Taiwan: Challenges to regional economic integration

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Taiwanese envoys to 16 countries in the greater Pacific Ocean basin region convened in Taipei on Feb. 17. They received an update on Taiwan’s efforts to join the US-led Trans-Pacific Partnership and the Regional Comprehensive Economic Partnership. China is a key negotiator in the latter of the two prospective multilateral trade agreements. The seminar is one of several indicators that Taipei does not intend to let the island stray too far into China’s unilateral economic orbit, even as it looks to cement new trade agreements with the mainland.

Joining international institutions such as the World Trade Organization—and cementing bilateral trade agreements with regional partners such as Singapore and New Zealand—is not only a means to enhance Taiwan’s economic competitiveness. More fundamentally, these efforts allow Taiwan to promote its bid for recognition as a sovereign entity, rather than as the wayward province Beijing portrays it as being. Taiwan’s actions abroad carry strong strategic undertones and reflect deeper struggles and uncertainties in Taipei’s strategic environment.

Contradictory trade partneships.

In a speech on the eve of the Chinese New Year, Taiwanese President Ma Ying-jeou warned that the island would face an “unprecedented crisis of marginalization” unless Taipei moves quickly to bolster its regional economic competitiveness through new trade agreements. Notably, Ma’s speech promoted two seemingly contradictory trade partnerships.


The first is a services trade agreement with China signed in June 2013 that has since been stalled in the country’s Legislative Yuan. That deal, and a concomitant trade-in-goods agreement expected to be signed later this year, are seen as helping pave the way for Taiwan’s eventual accession to the Regional Comprehensive Economic Agreement, a multilateral trade forum based on the Asean + 3 (China, Japan, South Korea) framework. The second is the US-led Trans-Pacific Partnership, a deal many observers see as designed to exclude and constrain China. In recent months, the Ma administration has appeared to accelerate Taiwan’s efforts to join the partnership. Where he once spoke of joining around 2020, in his January speech Ma said he would push for membership by 2014.

Ma almost certainly will not achieve his goal this year. Taiwan’s application to the Trans-Pacific Partnership faces enormous constraints. First, it is not certain when, or if, the agreement will be formalized. Recently, the Obama administration’s efforts to fast-track the partnership have met stiff resistance from powerful elements in the US Congress. Politics aside, there are still many technical and regulatory problems to work through before all 12 countries currently in negotiations can ratify anything.

Even if the Trans-Pacific Partnership is ratified this year, there is no guarantee that Taiwan’s bid to join the second round of negotiations will gain traction with the other countries. The long-term geopolitical advantages for countries such as the United States and Japan of Taiwanese membership may not trump the narrower or technical concerns of regulators, especially in the United States. Meanwhile, the Ma administration has failed to ratify a United States-Taiwan Trade and Investment Framework Agreement due to resistance from Taiwan’s meat industry. That failure has created uncertainty among US trade officials regarding Taiwan’s ability to implement large-scale trade agreements. To some extent, agreements like the recent free-trade pacts with Singapore and New Zealand could help smooth other countries’ concerns, but it is too early to tell. Ultimately, unless Ma can demonstrate strong consensus on the partnership across Taiwan’s political establishment, Taiwan’s application may well stall.

Finally, Beijing will try to block Taiwan’s bid to join the Trans-Pacific Partnership. It is not clear how it will do so, and the presence of Japan and the United States in the partnership would constrain Beijing’s room for maneuver. But China considers Taiwan a critical strategic prize, so Beijing will surely try to stymie Taipei’s efforts. China’s reliance on and exposure to Asian-Pacific sea-lanes has never been greater, and therefore neither has Beijing’s need to bring Taiwan into the mainland’s economic and political fold.

Taiwan will try to overcome Beijing’s objections by matching its partnership bid with a reaffirmation of its commitment to trade and economic cooperation with the mainland. Taipei will pursue bilateral agreements and will also bid to join China-centric, or at least China-inclusive, multinational agreements such as the Regional Comprehensive Economic Partnership.

China’s leaders recently have assumed a somewhat more positive stance toward the Trans-Pacific Partnership, stressing the need for openness and transparency rather than condemning the agreement as politically exclusionary. Some in US policy circles see this as suggesting that Beijing may be open to its own eventual accession to the partnership, perhaps in a fashion mirroring China and Taiwan’s joint entry to the World Trade Organization in 2002.

In actuality, Chinese accession to the Trans-Pacific Partnership is a distant prospect at best. This is in part because of strategic reasons. But it is also because in order to join the partnership, China would have to have already implemented and sustained market-oriented reforms it is only now beginning to enact. Beijing has to maintain economic, political and social stability throughout the reform process.

The constraints on Taiwan’s bid to join the Trans-Pacific Partnership and expand its economic and political room for maneuver are therefore significant. Failure to join the Trans-Pacific Partnership would deal Taipei a tactical blow, but not one that would necessarily undermine its broader strategic aim to expand economic ties throughout Asia-Pacific region. Taiwan will continue to pursue bilateral and multilateral agreements while carefully balancing its reliance on trade with China against its diplomatic, economic and security ties to the United States and Japan. Whatever the outcome, Taipei’s efforts suggest a growing regional recognition that economic integration with China is neither inexorable nor the only path to growth for East Asia’s smaller economies, especially as China enters a period of potentially destabilizing economic reform and restructuring.

Republishing by The Manila Times of this analysis is with the express permission of STRATFOR.

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