapore FTA is expected to create greater economic benefits, because Singapore is Taiwan’s fourth largest export destination and fifth largest trading partner, with bilateral trade hitting US$28.2 billion last year, far higher than the US$1.21 billion with New Zealand.
As Singapore is a highly liberalized economy, the degree of bilateral opening under ASTEP is also high. Singapore has reduced its tariffs to zero on 100 percent of items, while Taiwan will eventually reduce tariffs to zero on 99.48 percent, although for a very small number of goods the reduction will take up to 15 years. In the services sector both sides have adopted a negative listings approach, allowing full opening except for restrictions on selected industries. Provisions on government procurement also go further than those under the related World Trade Organization pact.
According to the Taipei City-based Chung-Hua Institution for Economic Research, once the ASTEP comes into force, Taiwan’s gross domestic product will increase in the short term by US$312 million, its exports by US$540 million, its imports by US$458 million, and 4,086 jobs will be created. In the long term, once the full tariff reductions have taken effect, GDP will go up by US$701 million, exports by US$782 million, and imports by US$719 million, as well as 6,145 jobs created.
The above effects were calculated using static analysis: that is, taking into account only the effects of the opening and tariff reductions, but ignoring any measures that government and businesses might take and their effects. The calculations also disregard institutional change, industrial upgrading and indirect effects from adoption of international standards. In other words, these figures are a minimum and the actual effect is likely to be greater.
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Singapore is at the center of and gateway to the Association of Southeast Asian Nations market, and the first port of call for countries wishing to expand into ASEAN. Now that Taiwan has signed the ASTEP, the signing of FTAs with other ASEAN members could accelerate. For example, the feasibility study for the Taiwan-Indonesia FTA was completed last year and joint study is underway; parallel progress is being made with Malaysia; the Philippines has also repeatedly expressed interest in signing an FTA and it is hoped that the feasibility study for it could resume as soon as possible. Additionally, the feasibility studies for a Taiwan-India FTA were completed earlier this year and the resultant reports strongly recommend that the two sides sign the pact at the earliest possible opportunity.
The global pace of FTA-signing has become very fast, with countries often being forced to hurriedly follow suit in response to such moves by their competitors. For example, both Australia and New Zealand are major exporters of beef, powdered milk and other agricultural produce to Taiwan, and after the Agreement between New Zealand and the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu on Economic Cooperation (ANZTEC) was signed, Australia expressed hopes to begin negotiation with Taiwan. Australia is worried that following the ratification of the ANZTEC, New Zealand’s agricultural products are entering Taiwan tariff-free and could begin to crowd out Australian produce.
Even more importantly, many of the above countries are involved in the talks to establish the Trans-Pacific Partnership and the Regional Comprehensive Economic Partnership, and Taiwan will have to negotiate with them when it tries to join in the future. This process will be much easier if Taiwan has already concluded bilateral FTAs with them.
An important objective of the government’s golden decade policy is “building up Taiwan while linking with the Asia-Pacific region and creating a global presence.” After five years of hard work by the government, Taiwan’s path to participation in global economic integration is becoming ever clearer. Government, business and the public can all help in achieving the nation’s objective of liberalizing and globalizing its trade through the rapid completion of follow-up agreements to the Cross-Straits Economic Cooperation Framework Agreement (ECFA), such as those on trade in goods and a dispute settlement mechanism; the rapid signing of FTAs with southeast Asian countries; and finally, entry into the TPP and RCEP. (SDH)
(This commentary first appeared in the Economic Daily News Nov. 10, 2013.)