Descripción del procedimiento seleccionado para el diseño de la

Aside from the negative impacts on Taiwan’s sovereignty, the economic impact caused by Taiwan’s marginalized position in the Asia-Pacific region is also worthy of consideration. Ideally, Taiwan should participate in regional economic integration mechanisms as many as it can; at least, it should aim at joining US-led regional economic integration frameworks. However, Taiwan’s focus is mainly on the ASEAN-centered integration frameworks supported by China rather than the US-led

161 _{Ibid., 187.}

162 _{Jurgen Haacke, ASEAN’s Diplomatic and Security Culture: Origins, Development, and Prospects}

(New York: Routledge, 2005), 134-35.

163 _{Christopher R. Hughes, “China’s Membership of the ARF and the Emergence of East Asian}

Diplomatic and Security Culture” in Cooperative Security in the Asia-Pacific: The ASEAN Regional Forum, ed. Jurgen Haacke and Noel M. Morado (New York: Routledge, 2010), 63-65.

TPP. The main reason for this is that TPP did not become a concrete regional economic integration mechanism until the US participation in 2008. Moreover, according to the official report conducted by Taiwan’s Ministry of Economic Affairs, in 2013, TPP only accounted for 34% of Taiwan’s total trade, whereas RCEP accounted for 57%.164 Yet, based on the interviews with Taiwanese elites, Taipei’s concern over the TPP seemingly revolves around its strategic value, namely its ability to decrease Taiwan’s economic dependence on the Chinese market and to compensate the negative economic impact on Taiwan generated by RCEP.165 Chapter 6 will study these issues in more detail.

Nonetheless, at the formative stage of ASEAN-centered economic integration frameworks, Taiwan did not pay close attention to these mechanisms because Japan and South Korea were still outsiders. Moreover, ASEAN members are not Taiwan’s major trading partners; neither are they major economic competitors vis-à-vis Taiwan. According to the evaluation conducted by Taiwan’s Executive Yuan in 2004, the negative impacts of CAFTA would only be seen on “Taiwan’s textile industries, wood processing industries, and petrochemical industries”.166 As these are not Taiwan’s key industries, Taiwan would only suffer a 0.05% decrease of annual GDP growth rate by losing US$149 million.167

Moreover, the Taiwanese government also casts doubt on the effectiveness of

164 _{MOEA, ROC, “Why Taiwan Should Join the TPP/RCEP Negotiations?”, 2014, accessed January}

24, 2016, http://www.trade.gov.tw/english/Pages/Detail.aspx?nodeID=1142&pid=492130&dl_ DateRange=all&txt_SD=&txt_ED=&txt_Keyword=&Pageid=2.

165 _{Chi Su, interviewed by author, March 18, 2014; Chun-Fang Hsu, interviewed by author, March 10,}

2014.

166 _{, ( :}

, 2004), 150, Research, Development and Evaluation Commission, Executive Yuan, R.O.C.,

The Research of Taiwan’s Response towards the Establishment of China-ASEAN Free Trade Area

(Taipei: Executive Yuan, 2004), 150.

CAFTA owing to the problem of the ‘noodle bowel effects’.168 As Bhagwati points out, the proliferation of FTAs is the key cause of the “spaghetti bowl” effect because it also raises numerous “rules of origin” (ROOs) in discerning the ‘nationality of goods’ for tariff reductions.169 Specifically, an effective FTA entails a high utilization rate of ROOs, but it is a challenge for every government. In fact, identifying “nationality of goods” is not easy due to the rise of parts and components trade following the segmentation of production chains in the era of globalization.170 In this case, the administrative cost of applying ROOs can be even higher than product values; it then results in a low utilization rate of ROOs.171 Furthermore, given the miscellaneous and heterogeneous ROOs among FTAs, it is fairly difficult for the government to standardize ROOs, and therefore analysts question whether an economy can effectively achieve the goal of trade liberalization by signing bilateral or regional FTAs.172

The “noodle bowl syndrome” is especially significant in East Asia while regional economies have endeavored to sign FTAs due to the uncertainty of trade liberalization progress at the regional level and the WTO after the 1997 Asian financial crisis.173 _{Apart from interests in pursuing trade liberalization, East Asian} countries, and even the US, are also used to utilize RTAs as instruments to consolidate bilateral relations or strategic partnerships in the security realm, as has been the case for the FTA between the US and Singapore.174 Subsequently, East Asian economies have been entangled with the problem of miscellaneous ROOs

168 _{Ibid., 57-58.}

169 _{Bhagwati, “US Trade Policy”, 4-5.} 170 _Ibid.

171 _{Chia, “The Emerging Regional Economic Integration Architecture in East Asia”, 25-26.} 172 _{Bhagwati, “US Trade Policy”, 4-9; Baldwin, “Managing the Noodle Bowl”, 451-52.} 173 _{Baldwin, “Managing the Noodle Bowl”, 451-52.}

174 _{Richard Higgott, “After Neoliberal Globalization”, Critical Asian Studies 36, no. 3 (2004):}

within a great number of FTAs.

Table 3.4.1 The Number of East Asian Economies’ FTAs by 2015

Countries The Number of FTAs Rank

Brunei Darussalam 12 9

Cambodia 8 14

China, People’s Republic of 22 4

Hong Kong, China 5 15

Indonesia 17 7 Japan 24 2 Korea, Republic of 23 3 Lao PDR 10 10 Malaysia 21 5 Myanmar 10 10 Singapore 32 1 Taiwan 9 13 Thailand 21 5 The Philippines 10 10 Vietnam 15 8

Source: Compiled from ADB (2015), “Free Trade Agreements”175

As shown in Table 3.4.1, most East Asian economies have had at least 10 FTAs at the same time, and regional economic powers, such as Japan, South Korea, Singapore, Malaysia, and China, possessed more than 20 FTAs by 2015. Moreover, Table 3.4.2 provides the number of cumulative FTAs in Asia.176 Stunningly, between 1995 and 2015, there has been a seven-fold increase in the number of FTAs, reaching 215 by 2015. Given the intricate FTA networks in East Asia, it is not unusual to witness Taiwan’s doubt about the effectiveness of CAFTA in the official evaluation. Actually, according to Baldwin’s study, since the establishment of AFTA in 1992, this agreement had only benefited about 3% of total trade among ASEAN members in terms of preferential tariff treatments.177

175 _{Asian Development Bank, “Free Trade Agreements”, 2015, accessed January 24, 2016,}

https://aric.adb.org/fta-country.

176 _Ibid.

Table 3.4.2 The Total Number of FTAs in Asia in 2015

Year

Under Negotiation

Signed but not yet in Effect

Signed and in

Effect Total Proposed Framework Agreement signed Negotiations launched 1975 0 0 1 0 1 0 1991 0 0 2 5 7 1 1995 0 0 9 22 31 1 2000 0 6 10 35 51 3 2005 16 28 17 63 124 37 2010 11 47 15 106 179 53 2011 12 47 14 114 187 57 2012 10 58 12 120 200 48 2013 9 61 10 125 205 53 2014 5 66 12 130 213 59 2015 5 62 14 134 215 67

Source: Compiled from ADB (2015), “Free Trade Agreements”178

Due to the probable limited effectiveness of CAFTA in trade liberalization, as well as its limited impact on Taiwan’s economy, Taipei remained confident in the “go south” strategy for responding to CAFTA, which will be studied in more detail in chapter 4.179 In addition, Taiwan aims to promote trade liberalization in the WTO and APEC in order to cope with the negative economic implications of by CAFTA.180 However, when Seoul and Tokyo commenced FTA negotiates with China and ASEAN, Taipei’s worried about the “trade diversion effect”’, particularly

178 _{Asian Development Bank, “Free Trade Agreements”.}

179 _{, ,}

154-58, Research, Development and Evaluation Commission, Executive Yuan, R.O.C., The Research of Taiwan’s Response towards the Establishment of China-ASEAN Free Trade Area, 154-58.

on its ICT industries.181

“Trade diversion effect”, as defined by Bhagwati, is “taking trade away from efficient outside suppliers and giving it to inefficient member countries” after the implementation of an FTA.182 This effect contradicts to the initial purpose of trade liberalization, namely “trade-creating”, which means “generating trade from one more-efficient member at the expense of another less efficient member”.183 _{In theory,} once the trade diversion effects had been felt following the establishment of an FTA, both FTA members and “outsides” would suffer economic loss since the FTA has lost its function of “trade creation”.184

Taiwan’s concern over the “trade diversion effects” is mainly based upon the above FTA theory, but it may be slightly different from theoretical arguments. It is noteworthy that Taiwan’s worries about the establishment of APT largely stems from the potential loss of its competitiveness vis-à-vis Japanese and South Korean electronic and ICT industries; however, none of manufacturers in these countries are “inefficient” in these fields.185 _{Japanese electronic enterprises, such as SONY and} TOSHIBA, and South Korean ICT industries, such as Samsung and LG, are all strong competitors for Taiwan’s electronic and ICT industries. As such, in order to distinguish the difference between Taiwan’s contemplations and the theoretical context of the FTA theory, this thesis replaced the term of “trade diversion effects” by the “trade substitution effects” as defined in chapter 1. Taiwan’s concern over the “trade substitution effects” generated by the APT has two main aspects.

181 _{Ibid., 130-32.}

182 _{Bhagwati, “Regionalism versus Multilateralism”, 543.} 183 _Ibid.

184 _{Urata, “Exclusion Fears and Competitive Regionalism in East Asia”, 28-29.} 185 _{Dent, “Taiwan and the New East Asian Regionalism”, 145-48.}

Firstly, following the establishment of APT, South Korean ICT products could substitute Taiwan’s.186 _{The aforementioned industrialization trajectories of Taiwan} and South Korea in the process of East Asian regionalization augur severe competition between them. Both economies have focused on the development of ICT industries to facilitate the progress of industrialization, and currently, the ICT products still constitute a large proportion of their exports.187 In considering Taiwan and South Korea’s highly competitive and overlapping export commodities, the Taiwanese government worried that Taiwan’s ICT industries would lose its competitiveness vis-à-vis South Korea following the establishment of the APT.188

The disadvantageous position of Taiwan may further deteriorate following Japan’s enrolment in the APT and TPP.189 _{On the one hand, Japan’s enrolment in} APT may cause the redistribution of electronic RPNs by directing investment from Taiwan to Mainland China and Southeast Asian economies, which would endanger the survival of Taiwan’s electronic SMEs.190 On the other, it may be more difficult for Taiwan’s electronic industries, especially those manufacturers of consuming electronic products, to rival Japan’s enterprises for the share of East Asian markets.191

186 _{Kuo-Hsin Liang, interviewed by author, March 14, 2014; Tsao-Shan Cho, interviewed by author,}

April 15, 2014.

187 _{Yun, “International Production Networks and the Role of the State”, 177-181; Dent, “Taiwan and}

the New East Asian Regionalism”, 145.

188 _{, ,}

77-81, Research, Development and Evaluation Commission, Executive Yuan, R.O.C., The Research of Taiwan’s Response towards the Establishment of China-ASEAN Free Trade Area, 77-81.

189 _{Chun-Fang Hsu, interviewed by author, March 10, 2014.}

190 _{, , 77-81,}

Research, Development and Evaluation Commission, Executive Yuan, R.O.C., The Research of Taiwan’s Response towards the Establishment of China-ASEAN Free Trade Area, 77-81.

Thus far, despite most analysts’ expectations, the TPP negotiations were concluded in 2015. Meanwhile, in response to the US-led TPP, East Asian economies have endeavored to expand the scope of regional economic integration by establishing RCEP based upon pre-existing APT projects.192 Moreover, to tackle the “noodle bowl effects”, TPP members have integrated miscellaneous ROOs into three classification standards listed in TPP Chapter 3.193 In the case of RCEP, ASEAN has also commissioned several study groups to research the issue of ROOs.194 This new situation is apparently not in the Taiwanese government’s anticipation, and the formation of RCEP and TPP can possibly magnify the negative economic implications for Taiwan caused by its marginalized regional position. To tackle this problem, Taiwan must generate new strategies. However, Taiwan has confronted strategic predicament whilst Beijing has spared no effort to deter Taiwan’s FTA negotiations with East Asian economies by reiterating the “one-China principle”.195 In this regard, Taiwan’s economic agendas have become political issues.