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Taiwan’s economy outperforms amid COVID-19 crisis



A cargo ship is pictured at a port in Keelung, Taiwan, 7 January 2022 (Photo: Reuters/Ann Wang).

Author: Min-Hua Chiang, NUS East Asia Institute

Taiwan’s economy has outshined most others in the last two years. While the COVID-19 recession was hard most everywhere else, Taiwan’s economy enjoyed a moderate expansion of 3.1 per cent in 2020 and likely expanded by 6.1 per cent in 2021 — the highest growth recorded since the global financial crisis rebound 12 years ago. Taiwan’s economic expansion is an outlier amid the pandemic.

Vigorous exports explain Taiwan’s outstanding economic performance. Pandemic travel restrictions triggered greater global demand for information and communications technology products. With the gradual return to normal in 2021, Taiwan’s exports of other manufactured products such as metals, plastics, chemicals and textiles all grew significantly. China remained Taiwan’s largest export destination last year, but the growth of exports to the United States (30 per cent), Europe (37 per cent) and Southeast Asian countries (32 per cent) outpaced export growth to China (23 per cent).

Taiwanese firms’ large investment repartition contributed to increasing capital formation. Since 2019, the government incentivized Taiwanese firms with overseas business operations to invest at home. Total investment repartition from 2019 to 2021 was nearly US$37 billion (NT$1,038 billion) — greater than the US$15.9 billion recorded for Taiwan’s outward investment in China during the same period. The semiconductor industry has been the most important contributor to domestic capital formation.

Unlike the thriving manufacturing industry, the service sector grew slowly in 2021. Local accommodation and restaurants were greatly impacted by the imposition of movement restrictions after a domestic outbreak of COVID-19 in May. Despite the partial relaxation of restrictions since the end of July, Taiwan’s local accommodation and food businesses have not fully recovered.

Additional government spending for companies and individuals who suffered through business and jobs losses during the pandemic is another contributor to Taiwan’s economic expansion. Yet compared with most advanced countries, Taiwan’s COVID-19 economic relief budget as a percentage of GDP (4 per cent in 2021) is relatively insignificant thanks to effective COVID containment strategies. Taiwan’s central government debt as a percentage of GDP is low at 30 per cent in 2020. Taiwan has greater capacity to invest in energy and infrastructure, areas of investment that the country is in urgent need of for its growing manufacturing activities.

Yet Taiwan’s participation in regional trade deals is uncertain. Taiwan is less likely to join the Regional Comprehensive Economic Partnership given China’s heavy economic and political weight in the trade pact. Taiwan has more of a chance to be part of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) thanks to its mature market economy standards. Still, most CPTPP members are small economies and have limited domestic consumption potential. The overall net benefit for Taiwan joining is far from obvious.

A US–Taiwan free trade agreement (FTA) remains far away despite the recent defeat of a Taiwanese referendum that would have blocked pork imports containing ractopamine — a barrier to bilateral trade negotiations with the United States. Domestic initiatives remain the priority for the Joe Biden administration and the United States is inclined towards promoting multilateral economic engagement. Taiwan might hope to join an Indo-Pacific economic framework, but the details and its potential benefits to regional economic growth are far from clear.

Taiwan’s strong economic performance, supported by its manufacturing prowess, showed that the impact of its isolation from regional economic agreements has been limited so far. Bilateral and multilateral FTAs might have more political than economic significance for Taiwan. Taiwan’s greater involvement in regional and global economic agreements would provide an additional layer of economic security in case China sanctions Taiwan’s economy.

Although Taiwan’s investment shift away from China in recent years might help to diversify its exports, it might take a long time to significantly reduce China’s weight in Taiwan’s external trade and accelerate diversification.

Taiwan is likely to continue its export growth momentum while demand from the United States remains strong. Yet the prolonged pandemic crisis around the world suggests that private consumption at home is unlikely to pick up anytime soon….

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Fixing fragmentation in the settlement of international trade disputes



Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.

Fragmentation in Global Trade

Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.

Challenges with WTO Dispute Settlement

The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.

The Path Forward for Global Trade

Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.

Source : Fixing fragmentation in the settlement of international trade disputes

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WTO ministerial trading in low expectations and high stakes



The WTO’s 13th Ministerial Conference is set to focus on e-commerce transparency, investment facilitation, and admitting new members. However, progress may be hindered by disputes, especially regarding fisheries subsidies.

The World Trade Organisation’s 13th Ministerial Conference

The World Trade Organisation’s (WTO) 13th Ministerial Conference is set to take place in Abu Dhabi on 26–29 February, with expectations of deals on electronic commerce transparency, investment facilitation for development, and the admission of Timor Leste and the Comoros as WTO members. Despite these positive developments, the expectations are relatively modest compared to promises made at the 12th Ministerial Conference, which included addressing fisheries subsidies and restoring a fully functioning dispute settlement mechanism by 2024.

Challenges in Dispute Settlement and Agricultural Trade Reform

However, challenges remain, especially in the deadlock of dispute settlement since December 2019 due to a US veto on the appointment of Appellate Body judges. Progress in restoring the dispute settlement mechanism has stalled, and discord continues regarding India’s grain stockholding policy as a potential illegal subsidy. Restoring a fully functioning dispute settlement mechanism hinges on addressing US concerns about perceived bias against trade remedies in relation to China’s state subsidies.

Geopolitical Tensions and the Future of Trade Relations

The likelihood of reaching agreements amid geopolitical tensions between Western democracies and China appears slim, with issues surrounding subsidies and global supply chains causing rifts in trade relations. As nations focus on self-reliance within the global value chain, opportunities for trading face obstacles. Advocacy for open markets and addressing protectionist sentiments remains crucial for fostering resilience to external shocks and promoting economic growth.

Source : WTO ministerial trading in low expectations and high stakes

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Getting Vietnam’s economic growth back on track



Vietnam’s economy grew 8% in 2022 but slowed in 2023 due to falling exports and delays in public investments. The economy’s future depends on structural reforms and reducing dependency on foreign investment.

Vietnam’s Economic Roller Coaster

After emerging from COVID-19 with an 8 per cent annual growth rate, Vietnam’s economy took a downturn in the first half of 2023. The drop was attributed to falling exports due to monetary tightening in developed countries and a slow post-pandemic recovery in China.

Trade Performance and Monetary Policy

Exports were down 12 per cent on-year, with the industrial production index showing negative growth early in 2023 but ended with an increase of approximately 1 per cent for the year. Monetary policy was loosened throughout the year, with bank credit growing by 13.5 per cent overall and 1.7 per cent in the last 20 days of 2023.

Challenges and Prospects

Vietnam’s economy suffered from delayed public investments, electricity shortages, and a declining domestic private sector in the last two years. Looking ahead to 2024, economic growth is expected to be in the range of 5.5–6 per cent, but the country faces uncertainties due to geopolitical tensions and global economic conditions.

Source : Getting Vietnam’s economic growth back on track

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