Trade diversification

Taiwan’s trade, as in most TPP countries, is quite diversified. This is expressed in the concentration index, the Herfindahl-Hirschman Index (HHI). As shown in Figure 7, for both exports and imports of most TPP countries and Taiwan, the HHI value is below 2000 points, with the exception of Mexico and Canada. For those countries, the level of HHI registered means that their trade is quite diversified among different trading partners so their reliance on each one of them in terms of market or supplier is relatively small.

Mexico and Canada, on the contrary, register a HHI over 2,500 points, which means that their trade is highly concentrated, in both cases with the U.S., and thus rely heavily for their trade on that country.

Figure 7 –Exports and imports concentration index (HHI) of TPP members, including Taiwan, 2014

Source: Own with information from UN Comtrade

In terms of the Taiwan-Mexico relationship the concentration index is relevant for two reasons. On the one hand, Taiwan represents to Mexican exports a potential market since a very small proportion of its exports currently have that economy as destination. On the

Figure 8 presents the weighted average tariff for Taiwan’s imports from current TPP members and of TPP members for Taiwan’s exports for total trade (agricultural and non- agricultural goods); the figures were weighted with world exports of TPP members (Taiwan’s imports) and with Taiwan’s exports to the world (Taiwan’s exports).

Figure 8 –Total trade weighted average tariffs on Taiwan’s imports and exports in TPP members, 2014

Source: Own with information from UN Comtrade

As can be observed in the figure, with the exception of the U.S., to a very small extent, Vietnam and Malaysia, the weighted average tariff applied by Taiwan to TPP members is higher than the one applied by TPP members to Taiwan. The largest differences in terms of percentage points are against Australia (6.4), Brunei (5.4) and Canada (4.2); in the case of Mexico the difference against it is of 1.3%.

Figure 9 presents the same exercise for agricultural products. In this case, Canada, Japan, Malaysia and Mexico register a higher weighted average tariff than Taiwan; the difference is very small in the case of Mexico. TPP members registering the largest differences against them in terms of percentage points are Vietnam (25.7), Brunei (17.1) and Singapore (13.8); it is also noteworthy the difference against Australia and New Zealand as important world agricultural exporters: 6.3 and 8.9 percentage points, respectively.

0 1 2 3 4 5 6 7 8 9 10

Taiwan imports Taiwan exports

Figure 9 –Agricultural products weighted average tariffs on Taiwan’s imports and exports in TPP members, 2014

Source: Own with information from UN Comtrade

It is important to recall that Taiwan is not an important exporter of agricultural products.

In 2015 its exports in this category amounted to only close to 2.8 billion dollars and represented 1.0 percent of total exports. As a reference, Taiwanese exports of agricultural products to the world represented around 11% of Mexican agricultural imports. In this sense, its export capacity in these products is very limited.

Non-agricultural goods weighted average tariffs are presented in Figure 10. In this case, Japan, Mexico and New Zealand present the largest differences against them in the weighted average tariff with respect to Taiwan; in terms of percentage points they are 4.2, 4.2 and 2.9, respectively. The rest of TPP members present positive but small differences in their favor: Vietnam (0.3), Australia (1.2), Brunei (1.3), Malaysia (1.7) and Chile (4.1).

0 5 10 15 20 25 30 35 40 45 50

Taiwan imports Taiwan exports

Figure 10 –Non-agricultural goods weighted average tariffs on Taiwan’s imports and exports in TPP members, 2014

Source: Own with information from UN Comtrade

In conclusion, in general terms, Taiwan applies higher tariffs to TPP members than the other way around. For total trade, this is the case for the U.S., Vietnam and Malaysia; for agricultural products, with Mexico, Malaysia, Japan and Canada; and for non-agricultural goods, with Vietnam, Brunei, Malaysia and Chile. This means that generally TPP countries would benefit the most with Taiwan’s entry to TPP. Evidently, this general conclusion is not necessarily true for specific countries and goods, but it is a very good reason in principle to support Taiwan’s accession to TPP.

Even more, TPP members have committed already to eliminate and reduce aggressively its barriers on goods among themselves with the agreement. In this sense, it could be said that they have internalized already the costs of the adjustment to do so. Their efforts to incorporate Taiwan into TPP could be considered in general terms marginal while they could gain access to the very important Taiwanese market.

8.4. The impact of Taiwan’s accession to TPP for Mexico

According to an economic reduced model developed by CIDE,⁷¹ the impact of TPP on the Mexican economy is positive but marginal in 2030 assuming the agreement enters into force in 2017. Table 31 –Reduced model of the impact of the TPP in Mexico presents the results of the model for exports, GDP and employment in the export sector. As can be observed, as a result of TPP, Mexican exports and GDP would be 4.4% and GDP 2.1%

higher, respectively, in 2030. It is also estimated the creation of additional jobs linked with exports in 2030: 406,577 positions. The results are marginal due to the fact that Mexico has

71 CIDE developed a non-structural econometric model that correlates Mexican exports by country of destination according to their GDP, taking into account the existence or not of FTAs. In doing so, it introduces a t variable for the growth of exports once an FTA enters into force, including TPP.. Centro de Investigación y

0 1 2 3 4 5 6 7

Taiwan imports Taiwan exports

already FTAs with 5 of the other 11 TPP countries, including the most important markets, U.S. and Japan.

Table 31 –Reduced model of the impact of the TPP in Mexico Scenario Exports

additional increase 2030 (2015 million

dollars)

Exports additional growth (%)

GDP additional

increase (million dollars)

GDP additional growth (%)

New export jobs 2030 vs

2015

TPP 12 34,045 4.4 35,011 2.1 406,557

TPP 12 plus

Taiwan 37,028 4.8 38,107 2.3 442,178

Difference 2,983 0.4 3,096 0.2 35,621

Note: TPP enters into force in 2017 for the 12 original members and in 2021 for Taiwan.

Source: Non-structural model on the impact of TPP for Mexico, CIDE

Using the same model and incorporating Taiwan as TPP member, the results are more important but still marginal. It is assumed that Taiwan enters TPP in 2021. Under this scenario, it is expected that exports and GDP would grow by an additional 4.8% and 2.3%, respectively, in 2030. That is, Taiwan’s participation in TPP would mean to Mexico an additional growth of 0.4 percentage points for exports and of 0.1% percentage points for GDP. It would also mean the creation of additional 35,621 export jobs in 2030 when compared with a scenario where Taiwan does not join TPP.

In other words, Taiwan’s participation in TPP would increase the benefits accrued to Mexico with the agreement, though marginally.

8.5. Conclusion

There are five reasons to consider that the participation of Taiwan in TPP would be relevant for Mexico and other members of the agreement. First, Taiwan would constitute the sixth economy of TPP and represent an important market and supplier for TPP members. Second, the diversification of its trade makes it difficult to constitute a threat to the domestic markets of any particular member of TPP. Third, in general terms, Taiwan applies higher tariffs to TPP members than the other way around; accordingly, current TPP members are to benefit from Taiwan’s participation in the agreement. Fourth, TPP member’s liberalization efforts to incorporate Taiwan into TPP could be considered marginal to what they have committed already in the agreement. Finally, Taiwan’s participation in TPP would mean additional exports, GDP growth and jobs

9. C

Taiwan and Mexico as WTO and APEC members and important participants in world trade are poised to win from the accession of the former to the TPP, which is a high standard, ambitious, comprehensive and balanced agreement. This is explained by the following reasons. In the first place, both are open economies which growth is highly dependent on trade, particularly in non-agricultural goods. TPP would create more trade and attract more investments to support their growth, particularly with TPP members with which they do not have FTAs, including themselves. It would also facilitate its integration into TPP value chains and work as an incentive to continue with domestic regulatory reforms.

Second, their tariff levels are relatively low, with some exceptions, including in agricultural goods. TPP would mean an opening of protected sectors to become more competitive. Both countries have advanced in this regard with the FTAs currently in force.

Third, bilateral trade between Mexico and Taiwan has registered an upward trend in the last years, as well as Taiwanese investment in Mexico. One of the main sectors benefited by this trend is ICT. TPP will further increase these bilateral flows.

Thirdly, important trading partners of Taiwan and Mexico participate in TPP. Not being part of TPP means for both economies been excluded from Asia Pacific value chains and losing competitiveness vis-à-vis some of its competitors.

Next, the TPP would impact positively the Taiwan-Mexico relationship with the elimination or reduction of trade barriers, when the former enters TPP. The most apparent impacts would be registered in market access of goods (including rules of origin, sanitary and phytosanitary measures, technical barriers to trade), investment and government procurement. Also, TPP would open new areas for cooperation, such as the promotion of small and medium-sized enterprises and the development of supply chains. Besides, the legal certainty that the TPP would create for Taiwanese and Mexican operators could by itself generate more trade and investment flows.

In the fifth place, both Taiwan and Mexico could win competitiveness in each other’s market with TPP. However, in most of the cases they would face competition from other TPP members and in some cases from countries with preferential treatment in both agricultural products and non-agricultural goods. But in the latter case, they would gain competitiveness in each other’s market to other Asian countries with which they do not have FTAs. When entering each other’s markets, Taiwan and Mexico would likely displace current suppliers; they would not constitute a threat to the other market.

Sixth, TPP includes provisions for the accession of new members to the TPP. The participation of Taiwan as APEC member in TPP is not only legitimate but an important objective to Taiwan and APEC as a whole. Also, the more economies join TPP the more the benefits for those that participate and higher the costs for those being left out. TPP provisions are clear in the sense that any TPP member can exercise its veto power on the accession of Taiwan to the agreement. The final decision of current members would depend on the results of bilateral negotiations with TPP members since there is not opt-out clause. This makes difficult the accession process for any candidate.