by Daniel H. Rosen, Peterson Institute for International Economics
Posted in the China Real Time Report, Wall Street Journal
August 8, 2010
© Wall Street Journal
The Obama administration is showing a renewed vigor in deepening America's roots in Asia. This year, it has made a commitment to get the Korea-US Free Trade Agreement through Congress, raised the priority for a Transpacific Partnership trade agreement, and decided to seek participation in the Association of Southeast Asian Nation (ASEAN)'s East Asia Summit. These are important steps.
But the United States has not yet taken advantage of a significant opportunity to add to this momentum by boosting economic engagement with Taiwan. Doing so can further US commercial goals with an important trading partner, and also contribute to the US foreign policy goal of keeping pace with the economic integration happening within Asia.
The US-Taiwan talks on the Trade and Investment Framework Agreement, or TIFA, have lapsed for three years. In Washington policymakers have been preoccupied with critical domestic issues including healthcare and financial sector reform. In Taipei, authorities were unable to implement an agreement on US beef trade, leaving American exporters unhappy and US officials worried about setting a bad precedent. As a result, US-Taiwan TIFA talks have fallen by the wayside.
This is unfortunate. Through the TIFA talks, the United States can pursue new opportunities to export to Taiwan, and smooth the road to further two-way investment flows. And restarting TIFA talks will also advance broader US interests in Asia.
Taiwan is the 10th largest trading partner of the United States, despite a population of just 23 million. US firms also have nearly $20 billion invested in Taiwan, and Taiwanese businesses have $4.2 billion in the United States. There is great potential for more: So far this year US exports to Taiwan are up 68 percent through May compared to the same period last year, and the United States exported $18.5 billion even in the depths of the crisis last year.
But Taiwan is now at a turning point, with much of its focus on Asia. On June 29 it signed an Economic Cooperation Framework Agreement, or ECFA, with China, which will be followed by a free-trade deal. Once implemented, that agreement will increase the share of China-bound Taiwanese exports to 60 percent, and lift Taiwan's overall economic growth significantly.
This agreement with China also opens the door for other countries to sign formal trade deals with Taiwan. Many expected the United States to be the next in line, but instead Singapore is jumping to the head of the line and pursuing a trade and investment agreement with Taipei.
While the United States has recently stepped up its game in Asia, countries in the region are moving even faster. The TIFA talks can show that the United States is not lagging behind these Asian countries, as well as help us better understand Taiwan's regional engagements.
The disappointment in Washington over Taiwan's poor implementation of existing agreements is justified and must be addressed. But rather than a reason not to talk, those concerns are a compelling reason to schedule TIFA talks. Addressing those concerns should be a priority for Taiwan as well, since smoothing out problems with existing agreements will comfort potential partners down the road.
This year China has, in addition to signing the framework agreement with Taiwan, implemented a free-trade agreement with ASEAN, and committed to launch free-trade negotiations with Korea. President Obama has taken steps to keep pace on the ASEAN and Korea trade fronts, which are essential for meeting his goal of doubling US exports in five years.
Restarting our TIFA dialogue with Taiwan would be a natural next step to demonstrate the continued economic relevance of the United States in Asia.
Daniel H. Rosen is coauthor of the book The Implications of China-Taiwan Economic Liberalization.
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