Korea wary of China-Taiwan trade

Experts are raising voices for businesses and policymakers to forge closer tieswith China and Taiwan to cope with an emerging economic integration between the two countries.

The two Cold War rivals signed a historic trade pact in late July to cut tariffs and open their markets wider to each other, paving the way for an a pan-Chineseeconomic community. 

The Economic Cooperation Framework Agreement is expected to affect Korean exporters, especially in high-tech industries, which are compete closely with Taiwanese firms in the global market. 

“There will be synergies of combining China’s capital and Taiwan’s technology. Taiwanese goods will become much more competitive especially in China,” said Kwon Hyuk-jae, a China expert at the Samsung Economic Research Institute.

The trade pact will allow Taiwanese companies to attract wider pool of investors and consumers from the mainland.

“It’s difficult to quantify the pact’s implications on Korea but the deal definitely disadvantages Korean firms in the long run,” he added.

The deal calls on China to lift tariffs on 539 Taiwanese products and open 11 service sectors to Taiwanese companies, such as banking, accounting, aircraft maintenance, insurance and hospitals. 

In return, Taiwan is giving up tariffs on 267 Chinese exports worth $2.85 billion.

The change is expected to increase Taiwanese exports by $13.8 billion over the next two years.

For China, it is a major achievement in its efforts to form a pan-Chinese economic bloc with a 1.4 billion population, encompassing China, Taiwan, Hong Kong and Macau whose population.

Korean LCD, petrochemical, and white goods makers are expected to be hit hardest in the face of competition with Taiwanese counterparts.

Of 100 Chinese buyers surveyed, 39 picked Korean electronics would be the most affected, and 22 picked agricultural goods, the Korea Trade Investment Promotion Agency said. 

Korea and Taiwan each make up 10.2 percent and 8.6 percent of China’s imports. A total of 14 products overlap between the two countries in its list 20 major of exports to China. For Korea, the 14 items make up 60 percent of Korea’s total export to China. 

“Exporters should more actively pursue strategic alliances with Taiwanese companies like the way Japanese did to penetrate the Chinese market,” Kwon said.

Experts are calling on the government to speed up negotiations for a bilateral free trade agreement with China and push harder for East Asian trade liberalization. 

“Korea may lose out by Taiwan in the Chinese market. The situation makes casefor Korea to push harder for the Korea-China-Japan FTA,” Park Sang-soo, business professor at the Chungbuk University said.

Leaders from Korea and China in June agreed to start preliminary consultations by September before launching full-fledged negotiations. Private experts from the two countries have been conducting feasibility studies for years. Koreans worry that their agricultural industry would be seriously damaged by competition with cheaper Chinese goods. 

“The government should consider gradual settlement of the pact rather than packaging the FTA at once, by discussing areas with less disputes first,” Kwon added.

The ECFA is also expected to spur interest among other countries in the region in pushing free trade agreements with Taiwan, a former Japanese policymaker forecasted through the Nihon Keizai Shimbun Thursday.

Japan Economic Foundation chairman Noboru Hatakeyama, a former official of Japan’s Ministry of Economy, said Taiwan’s signing of the pact will “help strengthen economic relations and improve bilateral ties between Taiwan and China,” which would lift Taiwan’s status in the region.

Policymakers from the Association of Southeast Asian Nations have recently reaffirmed their push to achieve a single market and production base in 2015. 

A meeting of ASEAN economic ministers on August 24-25 reiterated their commitment to promote trade facilitation measures for free flow of goods in the region. The group is to push FTAs between ASEAN and major Asia-Pacific markets including China, Korea, Australia, New Zealand and India.