Nov. 7 (Bloomberg) -- Taiwan signed its biggest trade deal yet with a country that has diplomatic ties with Beijing, as the island tries to integrate its economy with the rest of Asia’s and to diversify economic allies beyond China.
A free-trade agreement with Singapore, Taiwan’s fifth-biggest trade partner, was inked today in the southeast Asian city-state after two years of talks, according to Taiwan’s Ministry of Economic Affairs. The deal covers goods, services, investment and government procurement, the ministry said.
Taiwan President Ma Ying-jeou is trying to catch up with the regional economic integration embraced by Asian neighbors such as South Korea. China didn’t interfere with Taiwan’s first free-trade agreement with a developed economy, New Zealand, signaling the mainland’s tolerance for such deals.
“Relations across the Taiwan Strait are improving and Chinese authorities are quite ready for Taiwan to get some international space,” said Joseph Cheng, a political science professor at the City University of Hong Kong.
China reached a wide-ranging agreement for economic cooperation with Taiwan in 2010. A further substantive pact opening up service sectors like banking and hospitals was signed in June and awaits legislative review. According to Ma, the deal with Singapore would facilitate Taiwan’s entry to the Trans-Pacific Partnership, which Taiwan wants to join by 2020. The TPP is currently under negotiation among 12 countries including the U.S. and Japan.
“We are seriously lagging relative to our trade competitors, including South Korea, Singapore, and Japan,” Ma said in an interview on July 25. “We must act fast to catch up with the regional trend.”
Today’s deal was signed between the Singapore Trade Office in Taipei and the Taipei Representative Office in Singapore. The agreement refers to Taiwan as the “Separate Customs Territory of Taiwan, Penghu, Jinmen, and Matsu,” its moniker in the World Trade Organization.
Taiwan’s July deal with New Zealand was technically between non-governmental organizations: the New Zealand Commerce and Industry Office in Taipei and the Taipei Economic and Cultural Office in Wellington. It was signed at Victoria University on July 10 and featured a webcast arrangement that allowed Taiwan’s Foreign Minister David Lin and Minister of Economic Affairs Chang Chia-juch to “witness” the signing without traveling to New Zealand, according to Taiwan’s Central News Agency.
“We have no questions on foreign countries undertaking economic, trade and cultural relations with Taiwan,” China’s Foreign Ministry spokesman Hong Lei told a briefing in Beijing today. “But we are against any foreign countries developing official government relations with Taiwan.”
Following New Zealand’s pact with Taiwan, China Foreign Ministry spokeswoman Hua Chunying said that “reasonable and fair arrangements” could be made between foreign countries and Taiwan. New Zealand adhered to its one-China policy, “which is conducive to the healthy development of Sino-New Zealand relations,” Hua said.
The Singapore deal may boost exports out of Taiwan to the city-state. Taiwan exported $1.55 billion of goods to Singapore in September, or about 6.2 percent of the value of all goods shipped overseas.
“Taiwan is wise for moving ahead like this,” Derek Scissors, a Washington-based research fellow at the American Enterprise Institute, said in August. “China has more weight than necessary in the Taiwan trade portfolio and Taipei should diversify.”
Exports account for about two-thirds of Taiwan’s gross domestic product, and goods bound for China and Hong Kong represent about 40 percent of shipments.
The island has free-trade deals with diplomatic allies such as Panama, Nicaragua, Guatemala, Honduras and El Salvador, according to Chen-shen Yen, a research fellow at the Institute of International Relations at Taiwan’s National Chengchi University. These nations recognize Taiwan’s Republic of China government rather than the People’s Republic of China government seated in Beijing. The New Zealand agreement and a deal with Singapore would help Taiwan negotiate similar deals with Asean nations, Yen said.
The island’s economy last year, which grew at 1.32 percent last year, lagged behind the Philippines and Indonesia. The Philippine economy expanded 6.8 percent and Indonesia’s gross domestic product rose more than 6 percent in 2012.
Taiwan is studying potential deals with the Philippines and India, and plans to start a study on a similar pact with Israel, the economic affairs ministry said in September.
“Taiwan can negotiate with other countries without mainland interference as long as China has already struck a trade agreement,” Scissors said. “Serious talks with India, for example, would therefore see Chinese opposition. But Indonesia might not.”
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