S. Korea-China FTA to Sap Taiwan's Export Strength

The free trade agreement (FTA) that has been lately negotiated between South Korea and  China will likely undermine Taiwan's export competitiveness against South Korea. With the proposed Korea-China FTA likely to be signed in 2014, Taiwan may be seriously impacted on its exports, particularly in industries as petrochemicals, textile, machine tools, iron & steel products, to result in Taiwan's growing gap of FTA coverage relative to S. Korea's, according to Y. P. Chu, economics professor at National Central University.

Chu explains that at present S. Korea's FTA coverage rate is 36.5%, which means every US$36.5 of US$100 of Korean exports are shipped to areas with which S. Korea has signed FTA, contrasting Taiwan's FTA coverage rate of only 6.3%. Once S. Korea inks an FTA with China, its FTA coverage rate will likely surge to 62.5%, or 10 times that of Taiwan's.

Chu warns of apocalyptic consequences in the wake of the FTA signed between  China and S. Korea, describing the impact as an atomic bomb to wreak havoc on Taiwan's exports.

S. Korea has so far inked FTAs with the EU and ASEAN (Association of Southeast Asian Nations), which have  dampened Taiwan's export competitiveness since Taiwan's manufacturers have to pay duty when shipping products to said areas, as opposed to duty-free for Korean counterparts. 

Such gloomy outlook is offset by Chung-Hua Institution for Economic Research (CIER) who recently predicted Taiwan's real GDP growth at 3.03% for 2014, a little higher than 2.59% forecast by the Directorate General of Budget, Accounting, & Statistics (DGBAS).

CIER says that Taiwan will see better economic growth for 2014 and predicts the annual economic growth of the four quarters of the year at 2.38% for Q1, 2.6% for Q2, 3.63% for Q3, and 3.43% for Q4. Besides, the annual rise in private spending is expected to be 1.73%, private investment at 4.24%, imports at 2.73% and export at 3.71%.

However, it predicts the economic growth for 2013 at 1.72% and the annual growth of consumer price index (CPI) at 0.85%, lower than the predicted 1.32% for 2014. (JL)

Annual Growth of Taiwan's Economic Indicators Forecast by CIER  (Unit:%)
Economic indicator	2014	2013
Real GDP	3.03	1.72
Private spending	1.73	1.27
Private investment	4.24	5.33
CPI	1.32	0.85
Wholesale price index (WPI)	1.62	-2.47
Jobless rate	4.16	4.2

Source: CIER