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A U.S.-Taiwan Free Trade Agreement: A Win-Win?

Tain-Jy Chen, National Taiwan University; Scott Kastner, University of Maryland; Dick Nanto, Congressional Research Service

Date & Time

Wednesday
Nov. 8, 2006
1:30pm – 3:30pm ET

Overview

All the speakers agreed that there would be benefits to both sides if the U.S. and Taiwan were to conclude a free trade agreement (FTA), but they also noted that China's current opposition to such negotiations remained a huge obstacle. A creative way needs to be found to demonstrate to China that it, too, could benefit from such an FTA.

Tain-Jy Chen of National Taiwan University emphasized that Taiwan is now a service economy, inasmuch as the service sector comprises 73 percent of Taiwan's gross domestic product. Accordingly, Professor Chen argued that the area in which both Taiwan and the U.S. could benefit most in negotiating an FTA is in services. He gave three examples: finance (stock market, private banking and asset management), medical services, and education services. With regard to manufacturing, Chen stated that in the future, U.S. companies should look to increased opportunities for selling to the Chinese market via Taiwan. An FTA with Taiwan would help in this regard, as Taiwan could become a platform for U.S. companies to increase opportunities for selling to the Chinese market.

Dick K. Nanto of CRS emphasized that FTAs are an essential component of U.S. long-term economic strategy, which also includes a strategic component. Any trade agreement, Nanto noted, has to go through the U.S. Congress. He said that as a result of the U.S. elections the previous day, new members are likely to be more nationalistic, and less willing to support globalization and free trade. Thus, there is a trade agenda, but it will have less of a priority for the new Congress. He noted that two resolutions have passed both Houses supporting an FTA for Taiwan, but the overwhelming majority of signatories in both cases were Republicans. The additional big hurdle for a U.S.-Taiwan FTA, agreed Nanto, would be China. Both the administration and the U.S. business community are reluctant to incur Beijing's ire.

Scott L. Kastner of the University of Maryland offered the interesting argument that it is in China's long-term interest to allow Taiwan to conclude an FTA with the United States. He called Beijing's current opposition "counterproductive." Basically, Kastner's argument is that conclusion of a U.S.-Taiwan FTA would give Taiwan a feeling of greater security and autonomy. To the degree that Taiwan sees itself as having more autonomy, it would feel more secure in entering into reunification talks with China. To the degree that Taiwan feels it has less autonomy, and that China is interfering in Taiwan's affairs, this only irritates Taiwan and makes it more reluctant to enter into talks with the mainland about its future.

Drafted by Mark Mohr, Asia Program Associate
Robert M. Hathaway, Director, Asia Program. Ph: (202) 691-4020

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Indo-Pacific Program

The Indo-Pacific Program promotes policy debate and intellectual discussions on US interests in the Asia-Pacific as well as political, economic, security, and social issues relating to the world’s most populous and economically dynamic region.   Read more

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