Behind The Story: The China-South Korea Free Trade Agreement’s Impact On Taiwan

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By Emily Szu-hua Chen: 

When Chinese President Xi Jinping returned from his visit to South Korea in early July — with an agreement from South Korea to sign a Free Trade Agreement (FTA) by the end of 2014 — some in Taiwan raised the alarm about Taiwan’s international situation: China’s regional focus toward South Korea has put Taiwan at a disadvantage. Specifically, Taiwan’s Ministry of Economic Affairs (MOEA) warned that once the China-South Korea FTA becomes effective, about one-fourth of Taiwan’s export orders from China may be diverted to South Korea.

This raises the question of what China is calculating. Enhancing economic interests by promoting trade with South Korea could be China’s sole motivation but more political and strategic calculations could be in play. No single explanation is entirely satisfying; however, a combination of reasons could form a better picture in understanding China’s intent. 

Setting aside pure economic and trade interests, the first explanation for recent PRC-ROK developments is that China intends to unite with South Korea to counter Japan. Japan’s relations with China and South Korea have long been plagued by disputes over wartime atrocities and territorial sovereignty and this has worsened in recent years. However, this explanation is not supported by the minute details implied in the July summit between Chinese President Xi Jinping and South Korean President Park Geun-hye. Although Japan was addressed during the summit — both Xi and Park made clear their unhappiness with Japan — the resulting joint statement did not focus on Japan. Victor Cha, Senior Adviser and Korea Chair at Center for Strategic & International Studies (CSIS), argued that the China-ROK relationship seems focused on North Korea rather than Japan.

The second explanation is that by pushing for the FTA process with South Korea, China can increase pressure on Taiwan to make progress in the cross-strait Trade in Services Agreement (TiSA). This argument, however, does not fully reflect the current situation. Though TiSA is currently stalled, the mainland has promised that other negotiations will continue. Another meeting on the commodities trade agreement has now been scheduled for mid-September, the first such meeting in ten months.

The last explanation may be that China’s push for the FTA with South Korea is not meant to target Taiwan or Japan but rather serve domestic political needs, consolidating the legitimacy of the Chinese Communist Party’s regime or Xi’s personal power. The Chinese government is under pressure to handle burning domestic problems, such as growing unrest in Xinjiang and Tibet, government corruption, and the stagnant growth of the economy. Such problems, if not addressed, would endanger the survival of the Chinese Communist regime. By maintaining amicable relations with neighbors, the Chinese government might hope to demonstrate to the Chinese people that they can run the country well, effectively distracting the people’s attention from the domestic chaos. However, good relations with South Korea or other neighbors would not likely be sufficient to take people’s minds off of those more pressing domestic issues.

No one other than China knows the full reason for its pushing for an FTA with South Korea, but the possible intention of China to pressure Taiwan is enough to worry Taiwan’s government. The conclusion of the China-ROK FTA would further marginalize Taiwan’s economy from its current position, in a situation where Taiwan’s chances to join the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP) are already slim. Yet there is not even inter-party consensus in Taiwan on the likely impact of a China-South Korea FTA. When President Ma Ying-jeou expressed anxiety over the China-ROK FTA’s impact on Taiwan, some opposition party’s members criticized the government for intimidating people by exaggerating the negative impact of the China-South Korea FTA in order to help the cross-strait TISA sail through the Legislative Yuan.

For Taiwan, it is important to understand the reasons why China wants to speed up its FTA negotiation process with South Korea. However, an assessment of the impact on Taiwan’s economy — an evaluation process which can be accepted by the two political parties — would be useful for now to better prepare Taiwan for the potential challenges ahead.

Follow Stimson’s East Asia program and Stimson on Twitter

Photo credit: [email protected] via flickr

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