If you were to list the major events affecting US-Taiwan trade relations in 2012, the negotiations over the importation of US beef and the Apple-HTC patent suit would certainly be near the top.

On November 11, Apple and HTC jointly announced that the two companies had reached a global settlement, would dismiss their current lawsuits, and would sign a 10-year licensing deal.

Over the last several years, information technology products have replaced electronic components as Taiwan’s top export to the US, with smart phones leading the way. But, according to the Ministry of Finance, through the first 10 months of 2012 our exports were down 10.3% from their level of the previous year. In addition to the global downturn, one of the major factors in the decline was litigation between Apple and Taiwan’s HTC that resulted in a ban on the importation into the US of certain HTC phones. When Samsung became the world’s largest maker of cellphones in the first quarter of 2012, Apple COO Tim Cook took aggressive action. In addition to naming Taiwan Semiconductor Manufacturing Corporation as Apple’s future supplier of CPUs, Cook indicated that his company would ally with HTC to counterbalance Samsung’s cellphone might. The settlement with HTC was the first step in this direction.

When the US beef dispute was laid to rest in July, many in industry expected it to mark the start of a rebound in trade relations­. Government economists likewise forecast that the US-Taiwan TIFA talks would soon restart after having been stalled for years, and that TIFA would establish a foundation for an FTA by beginning negotiations with issues on which the two sides shared common ground.

According to Cho Shih-chao, deputy minister at the Ministry of Economic Affairs, the nations of the world have signed more than 380 economic cooperation agreements and FTAs over the last decade. But Taiwan’s five early FTAs were with Central American diplomatic partners who account for just 0.18% of our foreign trade, making the agreements more symbolic gestures than mechanisms for increasing exports. Meanwhile, the March 15, 2012 rollout of the US-Korea FTA has already affected domestic industry, with Taiwanese exports to the US slipping 6.5% as Korean exports to the US rose 6.45%. This makes promoting trade liberalization especially important to Taiwan.

Agricultural products are likely to be a key point of discussion in the next round of US-Taiwan trade talks. The photo shows a Costco store in Taipei’s Neihu District.

Roy Lee, deputy director of the Taiwan WTO Center at the Chung-Hua Institution for Economic Research (CHIER), notes that the US is Taiwan’s third-largest trading partner, accounting for roughly 11% of our total exports, but adds that this figure includes only direct sales to the US. If you were also to include exports via third-party nations and products sent to mainland China for final assembly before being sold to the US, the figure would be even larger.

In 2011, Japan and the 11 existing members of the US-led Trans-Pacific Partnership (TPP) together accounted for 31.29% (roughly US$184 billion) of Taiwan’s external trade. Looking ahead, Lee says that if Japan joins the TPP, and if Taiwan is also able to join the organization in a timely fashion, our membership therein, together with our Economic Cooperation Framework Agreement with mainland China, will cover some 70% of our external trade and mitigate the threat of Korea’s FTAs.

On the other hand, strengthening our trade relations with the US will be no mean task.

In the National Trade Estimate Report on Foreign Trade Barriers, the Office of the US Trade Representative stated that extant trade barriers in Taiwan include our standards on the residual amounts of leanness-promoting drugs in meats, issues with intellectual property rights protections such as infringement of copyrighted material on the Internet and illegal downloads, limits on foreign investment in the telecommunications industry, unclear 4G licensing requirements, and lack of transparency in drug pricing under the National Health Insurance system.

But looking back at the US-Korea FTA negotiations, Lee notes that Korea’s promises to liberalize some sensitive product categories won it a more than 10-year transition period for some products and exclusions from lower tariffs for others. For example, Korea agreed to eliminate import tariffs on US pork and chicken, but won an exclusion for rice. In the case of the automotive products with which the US was most concerned, Korea won a 10-year transition period over which tariffs on the import of small trucks from the US will be stepped down from their current level of 25% to 0%.

All of which is just to say that the terms of an FTA are open to discussion and that trade in all products needn’t be completely liberalized immediately. It all depends on what cards you bring to the negotiating table.

Taiwan’s exporters have to learn to build brand value. The photo shows the Taiwan Excellence Pavilion at Interbike 2012 in Las Vegas.

Will the resumption of TIFA talks lead to FTA negotiations?

“Restarting the TIFA negotiations is just a small first step, but it’s a necessary one,” says Chen Tain-jy, an economist at National Taiwan University. He explains that TIFA is a mechanism for trade dialogue between Taiwan and the US, but one that exists solely for the purpose of discussing current bilateral trade issues. It won’t itself spur the development of a more advanced trade agreement, and should instead be regarded as a warm-up to FTA talks.

The US-Korea FTA shows that in addition to demanding liberalization at the border (e.g. tariffs), the US also requests liberalization within its partners’ national territories through amendments to laws and the opening up of domestic markets.

CHIER’s Lee says that the main challange for Taiwan’s markets is to bring our laws and regulations up to date and into line with international practice. He argues the government should capitalize on the warming of US-Taiwan relations by working hard to eliminate barriers to trade, for only in this way can we strengthen our economic outlook.