ANZTEC and Taiwan’s Quest for Economic Integration

The carefully titled Agreement between New Zealand and the Separate Customs Territory of Taiwan, Penghu, Kinmen, and Matsu on Economic Cooperation (ANZTEC), signed on July 10, represents a diplomatic coup for Taipei and a win for New Zealand. The trade pact is not only Taiwan’s first economic cooperation agreement (ECA) with a developed nation and first trade agreement with a Trans-Pacific Partnership (TPP) member state, but also its first ECA with a nation that has an existing trade agreement with mainland China. Though not a watershed agreement in terms of absolute trade volume, the pact paves the way for Taiwan to close similar bilateral trade deals and bolsters its case for participation in regional trade frameworks.

ANZTEC liberalizes trade in goods and reduces barriers to investment in services and cooperation in areas such as e-commerce, intellectual property rights, environmental protection, entertainment, indigenous peoples, and educational exchanges. The agreement’s actual economic impact is projected to be moderate. It will eventually save New Zealand businesses about $60 million in duties paid each year while costing Wellington only $2 million in lost tariff revenues. Despite increased competition, it will prove a boon to exporters, especially in the backbones of the export economy, dairy and agriculture. Tariffs on almost all New Zealand dairy exports to Taiwan will be eliminated right away and beef will follow suit two years later.

According to a Taiwanese government study, ANZTEC will increase Taiwan’s GDP by 0.076 percent ($303 million) annually, create 6,250 new jobs, and save around $76 million in duties. At the same time, Taiwan’s agriculture sector will shrink by $130 million as duties on New Zealand’s livestock, fruit, wine, and dairy exports are removed. In the near term, Taiwan will enjoy some modest benefits as New Zealand waives import tariffs on 7,510 Taiwanese products, including manufactured goods and petrochemicals. By 2025, tariffs on 100 percent of all current trade in goods will have been eliminated, along with duties on most nongovernment services.

Though Taipei claims that the trade and industrial structures of the two countries strongly complement each other, and that the ECA will have a significant complementary effect on their economic development,” the scale tips in favor of New Zealand’s exports over Taiwan’s. Given that New Zealand’s $607 million annual agricultural exports to Taiwan make up 20 percent of the total value of its agricultural exports, New Zealand’s agricultural sector, especially the dairy industry, will reap the most benefits from the deal. The pact is projected to save New Zealand $32 million on export duties per year as soon as it takes effect. Nevertheless, consumers in both nations will see the cost of essential goods fall as a result of the agreement. Taiwan’s real economic victory, though, is potentially even greater than the lower food prices it secures.

ANZTEC sends a positive signal to Taiwan’s potential trading partners and provides it with crucial momentum for regional economic integration. The Office of Trade Negotiations of the Taiwan Ministry of Economic Affairs has applauded the agreement for its role in “reinforcing Taiwan’s ongoing efforts to conclude and participate in other economic cooperation agreements and regional trade agreements in the future.”

Indeed, the success of the Taiwan-New Zealand negotiations provides other interested nations with a model for economic cooperation with Taipei. No country, including New Zealand, is willing to jeopardize its relationship with a major economy like China by signing a trade agreement with Taiwan unless the former does not object. To avoid ruffling the feathers of diplomatic relations with its second-biggest trading partner and largest export market, New Zealand kept the entire negotiation process as low-profile as possible and held the signing ceremony at a local university in Wellington without the presence of senior officials from either side. “We have a no-surprises relationship with China,” a New Zealand representative stated, insisting that Beijing was “comfortable” with how ANZTEC had proceeded. 

Chinese Foreign Ministry spokesperson Hua Chunying confirmed in a July 10 press conference that Beijing does not object to Taiwan’s “nongovernmental business and cultural exchanges” as long as there is agreement between the two on not creating “two Chinas” or “one China, one Taiwan.” Thus far, Wellington has managed to avoid provoking Beijing’s ire by addressing Taiwan according to its Organization for Economic Cooperation and Development designation, the Separate Customs Territory of Taiwan, Penghu, Kinmen, and Matsu. The extent to which adherence to the “one-China” policy will affect Taiwan’s ability to increase engagement on the international stage remains to be seen.

Even in the midst of this ambiguity, ANZTEC is an important first step, both toward signing similar bilateral ECAs with even larger economies and toward dissolving barriers to Taiwanese membership in broader regional trade agreements like the TPP and the Regional Comprehensive Economic Partnership. Reports indicate that more than two and a half years of negotiations for a trade pact with Singapore, Taiwan’s fifth-largest trading partner, have recently concluded and a draft has entered a “legal scrubbing phase.” What is more, Taiwanese vice minister of economic affairs Cho Shih-chao indicated in the days after the New Zealand deal that talks with Indonesia and India have already begun.

The stalled U.S.-Taiwan Trade and Investment Framework Agreement talks have also recently resumed, potentially making it easier for developed economies to conduct similar trade talks with Taiwan. ANZTEC’s conclusion, bolstered by Beijing’s tacit approval, may usher in a series of planned agreements by a diplomatically savvy Taipei to establish itself as an attractive trading partner in the region.

(This Commentary originally appeared in the August 2013 issue of Pacific Partners Outlook.)

Nicole White is program coordinator and research assistant, Jieming Chu and Kaelyn Lowmaster are research interns with the Freeman Chair in China Studies at the Center for Strategic and International Studies in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

© 2013 by the Center for Strategic and International Studies. All rights reserved.

Nicole White, Jieming Chu and Kaelyn Lowmaster