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Beef, China and TPP
are all linked
By Eric Chiou ªô«³§»
Last year Taiwan expressed an interest in joining the Trans-Pacific Partnership
(TPP) at the APEC summit in Honolulu. Since then, there has been little public
reaction from the TPP¡¦s nine members. That was until last week, when American
Institute in Taiwan (AIT) Chairman Raymond Burghardt openly commented on
Taiwan¡¦s TPP accession, and linked this issue with the trade dispute over
Taiwan¡¦s ban on US beef as well as the suspension of the Trade and Investment
Framework Agreement (TIFA) talks between the two countries.
These comments revealed part of the US¡¦ TPP strategy toward Taiwan: Taiwan¡¦s
accession hinges on whether it can be ¡§serious about trade liberalization¡¨ and
the US beef issue will be one of the critical criteria to test Taiwan¡¦s
sincerity in opening markets and joining the TPP.
It should not come as a surprise that the US uses TPP accession as a bargaining
chip in exchange for Taiwan backing down on the beef issue and the resumption of
the TIFA negotiations, since bilateral and multilateral trade negotiations are
intertwined and many countries join the TPP for various economic, geopolitical
and domestic reasons. For existing TPP members, the decision to accept new
members is used to place pressure on their non-TPP trading partners, to
facilitate stalled bilateral trade negotiations, or to request further economic
concessions.
For example, when Japan announced its intent to join the TPP, members with huge
agricultural export sectors, such as the US, Australia and New Zealand, were
eager to take the TPP negotiations as an opportunity to force Japan to make
substantial concessions on opening its agricultural markets, something that had
been a major obstacle in these countries¡¦ individual bilateral free-trade
agreement (FTA) negotiations with Japan.
In other words, some countries join the TPP negotiations to boost their economic
position and bargaining power.
By joining the TPP, Vietnam intends to promote a US-Vietnam FTA and to seek US
recognition of Vietnam as a market economy. For other countries, like Australia,
in addition to expecting moderate economic advantage from membership, the major
impetus to join the TPP is driven by the strategic consideration of keeping the
US engaged in East Asia.
Similarly, the Philippines, which has explicitly expressed its intent to join
the TPP, wants to use it to strengthen its strategic alliance with the US to
balance China¡¦s assertiveness in the South China Sea.
Interestingly, according to some Japanese academics, Japan also sees the TPP as
a step toward lessening its economic dependence on China. Japan¡¦s TPP
involvement could further consolidate the US-Japan security alliance.
Some countries also regard the TPP as a window of opportunity to launch vital
domestic economic reform and to overhaul uncompetitive industries. For instance,
the leadership in Vietnam aims to employ the TPP to boost domestic economic
reform and restructure its state-owned enterprises.
Likewise, some Japanese policymakers consider TPP accession a critical
opportunity to revamp Japan¡¦s long inefficient agricultural sector and readjust
its industrial strategy.
In short, the complexity of the TPP cannot be fully understood from a single
economic perspective, but needs to be evaluated from a range of geopolitical,
economic and domestic factors.
Once this is understood it is easy to see that Taiwan¡¦s TPP accession will
inevitably encounter multiple significant challenges. The first massive
challenge comes from Taiwan¡¦s imbalanced economic structure and the adverse
impact accession would have on Taiwan¡¦s vulnerable sectors.
Taiwan¡¦s overwhelmingly export-led economy makes its participation in regional
economic integration imperative. Nevertheless, the TPP, which the US has pledged
will be a ¡§high standard, high quality¡¨ FTA, aims to slash most tariffs to zero
and liberalize the agricultural sector. The consequent regulatory changes will
have a severe impact on Taiwan¡¦s weaker industries, especially the agricultural
sector. Not only access to the beef market, but rice and other agricultural
products will be placed on the TPP negotiation table. Whether the Taiwanese
government has sufficient political will and is well prepared to deal with these
impacts is questionable.
From a geopolitical perspective, joining the TPP can improve Taiwan¡¦s overall
position in regional economic integration, lessen its economic overdependence on
China, break its marginalization in East Asia and strengthen its economic ties
with major economies in the Asia-Pacific.
However, Taiwan¡¦s TPP maneuverings may upset China, since the negotiation of the
Economic Cooperation Framework Agreement (ECFA) is ongoing and Taiwan¡¦s TPP
initiative may be viewed by China as fence-straddling. Furthermore, given
China¡¦s ambivalent attitude toward the TPP and that some Chinese officials and
academics consider the TPP to be a provocative US strategy to challenge China¡¦s
leading role in East Asia, Taiwan¡¦s accession could irritate Beijing and lead to
it ending its economic conciliation toward Taiwan.
Even if China regarded the TPP as an innocuous initiative aimed at accelerating
regional integration, based on past experience, it is highly questionable if
Beijing would allow Taiwan to enter TPP negotiations before China.
Despite these challenges, Taiwan¡¦s participation in the TPP could bring more
benefits than drawbacks in the long term. Nevertheless, there are critical
obstacles Taiwan must overcome before it can be accepted into the TPP.
Domestically, the Taiwanese government has to launch a comprehensive review of
each industrial sector that might be affected by the TPP. In addition, it needs
to formulate a mid to long-term economic strategy to overhaul the economy and
reduce negative impacts on vulnerable sectors.
Additionally, whether Taiwan can join the TPP, to some extent, may depend on its
associated ongoing bilateral trade negotiations. This is why US beef, the TIFA
and the TPP are all linked.
To use Taiwan¡¦s leverage on bilateral and multilateral fronts and to make
progress on both fronts simultaneously will test the skill of Taiwan¡¦s trade
negotiators.
Last but not least of the critical challenges is to obtain China¡¦s understanding
that Taiwan¡¦s decision to join the TPP is driven by the need to maintain its
economic survival and to maximize economic prosperity, to convince China that
TPP accession will not undermine continuing robust economic exchanges across the
Taiwan Strait and that it certainly does not carry any geopolitical implications
detrimental to China.
Eric Chiou is an associate research fellow at the Taiwan Institute of
Economic Research.
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