The FTA Music Is Playing in Asia: After ECFA, Will Taiwan Join the Dance?

Abstract

In the context of stalled multilateral trade negotiations, major trading economies are seeking free trade agreements (FTAs) to secure their market access objectives. Nowhere is this dynamic stronger than in East Asia, where a web of bilateral and plurilateral agreements is stitching together piecewise an Asian free trade area that could plausibly rival the EU and NAFTA trade blocs and where the possibility of a formal pan-Asian agreement has been raised. Taiwan has been largely excluded from this dynamic. However, with the June 29, 2010 signing of the Economic Cooperation Framework Agreement (ECFA) with China, the possibility of Taiwan joining the FTA dance in East Asia would appear to have been greatly strengthened as the advocates had anticipated. This article considers the economic and trade implications of Taiwan's participation versus non-participation in an emerging East Asian trade bloc. We support our analysis with simulations using the GTAP computable general equilibrium model. The article finds that the benefits to Taiwan of participating in such a bloc have increased, as have the opportunity costs of exclusion, since the share of East Asian partners in its trade has risen.

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