Sino-Korean FTA Could Cut Taiwan's Output by NT$650Billion: IEK

After the upcoming China-Korea free trade agreement (FTA) comes into effect, Taiwan will likely see its overall output value decline by up to NT$650 billion (US$21.89 billion) within the next three to five years, according to the Industrial Economics & Knowledge Center (IEK), a market research unit under the Industrial Technology Research Institute, a Taiwanese government-funded R&D institute.

The IEK warned that the chances that Taiwanese companies with close business links to China will be severely affected by the Sino-Korean FTA are growing due to the lack of significant progress by the Taiwanese government in its negotiations with China on signing cross-strait goods and service trade agreements.

In the absence of the said cross-strait agreements, the IEK forecast that if the utilization rate of the Sino-Korean FTA by Korean enterprises reaches 40%, 60% and 100%, total output value of Taiwan's manufacturing industries will decline by 1.59, 2.55 and 3.85 percentage points, respectively, representing huge losses of NT$260 billion (US$8.67 billion), NT$420 billion (US$14 billion) and NT$650 billion.

The IEK noted that the chemical industry would be the biggest victim among Taiwanese industries, predicting the sector's output value to plunge by 4.63 percentage points five years after the FTA is formally enacted. This would mean a a loss of NT$227.6 billion (US$7.58 billion), mostly concentrated in the petrochemical and plastic and rubber products sectors.

The IEK also estimated that the output value of Taiwan's steel, metal products, machinery and auto parts industries would dive by 4.23 percentage points, or NT$195.6 billion (US$6.52 billion) as a whole; and that of electronics and information technology sector, including consumer electronics not included under the ITA (information technology agreement) umbrella, would drop by 3.35 percentage points, or NT$179.3 billion (US$5.97 billion)

To confront the challenges of the upcoming Sino-Korean FTA, the IEK urged Taiwanese enterprises to sharpen their core competencies by investing more in R&D and differentiating their products to enhance value. The center also suggested that the government should step up negotiations on cross-strait goods and service trade agreements. (SC)

Forecast of Sino-Korea FTA Impact on Taiwan's Manufacturing Industries
Hypothesis of Korean Enterprises' Utilization Rate of the FTA	Decline in Taiwan's Overall Output Value (percentage points)	Amount of Decline
100%	3.85	NT$650 Bn.
60%	2.55	NT$420 Bn.
40%	1.59	NT$260 Bn.

Note: The forecast is based on hypotheses for the three to five year period after the FTA comes into effect.

Source: Industrial Economics & Knowledge Center