Business Leader Urges U.S. To Relaunch Taiwan TIFA To Balance China 
Wednesday, March 24, 2010
The Obama administration should consider broader economic interests in Taiwan than access to its beef market and not let beef issues prevent engagement with Taiwan in talks under the existing Trade and Investment Framework Agreement (TIFA) this spring, according to a leading advocate for U.S. business in Taiwan .
The TIFA talks have been suspended since January in response to the import restrictions on U.S. ground beef and offal imposed by the Taiwanese legislature in contravention of a bilateral beef agreement.
Resuming TIFA talks makes sense because they are "pretty much all" the U.S. has right now to balance Taiwan's expected conclusion of an Economic Cooperation Framework Agreement (ECFA) with mainland China in May or June, U.S.- Taiwan Business Council President Rupert Hammond-Chambers testified at a March 18 hearing of the U.S.-China Economic and Security Review Commission.
He testified on the economic aspects of U.S.- Taiwan relations as part of a panel that also included University of Maryland Associate Professor Scott Kasten and GC3 Strategy Inc. CEO Merritt Cooke.
"... [A]s Taiwan and China look to spring 2010 to formalize the ECFA, the U.S. must also look to re-launch TIFA talks during the same timeframe," he said in his prepared testimony. "This sets the appropriate balance for Taiwan , and impresses upon both Taiwan and China -- as well as throughout the region -- that America does have material and strategic equities on Taiwan , and will watch and respond to ongoing events."
The U.S. should also promote the inclusion of Taiwan in the negotiation of a region-wide Trans-Pacific Partnership (TPP) agreement as part of its efforts to reinvigorate U.S. leadership in Asia, he said. The U.S. has entered into TPP negotiations with seven trading partners, of which all but three already have a free-trade agreement with the U.S. Participating in the talks are the U.S., Chile, Singapore, Australia, Peru, Brunei, New Zealand and Vietnam, which has not yet decided to be a full participant.
The current freeze on TIFA talks marks the second time the U.S. government has used it as leverage in its effort to open the Taiwanese beef market. The first time it placed the TIFA talks on hold was in 2008 to increase pressure on Taiwan to strike a bilateral deal to completely open its beef market in accordance with the guidelines of the World Animal Health Organization.
Those guidelines hold that the U.S. is a controlled risk country for bovine spongiform encephalopathy, and therefore specify that beef from cattle of all ages is safe for human consumption provided certain risk materials are removed.
The U.S.- Taiwan beef agreement was reached in October 2009 and it allowed U.S. exports of ground beef and offal from cattle younger than 30 months. On Jan. 5, 2010, the Legislative Yuan approved a ban on all U.S. ground beef and offal in an amendment to the Food Sanitation Act (Inside US-China Trade, Jan. 27). According to Hammond-Chambers, the amount of U.S. beef impacted by this ban represents a small fraction of the overall U.S.- Taiwan economic relationship, and its interruption should not be allowed to hold up broader U.S. economic interests vis-a-vis Taiwan .
Hammond-Chambers acknowledged that the U.S. cannot allow the legislative action to "sit out there" unpunished, because that might allow Taiwan or others in Asia to view the maneuver as a blueprint on how to escape trade obligations. But he offered no concrete suggestion for doing so other than to say this should not be done by holding up TIFA talks.
"If trading partners are able to use their legislative branches to undermine bilateral trade accords in such a fashion, the U.S. is compelled to respond seriously in order to deter similar actions by the Koreans, Japanese, etc.," he said in his prepared remarks. "In addition, as Taiwan presses for additional protocols or agreements in areas such as investment or taxes, what assurances does the U.S. have that those too won't be changed after negotiations have been concluded?"
Earlier in the March 18 hearing, U.S. Deputy Assistant Secretary of State for East Asian and Pacific Affairs David Shear said the Obama administration "in general terms" supports the China- Taiwan ECFA negotiation, although he stressed that few details are yet known. "We have not yet had a chance to determine how it will affect our economic relations with Taiwan ," he said.
Although China currently opposes Taiwan negotiating any other regional or extra-regional free trade agreements (FTAs), that could change as a result of the conclusion of the ECFA, which will create more economic integration between Taiwan and the mainland, Hammond-Chambers predicted.
But co-panelist Merritt Cooke expressed the view that China may be seeking to draw Taiwan into a its own web of regional trade alliances, and likely would seek to use its closer integration via the ECFA to discourage trade pacts with major trading partners outside Asia, such as the U.S. and the European Union.
The U.S. should show "leadership" in the region and press for Taiwan to be included in the TPP, even if China objects, said the panelists.
The panelists also concurred that the principal motivation for China in negotiating the ECFA with Taiwan is the political imperative of trying to promote the eventual unification of the island with the mainland. Taiwan , by contrast, is motivated by the desire to further integrate economically in order to remain globally competitive, they said.
Despite their distinctly different motivations, the two sides' commitment to the ECFA is fueled by the "shared beachhead" of mutual benefit generated by expanded tourist, trade and person-to-person contacts, said Cooke.
Taiwan remains committed to launching and negotiating an FTA with the U.S. "as early as is possible," Hammond-Chambers said in his prepared remarks. The "principal stumbling block" to such a negotiation remains "the lack of a U.S. trade liberalization policy," he added.
While an FTA remains the "ultimate" solution for providing U.S. negotiators with the opportunity to match or improve upon the concessions obtained by China from Taiwan in areas of U.S. commercial advantage, other initiatives that could help U.S. companies operating in Taiwan include negotiating a bilateral investment agreement (BIA)--which would function similarly to a bilateral investment treaty-- or a tax accord. He noted, however, that the possibility of a BIA negotiation awaits the outcome of the Obama administration's ongoing review of how extensively to reform the U.S. Model BIT.
According to Hammond-Chambers, the ECFA is on track to be concluded between China and Taiwan at the fifth round of negotiations, tentatively scheduled for May/June 2010. Those talks are being held under the auspices of the Straits Exchange Foundation on the Taiwan side and the Association for Relations Across the Taiwan Strait on the Chinese side.
The ECFA will consist of three main components, he said. They are: a framework agreement, an "early harvest" pact of tariff cuts on priority goods, and a timetable for the projected negotiation and completion of "as yet unaddressed industry sectors."
As part of the "early harvest" accord, Taiwan is expected to lift existing bans on imports from China for approximately 1500 categories of industrial goods, including textiles, petrochemicals, auto parts and machine tools. But, in alignment with a campaign commitment made by Taiwan President Ma, none of the island's current 800 agricultural import bans will be liberalized.
But Taiwan may get better access to China's agricultural markets than did the countries in the Association of South East Asian Nations in their ASEAN+1 pact with China that entered into force this past January.
ECFA should be "only the first step" in Taiwan's plan to improve its competitiveness, Hammond-Chambers said. It also must move forward with significant domestic economic reform, infrastructure investment and free trade pacts with its other main trading partners, such as the U.S., Japan, ASEAN and the EU, he said.
The ECFA is being negotiated outside the framework of the World Trade Organization and therefore will not immediately be in compliance with WTO Article XXIV's requirement that FTAs, customs unions or regional agreements cover substantially all trade, the panelists said.
"Over time the idea is it would encompass all trade," said Cooke. "But to make it more feasible to conclude quickly, they restricted trade in the near stages quite clearly."
Cooke stressed that China's and Taiwan's economies are highly complementary. This means the ECFA should allow the marriage of China's great advantages of access to low-cost labor, facilities, land and a large consumer market with Taiwan's advanced manufacturing processes and management expertise.
The ECFA will cause Taiwan's gross domestic product (GDP) to be at least four percent higher than it otherwise would be by 2020, according to a yet-to-be-released study by analysts at the Peterson Institute for International Economics cited in Hammond-Chambers' testimony.
If the pact is successfully negotiated and executed, including lifting of Taiwan's existing bans on 2244 categories of imports from China, Peterson Institute for International Economics fellows Dan Rosen and Zhi Wang predict significant competitive benefits for Taiwan . These include being able to source more competitive consumer products and industry inputs, gaining access to Chinese investment capital, and increased attractiveness as a global investment target.
LOAD-DATE: March 24, 2010
Source: Inside Washington Publishers
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