Two recent articles discuss the legal and political aspects of a U.S. - Taiwan FTA, including the role of China and East Asia generally.
Claude Barfield of AEI writes:
Turning to the political and strategic background to the proposal for a US-Taiwan FTA, it should first be acknowledged that according to the economic and political criteria set forth by the administration of US President George W. Bush itself to prioritize the choice of FTA partners, Taiwan should rank near the top of the list.
Among the key tests that Taiwan meets are the following: It is a democracy; it already has a significant economic relationship with the US; it is willing to negotiate a comprehensive agreement that goes beyond WTO liberalization; it is a stalwart diplomatic and security ally of the US; and finally, an agreement would enjoy bipartisan support in the US Congress.
On the downside, Beijing adamantly and forcefully opposes nations signing FTAs with Taiwan, arguing that this will in effect give Taiwan the status of an independent nation and violate what it considers the international rule of "one China." In pursuit of the goal of isolating Taiwan diplomatically, Beijing has directly threatened nations that have considered FTAs with Taiwan, warning them that they "would bring political trouble to themselves" if they proceeded with such an action.
Over the past decade, both the Clinton and the Bush administrations have cultivated a policy of "engagement" with China; and currently, the Bush administration has a number of diplomatic irons in the fire that depend upon Beijing's help and support--with the difficult and dangerous situations in North Korea and Iran heading the list. Thus, the US must carefully balance support for a democratic Taiwan with equally important goals and relations with China.
In fashioning a response and a policy for future US-Taiwan trade relations, the following economic realities should be considered regarding potential Taiwan FTAs.
One, the economic benefits of a US-Taiwan FTA are real but small; two, the cumulative negative economic effects of East Asian bilateral trade agreements that exclude Taiwan are becoming quite sizable because of trade diversion--and would reach truly damaging proportions for Taiwan's economy if a large East Asian FTA (ASEAN countries plus Japan, South Korea and China) were negotiated; and three, given its strong position within highly integrated East Asian production networks, Taiwan would reap the greatest benefit from entering into FTAs with its important regional partners, such as Japan, South Korea, Singapore and Thailand--leveling the playing field now tilted against Taiwan by existing and planned FTAs.
How to proceed? First, the US should base its future course firmly upon Taiwan's status under international law and practice.
Thus, the US should point out to Beijing's leadership that their argument that the FTAs would violate the "one China" policy is fundamentally flawed. China has accepted Taiwan's membership into the WTO, where it is treated and defined under international law as a "customs territory."
By extension, bilateral FTAs are merely another manifestation of that legal status--and indeed, the basis upon which China has become Taiwan's most important trade and investment partner.
As it moves to implement a regional trade policy in East Asia, the US should quietly, but firmly, present China with the following options. First, ask the Chinese to back off and allow Taiwan to negotiate FTAs with other nations, particularly its regional neighbors.
In turn, the US would strongly reiterate its commitment to the "one China" policy and affirm that Taiwan's status remained the same as in the WTO--a customs territory. In addition, the US would step up pressure on Taiwan to remove direct transportation restrictions on the movement of goods to and from China and allow in more Chinese imports.
Second, if China refuses, and the US cannot get other Asian nations to conclude FTAs with Taiwan because of Chinese threats, the US should inform Chinese leaders that it will proceed itself to conclude a bilateral FTA with the island.
Jacques deLisle of Penn law school writes:
Taiwan is, on economic grounds, an obvious FTA candidate for the U.S. It has a relatively open economy, one that has moved far from its protectionist and illiberal past, one that has done much to satisfy U.S. requirements of support for liberal trade rules, and one that has seemingly bridgeable gaps to what an FTA in practice would require. Taiwan also has the high trade to GDP ratios that make it disproportionately important as a trading entity and thus a more significant FTA prospect. It is a major trading partner for both China and the U.S. As with FTAs generally, membership in FTAs with major trading partners would expand trade among the partners and increase each partner’s total trade and gains from trade. While these economic effects likely would not be large in a U.S.-Taiwan FTA, that does not distinguish it from many others that are on the table. Indeed, estimates of the economic benefits of a U.S.-Taiwan FTA place it near the top of the list of contemplated U.S. FTAs. The greater economic gains for Taiwan, however, could lie in second-order effects, with other regional states entering into FTAs with Taiwan if the U.S. were to break the pattern of Taiwan’s exclusion from such arrangements.
Any given FTA, of course, would also skew Taiwan’s trade toward its FTA partners. A U.S.-Taiwan FTA is expected to produce more trade diversion than trade creation. An ACFTA excluding Taiwan likely would divert ASEAN states’ trade from Taiwan to the PRC. It would also encourage substitution of ASEAN-produced goods for some of China’s imports from Taiwan, cutting into the growth of cross-Strait trade that has become important to Taiwan. A Japan-Korea-China FTA or SCOFTA would have broadly parallel effects.
For Taiwan, even the economic is fraught with security implications. The great concern for Taiwan of a Taiwan-excluding ACFTA is that it will increase economic dependence and promote political ties between the ASEAN states and China just the way Beijing apparently seeks. Already unsupportive of Taipei on issues of Taiwan’s autonomy and international status, China’s ACFTA partners would be even more reluctant to roil relations with the PRC. Taipei’s real fear is that an ACFTA would be another potent tool in Beijing’s diplomatic kit for marginalizing the ROC. Much the same would apply if the PRC’s notion of a China-Japan-Korea FTA were to go forward. The potential political loss for Taiwan would be especially great in the case of Japan, which remains the principal regional state that has the will and the capacity to work to balance China and that has recently articulated an interest in Taiwan’s security. A SCOFTA would be less significant, given the SCO states’ more limited economic relations with and lack of diplomatic support for Taiwan.
The politics of a U.S.-Taiwan FTA are simpler fare. For Taiwan, U.S. willingness to enter into an FTA would be an affirmation of the broader U.S. commitment to Taiwan. President Chen and others have phrased it as such. So too have congressional supporters of a U.S.-Taiwan FTA. While it formally implies nothing about statehood or state-like status, Taiwan’s status as a partner or even partner candidate in an FTA would imply standing with the U.S. akin to that of Canada, Mexico, Singapore, and Korea. Chinese sources have made this basic argument, suggesting that an FTA would be a step along the road to Taiwan independence. Moreover, Taiwanese sources and American supporters have played the democracy and human rights card, linking a U.S.-Taiwan FTA to support for those values, as they are embodied in Taiwan--and thereby invoking principles that also are relevant to claiming state- or state-like status.
For precisely such reasons, Beijing does not welcome the prospect and has been no less chilly to the prospect of a U.S.-Taiwan FTA than it was to the more easily deterred prospects of a Japan-Taiwan or Singapore-Taiwan FTA. Partly because much of Washington does not want such diplomatic frictions with Beijing, the Taiwan FTA faces an uphill fight. The steepness of the climb is increased by the waning of the influence of the Taiwan caucus and Taiwan lobbying in Congress and by the increasing tendency in Washington to regard Taiwan as a subordinate issue in the broader universe of U.S.-PRC relations.
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