Trade
Taiwan’s new place in the world
Author: Roy Chun Lee, CIER
It has been another challenging year for Taiwan filled with both excitement and concern. Two key factors shaped the development of 2019 were the US–China trade war and the upcoming Taiwan presidential election.
In terms of economic performance, the Chung-Hua Institution for Economic Research (CIER) forecasts Taiwan’s GDP growth to be one of the highest in the East Asian region, reaching 2.33 per cent. While trade performance has declined throughout the year, domestic investment in the manufacturing sector has soared to a historic high, contributing to GDP growth. This outcome can be partly attributed to the US–China trade war. The surge of investment is mainly underpinned by the homecoming of Taiwanese original equipment manufacturing (OEM) companies — that previously used China as their production base — trying to circumvent tariffs for their US clients.
According to government figures, committed investment reached US$27 billion as of December, with US$8.7 billion already realised. Around 70 per cent of this investment is in the information and communication technologies (ICT) sector, followed by electronic machinery, consumer products and chemicals. With the effect of creating job opportunities as well as new dynamics for economic activities, short-term prospects are looking positive for 2020.
The upcoming 2020 presidential election has prompted the government to accelerate major decisions on public investment, including the extension of the high-speed rail system to cities that were previously considered economically unviable. But many critics question feasibility and worry over the lack of transparent impact assessment processes.
Another significant development is the structural change taking place in trade and investment. Taiwan’s overall export growth stands at –3.4 per cent as of October 2019, with exports to the United States increasing by over 23 per cent and exports to China declining by 32 per cent. By year’s end, the United States is expected to surpass ASEAN to become Taiwan’s second largest trade partner behind China. Investment to China — which historically dominated Taiwan’s outbound investment — declined by over 50 per cent by November compared to the same period in 2018, and investment into ICT manufacturing dropped by over 90 per cent.
From a strategic perspective, many have an interest this outcome as it implies a re-balancing of Taiwan’s economic relationship with China by reducing the level of dependence and integration with the Chinese economy — a long-time goal of the current government.
But re-balancing also bears economic costs: re-configuration of the supply network impacts not only the movement of capital and manufacturing equipment but also workers and suppliers. While Taiwan is the preferred location for many Taiwanese OEM firms, the relative high cost of production means that India, Vietnam, Thailand, Malaysia and other ASEAN countries are often the only feasible option. Incomplete supply chains and a lack of qualified workers remain top concerns for many Taiwan businesses.
The rejuvenated trade relationship with the United States is also not all good news. Taiwan’s trade surplus with the United States reached US$170 billion in October 2019, suggesting that the US$200 billion trade surplus threshold will be surpassed by the end of the year without difficulty. This is one of the thresholds that the United States uses to classify states as potential currency manipulators. Taiwan already exceeds the other threshold — as the current account surplus is more than 2 per cent of GDP — so the risk for Taiwan to be designated a currency manipulator is increasing.
Nevertheless, the Taiwan–US relationship improved significantly in 2019. The Taiwan Travel Act — that allows bilateral high-level official visits between the United States and Taiwan — came into force in 2018. Both the US House of Representatives and the Senate subsequently passed the Taiwan Allies International Protection and Enhancement Initiative Act of 2019 that instructs the US government to facilitate Taiwan’s meaningful international participation, including in the US Indo-Pacific Strategy.
These developments, in addition to other initiatives, angered Beijing, causing injury to Taiwan–China relations. The Hong Kong protests have seriously undermined the value and credibility of the ‘One China, Two Systems’ policy that China has espoused. According to Taiwan’s official Mainland Affairs Council’s latest survey in October, over 89 per cent of…
Trade
Self-Reliance and Openness: Core Principles of China’s Third Plenary Session
The Third Plenum communique from the CCP indicates a prioritization of stability and compromise in response to China’s economic challenges. It highlights the concept of Chinese-style modernization and establishes political guidelines for balancing regulation and market forces.
The CCP’s Third Plenum communique signals a focus on stability and compromise in the face of China’s economic challenges. It emphasises Chinese-style modernisation and sets political directions for balancing regulation and market forces. While not as groundbreaking as previous plenums, it acknowledges the importance of market mechanisms and technological self-reliance, aiming to address issues like high youth unemployment and private sector uncertainty. The communique seeks to navigate the complexities of global competition and domestic innovation, potentially reshaping global supply chains and trade dynamics. Overall, it presents a pragmatic blueprint for China’s economic future.
Source : Self-reliance and openness central pillars of China’s Third Plenum | East Asia Forum
Trade
Trade Prevails Over Political Persuasions in China-Germany Relations
China and Germany maintain a strong bilateral relationship, rooted in economic cooperation despite ideological differences. Recent visits and agreements focus on expanding trade and addressing mutual concerns, navigating challenges while nurturing ties.
Evolving Bilateral Ties
China and Germany share a strong bilateral relationship, rooted in history since 1972. This connection has seen moments of cooperation intertwined with periods of tension. German Chancellor Olaf Scholz’s April 2024 visit underscores Germany’s commitment to fostering this partnership, reflecting a mutual interest in maintaining economic ties despite ideological differences.
Economic Pragmatism
As the second and third largest global economies, China and Germany’s economic interdependence is crucial. Germany emerged as China’s primary trading partner in 2023, with trade values reaching €254.4 billion (US$280 billion). In response to global scrutiny, Germany has taken a balanced approach, emphasizing economic stability over political discord. This was evident during Scholz’s prior visit in November 2022, where his diplomatic tone contrasted with broader EU sentiments.
Facing Challenges Together
Despite increasing public skepticism in Germany regarding China’s global influence and human rights issues, both nations continue to seek common ground. Their October 2023 Joint Statement highlights intentions to pursue cooperation in areas like carbon neutrality and open markets. To navigate these complex terrains, Germany can utilize its institutional frameworks to enhance dialogue, while also considering supply chain diversification to reduce dependency on China. The intertwining nature of their economies suggests that, despite challenges, both countries will continue to prioritize their substantial trade relations.
Source : Trade trumps political persuasions in China–Germany relations
Trade
Fixing fragmentation in the settlement of international trade disputes
Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.
Fragmentation in Global Trade
Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.
Challenges with WTO Dispute Settlement
The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.
The Path Forward for Global Trade
Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.
Source : Fixing fragmentation in the settlement of international trade disputes
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