【922專論】Regional Economic Integration and Trade

International Business Department/Peter Hoang In recent years, we have witnessed a dramatic increase in bilateral or multilateral trade agreements among nations or regions. According to the World Trade Organization’ figure, as of April 2015, some 612 notifications of regional trade agreements had been received by the organization; of these, 406 were in force. Free Trade Agreements and partial scope agreements account for 90% of all trade agreements while customs unions account for 10%. It is expected that the overall number of trade agreements will increase further as the trade agreements currently in negotiations completed. The rapid growing trade agreements due mainly to the failure of the World Trade Organization (WTO) to finalize the Doha Development Round. The Doha Development Round aim is to reduce trade barriers further around the world and facilitate global trade growth. In spite of great effort, talks have stalled over a divide on major issues, such as agriculture, industrial tariffs and non-tariff barriers, services, and trade remedies since 2008. The most significant differences are between developed nations led by the European Union, Japan, and the United States and the developing countries led and represented by Brazil, China, India, and South Africa. Furthermore, there is considerable contention against and between the European Union and the United States over agricultural subsidies. Regional economic integrations have thus become an alternative to some countries since they enable nations to focus on issues that are relevant to their stage of development as well as encourage trade between members. They can be seen as providing underpinnings to strategic alliances, and hence implicitly form part of security arrangements as the case of European Union. Also, smaller countries (economies) consider forming trade agreements with larger partners as a way of obtaining more security for their access to larger markets. Regional economic integration, in essence, is the process in which two or more countries in a broadly defined geographic area reduce a range of trade barriers, such as tariff and nontariff, to advance or protect a set of economic goals. They take the form of either a free trade agreement, customs union, common market or economic union. The free trade area is the most basic form of economic cooperation. Under this arrangement, member countries agree to reduce or remove trade barriers between themselves and each member is allowed to establish independently its trade policies with nonmember countries. Customs union requires participated countries remove trade barriers between themselves plus establishing a common trade policy against nonmember countries. The common market allows for the creation of economically integrated markets among member countries. Trade barriers are removed, as are any restrictions on the movement of labor and capital between member countries. Like customs unions, there is a common trade policy for trade with nonmember nations. The Economic Union represents the full integration of the economies of the countries involved. In addition to eliminating internal trade barriers, adopting common trade policies toward nonmember nations, and abolishing restrictions on the mobility of factors of production among members, an economic union aims for common fiscal and monetary policies, taxation, and standardized commercial regulations among member countries. Overall, businesses can benefit from the trade agreements by having more consistent measures for investment and trade as well as reduced barriers to entry. Companies that choose to manufacture in one country find it easier and cheaper to move goods between member countries in that trading bloc without incurring tariffs or additional regulations. The challenges for businesses include finding themselves outside of a new trading bloc or having the regulations for their industry change as a result of new trade agreements. While businesses within the trading bloc enjoy the free movement of their goods, companies outside of the bloc have to put up with tariff and nontariff barriers. Businesses that are outside of the trading bloc will thus find themselves in an unfair trading position. The consequent is particularly severe when their major markets are within the bloc. Takes Taiwan and Korea, for example; both countries export comparable goods to the same market destinations. Taiwan exported a total of US$ 313.8 billion last year. Of which 39 % went to China (included Hong Kong), 18.7% to the ASEAN, 11.1% to the USA, and 9.2% to the European Union. Electronic products accounted 31.9% of the total export, followed by metals and metal products, accounted for 9.2%, plastic and rubber products accounted for 7.7%. In contrast, Korea exported a total of US$572.6 in the same year. Of which 32.1% went China (included Hong Kong), 14.45 to the ASEAN, 12.2% to the USA, and around 7% went to the European Union. Electronic products accounted for around 24.1% of total exports, metals and metal products 6.4% and plastics 5.6%. While Korea has formed a bilateral trade arrangement with all the major trading partners and more, Taiwan has no formal trading agreements with any of the major world economies. The island only forms a bilateral free trade agreement with Panama, Guatemala, Nicaragua, El Salvador, and Honduras. The situation is clearly put Taiwan exporters in an unfair trading position. They will find increasingly difficult to export their goods to the major trading blocs. The government thus has to make greater efforts to correct the current unfair trading situation urgently. Otherwise, companies will have to reduce their exports or relocate their factories to the countries in the trading blocs to avoid tariff and nontariff barriers, and this will inevitably cause more job losses.

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