TAIWAN'S ROLE IN THE ECONOMIC ARCHITECTURE OF EAST ASIA AND THE PACIFIC

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Author: 
Peter Drysdale
Xinpeng Xu
Description: 
PACIFIC ECONOMIC PAPER NO. 343, 2004
JEL codes: 
Organisation: 
Abstract: 
The accession of both China and Taiwan to the World Trade Organization (WTO) had important implications for relations across the Taiwan Strait and Taiwans position in the regional economy although it did not fundamentally change trade policies by either side towards the other. Accession strengthened Chinas position in the world economy and the momentum of economic reform. Chinas weight and importance in the regional and world economies has increased greatly. With the shift to regionalism and bilateral free trade agreements in East Asia and the Pacific, and Chinas new freedom to join this game, Taiwan has become even more isolated diplomatically. Moreover, despite WTO accession, Taiwan maintains discrimination in its trade policy against key imports from the mainland. This damages Taiwanese trade and economic performance by truncating the capacity of the economy to generate higher value added in Taiwan on the base of Chinas low-cost processing capacity. Because of these restrictions, Taiwan under-utilises trade potential with China and with the world at large compared with other economies in the region such as South Korea. The best strategy for Taiwan is to go global, promoting multilateral liberalisation globally and regionally as a deliberate strategy to strengthen and re-balance economic relations with the mainland.