Taiwan, Japan Sign Investment Accord in ’Stepping Stone’ to FTA

Taiwan and Japan signed their first investment accord, strengthening economic ties and stepping closer toward negotiating a free-trade deal.

The treaty provides for investment protection, promotion and liberalization, Peng Run-tsu, chairman of Taiwan’s East Asia Relations Commission, said today in Taipei after signing the agreement with Mitsuo Ohashi, the chairman of the Japan Interchange Association.

Taiwan’s President Ma Ying-jeou, striving for re-election in January on a platform of economic progress, aims to lure more investment into the island’s $355 billion economy. At the same time, Japanese companies such as Panasonic Corp. plan to move production abroad as a stronger yen hurts profits, and after Japan’s March 11 temblor damaged factories, showing the benefits of diversifying overseas.

“Taiwan has always wanted to attract investment from Japan, and with the strengthening yen, Japan may find the timing is right for such an agreement,” Aidan Wang, an economist at Yuanta Securities Investment Consulting Co. in Taipei, said before the announcement. “This pact may be a stepping stone toward a free-trade agreement.”

The yen has surged more than 10 percent against the dollar in the past year and reached a post-World War II high of 75.95 last month, buoyed by the search for so-called safe havens to counter risks from a faltering global recovery. Taiwan’s Taiex stock index slid 3.1 percent today as investors pare bets on emerging markets.

Free-Trade Deal

The Taiwan-Japan accord gives citizens of both economies equal treatment in certain investments, the Ministry of Economic Affairs said in a statement today.

The investment deal with Japan, Taiwan’s second-largest trading partner, paves the way for further talks about trade liberalization, Taiwan’s Ministry of Foreign Affairs said in a separate statement.

Japan’s magnitude-9 earthquake and ensuing tsunami killed thousands, disrupted power supplies and reduced production at companies from Toyota Motor Co. to Sony Corp.

“Disruption after the March earthquake has prompted Japanese firms to diversify risk,” said Tony Phoo, an economist at Standard Chartered Plc in Taipei. Taiwan’s proximity to Japan is among the reasons that “bode well” for its role as a backup production base, he said.

Taiwan and its former civil-war foe China signed their first trade deal last year, part of a rapprochement that’s boosted Ma’s scope to seek similar accords with neighbors such as Singapore without irking officials in Beijing.

Talks with Singapore over a free-trade agreement continue and have yet to reach a conclusion, Taiwan’s Minister of Economic Affairs Shih Yen-shiang told journalists earlier today.

Taiwan’s export-led economy expanded 5.02 percent in the three months through June from a year earlier, the slowest pace since a 1.21 percent contraction in the third quarter of 2009.

Japan, which ruled Taiwan for 50 years until its defeat in World War II, has invested $16.5 billion in Taiwan since 1952, according to Ministry of Economic Affairs data.

China views Taiwan as part of its territory and has threatened to invade if the island declares independence.

To contact the reporter on this story: Chinmei Sung in Taipei at csung4@bloomberg.net.

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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