ECFA and Beyond: Taiwan’s Role in the Emerging China-Centered Regionalism (NEWSLETTER NO.7)
English key-word:
ECFA and Beyond: Taiwan’s Role in the Emerging China-Centered Regionalism
specialist:
Researcher:
Francis Yi-hua Kan
Report type:
publish date:
201005
English abstract:
ECFA and Beyond: Taiwan’s Role in the Emerging China-Centered Regionalism
Francis Yi-hua Kan, Ph.D.
Institute of International Relations, National Chengchi University
Introduction
The world’s economic power has been redistributed and repositioned as a result of the ever-growing globalization where massive and expeditious cross-border movements of people, capital and information take place at both the regional and global levels. The major regions around the world have all taken collective measures to cope with the impacts of globalization by launching bilateral or multilateral cooperation mechanisms aimed at enhancing a synthesis of factors of production and resources and promoting the region’s collective competitiveness and individual interests.
Both regional integration and bilateral economic cooperation have incidentally made significant progress over the past decade. The World Trade Organization (WTO) initially sparked the idea of further liberalization of international trade under the comprehensive multilateral framework underlying the intensive negotiations of the Doha Round. However, the difference between the industrialized nations in the West and the major developing countries over international trade was almost unbridgeable. As a result, bilateral cooperation and regional integration have instead been the major vehicles for economies to meet the opportunities and challenges posed by further globalization.
The stakes are even higher for Taiwan than others since the current international trade cooperation is taking place outside the framework of the WTO of which Taiwan is a full member. In addition to pure economic problems, Taiwan has had to come to grips with the complex and unfavorable diplomatic environment to which it has long been relegated. Taiwan has not been able to join the major regional blocs or to sign any free trade agreement (FTA) with its major trading partners. At a time when various styles of multilateral and bilateral economic cooperation are thriving all over the region, Taiwan has had to seize the opportunities provided by the ever-improving relations with Mainland China in order to join the regional integration movement that can further enhance Taiwan’s overall economic power.
Asia’s Regional Integration
The region’s multilateral cooperation is best exemplified by the Association of Southeast Asian Nations (ASEAN). As a highly institutionalized mechanism in Asia established in the 1960s, ASEAN was initially established to deter the threats from the neighboring great powers and to reduce conflicts among its member states. Over the decades, ASEAN has evolved into an economic and trade bloc and has expanded its cooperation to cover a wide-range of issues.
ASEAN has become a leading actor in advocating Asia’s regionalism. In 1992, an ASEAN Free Trade Area (AFTA) was founded and pioneered the trend of free trade agreements in the region. The ASEAN further expanded its regional cooperation to non-member states after Asia’s financial tsunami in the late 1990s. Starting from its cooperation with China, Japan and Korea, a new “ASEAN plus” pattern was emerging and a future regional free trade area may stretch from New Delhi to Wellington. Now there is even a new idea floating around in the region of an “ASEAN plus eight” including the U.S. and Russia.
In addition to the aforementioned “expansion”, ASEAN has also been devoted to “deepening” the internal integration by introducing the ASEAN Charter that devises a roadmap for the establishment of an economic community in 2015 when the organization will become a single economy of 570 million people with a GDP of $2,000 billion. ASEAN has also undertaken the facilitation of the free movement of goods, services, capital and people, all of which form the core foundations for building an economic community. The prospects referred to in the ASEAN Charter point to a common goal of a community based upon security-related, economic and socio-cultural pillars that mirror Europe’s experiences. The Charter clearly states that Asia’s regional cooperation has been “inspired” by the European Union, although the EU is not a “model” for Asia.
In spite of all the achievements, the ASEAN is still facing severe impediments toward further integration as the differences in terms of economic size and political systems between member states becomes increasingly evident. They have not been able to reach a consensus on how to achieve the common goals because some members are reluctant to eliminate all trade barriers before 2015. In addition, ASEAN still lacks governing bodies that would have binding power to commit the member states to its collective policies, particularly those with sovereign implications. For instance, it has become a common practice for ASEAN to adhere to a non-interference policy toward some sensitive issues including human rights. As a result, there are uncertainties as to whether ASEAN would be able to achieve its objective of creating a community that resembles the highly-integrated European Union. On the whole, the current practice of this regional economic cooperation is to still stick to the “ASEAN way” that is attached to the conventional Asian characteristics.
Emerging China-Centered Regionalism
In Asia as a whole, it appears that a China-centered regionalism is emerging following the rapid rise of China’s overall capabilities at the global level. Among the region’s major multilateral mechanisms, the “ASEAN plus one” free trade area is one of the most noteworthy cases of regional cooperation where China has increasingly become an important actor. Despite the fact that ASEAN endeavors to maintain the dominant role in shaping the future development of regionalism, the center of gravity in regional and global economic and political power has been shifting and China’s presence everywhere has great impacts on all countries around.
Southeast Asian countries had traditionally been inclined to see China posing enormous threats to their security as early as in the 1960s when the ASEAN was established. However, the 1997-1998 financial crisis was a turning point for China’s image as a positive contributor when major powers and institutions such as the IMF and the U.S. offered austere conditions as a quid pro quo for bail-out plans for the countries most affected while China adopted a stable monetary policy and offered financial aid in a way to prevent the crisis from spreading further. The crisis itself altered Southeast Asian countries’ attitudes toward China and they have gradually perceived China as a responsible partner with whom they could cooperate.
To further the bilateral trade relations, a “Framework Agreement on Comprehensive Economic Cooperation between China and ASEAN” was signed in 2002. This agreement was directed toward forming the “ASEAN plus one” free trade area that would largely reduce trade barriers between these two economies. The projected bilateral trade volume would increase and the interdependence between the two economies would intensify. Both sides have taken gradual measures to impose zero tariffs on over 90% of products since early 2010. This immense free trade area, covering a population of 1.9 billion and accounting for 4.5 trillion U.S. dollars in trade volume, is set to be a model of regional cooperation open to other economies in the region to join.
In addition to the ASEAN framework, China has in recent years made great strides in promoting China-centered multilateral cooperation mechanisms such as the Shanghai Cooperation Organization (SCO), the East Asia Summit (EAS), the Boao Economic Forum and the Northeast Asian Free Trade Area. Cooperation and competition may exist between and among these and other regional organizations, but they all point to a direction where the rapid rise of China’s strength is facilitating China-centered regionalism.
Taiwan’s Role in Regional Cooperation
In such a changing regional environment where China is the leading power, Taiwan should not exclude itself from the region’s integration. The best way to break through Taiwan’s stalemate of isolation is to begin with the institutionalization of bilateral economic and trade relations across the Taiwan Strait and then move forward to the region’s economic integration. As an economy highly dependent upon international trade, Taiwan would lose some of its competitiveness in global markets and its international space would be further squeezed if it were to be left behind in the process. As the region’s integration is expanding, Taiwan’s continued absence would be the only missing piece of the jigsaw puzzle. To mend the flaw, Taiwan is drawing a roadmap for its participation in regional integration by starting from the bilateral free trade agreements and expanding to multilateral regional cooperation.
A breaking point of Taiwan’s wider participation in the region is the cross-Taiwan Strait “Economic Cooperation Framework Agreement (ECFA)” which will have strategic implications for the cross-Strait relations and Taiwan’s economic cooperation in the region. The bilateral trade between the two sides, accounting for 27% of Taiwan’s foreign trade, is essential for Taiwan’s prosperity. An “early harvest” list reached between the two sides through negotiations over the ECFA could strengthen Taiwan’s strategic industries, such as its electronics, information and communications, machinery, petrochemical and automobile industries, as well as others. On the other hand, the cross-Strait economic mechanism should also protect those vulnerable industries, such as agriculture, from severe competition from outside by subsidizing them in such a way as to upgrade these industries over a ten-year period of accommodation. By enhancing its overall economic capabilities through the ECFA, Taiwan would be situated in a more favorable strategic position to become the hub of research and development, service and operation centers in Asia.
The ECFA between Taiwan and Mainland China should not be the end of Taiwan’s participation in regional cooperation, but only the beginning. This bilateral agreement is designed to create a friendly environment where Taiwan can more easily convince its major partners of the necessity of involving Taiwan in the bilateral and multilateral economic cooperation in the region. Taiwan is an important contributor to the foreign direct investment in Southeast Asia. Furthermore, a future “ASEAN plus three” mechanism would boost its trade with Taiwan, which is expected to increase to more than 60% of Taiwan’s foreign trade. By not participating in the region’s multilateral economic cooperation, the hollowing out of Taiwan’s industries would be dealt a further blow as Taiwan would miss great opportunities for cross-border cooperation over a wide range of industries.
Overall, the step-by-step approach already taken by both sides of the Taiwan Strait in dealing with economic cooperation and other issues could overcome the mounting obstacles that pose a threat to not only their economic relations, but also to Taiwan’s future free trade agreements with its other major trading partners as well as its role in multilateral economic cooperation. Without Taiwan’s participation, an exclusive regionalism led by China would not only cause serious problems for Taiwan, but would also damage Asia’s normal economic relations as a whole. An inclusive regionalism would instead draw more potential partners into the integration process and make the region fairer and stronger. With its tremendous economic strength, Taiwan’s active participation in Asia’s regionalism both in bilateral and multilateral forms can safeguard its democracy and prosperity that in turn will provide the region with the best guarantee of lasting peace and stability.
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