U.S.-Taiwan FTA: Likely Economic Impact of a Free Trade Agreement Between the United States and Taiwan
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U.S. International Trade Commission COMMISSIONERS Deanna Tanner Okun, Chairman Jennifer A. Hillman, Vice Chairman Lynn M. Bragg Marcia E. Miller Stephen Koplan Robert A. Rogowsky Director of Operations Robert B. Koopman Director, Office of Economics Address all communications to Secretary to the Commission United States International Trade Commission Washington, DC 20436 10/02 ITC READER SATISFACTION SURVEY U.S.-Taiwan FTA: Likely Economic Impact of a Free Trade Agreement Between the United States and Taiwan The U.S. International Trade Commission (ITC) is interested in your voluntary comments (burden < 15 minutes) to help us assess the value and quality of our reports, and to assist us in im- proving future products. Please return survey by fax (202-205-2340) or by mail to the ITC. 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WASHINGTON, DC 20277--2840 ATTN: OFFICE OF ECONOMICS U.S.-Taiwan FTA U.S. International Trade Commission Washington, DC 20436 www.usitc.gov U.S.-Taiwan FTA: Likely Economic Impact of a Free Trade Agreement Between the United States and Taiwan Investigation No. 332-438 Publication 3548 October 2002 This report was prepared by the Office of Economics Hugh Arce, Chief, Research Division Soamiely Andriamananjara, Project Leader Michael Barry and Marinos Tsigas Office of Industries Richard Brown, Chief, Services and Investment Division Jennifer Baumert, Coordinator and Deputy Project Leader Brian Allen, Sandra Berkun, Laura Bloodgood, Devry Boughner, James Brandon, Ray Cantrell, Jonathan Coleman, Roger Corey, Alfred Dennis, John Fry, Brad Gehrke, Gerald Houck, Jackie Jones, Eric Land, Harry Lenchitz, Dennis Luther, Douglas Newman, Laura Polly, Tracy Quilter, John Reeder, Laura Rodriguez, Joann Tortorice, and Dan Walworth Office of Operations Linda Linkins Office of the General Counsel William Gearhart Reviewers Christine McDaniel and Jan Summers Administrative Support Cecelia Allen, Cynthia Payne, and Paula Wells Interns Michael Simmons and Crystel Stanford PREFACE On January 17, 2002, the U.S. International Trade Commission received a letter from the Senate Committee on Finance (the Committee) requesting that the Commission conduct a fact-finding investigation under section 332(g) of the Tariff Act of 1930 of the economic impact of establishing a free trade agreement between the United States and Taiwan. Subsequently, fourteen Members of the House Ways and Means Committee concurred in the request for a study of a free trade agreement with Taiwan, in a letter sent to the Commission. In response to the request, the Commission instituted investigation 332-438 on February 4, 2002. The Committee requested that the Commission’s report include: J A general overview of the Taiwan economy; J An overview of the current economic relationship between the United States and Taiwan, including a discussion of the important industry sectors in each; J An inventory and analysis of the barriers (tariff and nontariff) to trade between the United States and Taiwan; J To the extent data are available, the estimated economic effects of eliminating all quantifiable trade barriers (tariff and nontariff), with special attention to agricultural goods, on: j the volume of trade in goods and services between Taiwan and the United States; j sectoral output and gross domestic product for both; j wages and employment across industry sectors for each; and j final prices paid by consumers in Taiwan and the United States; and J A qualitative assessment of the effects of removing nonquantifiable trade barriers The Committee requested that the Commission conduct its analysis of the contemplated free trade agreement in a dynamic, as well as static, analytical framework. Copies of the notice of the investigation were posted at the Office of the Secretary, U.S. International Trade Commission, Washington, DC 20436, and the notice was published in the Federal Register (67 F.R. 6276) on February 11, 2002. Nothing in this report should be construed to indicate how the Commission would find in an investigation conducted under other statutory authority covering the same or similar subject matter. iii TABLE OF CONTENTS Page Preface ................................................... iii List of Frequently Used Abbreviations and Acronyms ................ xi Executive Summary .......................................... xiii Chapter 1. Introduction ....................................... 1-1 Purpose of the report.................................... 1-1 Scope of the report..................................... 1-1 Approach of the study................................... 1-2 Organization of the report................................ 1-3 Chapter 2. The Taiwan Economy ............................... 2-1 Introduction........................................... 2-1 Resources and infrastructure.............................. 2-2 Economic structure...................................... 2-4 Manufacturing......................................... 2-5 Services............................................ 2-7 Agriculture.......................................... 2-9 Economic policy and performance.......................... 2-10 Transformation of agriculture............................ 2-12 From import substitution to export promotion................ 2-12 Promotion of heavy industry............................. 2-13 The decline of labor-intensive industry..................... 2-13 International trade and investment.......................... 2-17 Exports............................................. 2-17 Imports............................................. 2-20 Participation in international trade organizations and agreements.................................... 2-22 Multilateral agreements............................. 2-22 Bilateral agreements............................... 2-23 Foreign investment.................................... 2-25 Investment into Taiwan.............................. 2-25 Taiwan investment abroad........................... 2-25 Chapter 3. U.S.-Taiwan Economic Relationship .................... 3-1 Merchandise trade...................................... 3-4 U.S. exports......................................... 3-4 U.S. imports......................................... 3-5 Services trade......................................... 3-6 Bilateral investment..................................... 3-8 Other issues........................................... 3-12 Chapter 4. Selected Agricultural Sectors ......................... 4-1 Grains (rice and wheat).................................. 4-2 Citrus fruits............................................ 4-4 Fresh deciduous fruit.................................... 4-6 v TABLE OF CONTENTS-Continued Page Chapter 4. Selected Agricultural Sectors-Continued Fish and shellfish....................................... 4-7 Poultry............................................... 4-9 Red meat (beef and pork)................................ 4-11 Processed foods........................................ 4-13 Chapter 5. Selected Nonagricultural Goods and Services Sectors ...... 5-1 Textiles............................................... 5-1 Apparel.............................................. 5-3 Industrial organic chemicals............................... 5-5 Miscellaneous plastic products............................. 5-8 Industrial fasteners...................................... 5-10 Motor vehicles......................................... 5-12 Auto parts...........................................