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London School of Economics and Political Science
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Professor Stephan Feuchtwang
s.feuchtwang@lse.ac.uk

Dr Fang-Long Shih
f.shih@lse.ac.uk

Political Economy of Trade Liberalization: are interest groups different in Taiwan?

With Peter Chow (City University of New York)

Series: Seminar on Taiwan in Comparative Perspective

Date: Wednesday 17 June 2015, 3pm-5pm

Location:  Room 2.22, Old Building, LSE

Discussants: Dr Jan Knoerich (King's College London) and Dr Cheng-wei Liu (Warwick Business School)

Chair: Dr Fang-Long Shih (LSE Taiwan Research Programme)

Abstract

Taiwan is a trade dependent economy, and in recent decades trade has accounted for more than 100% of total GDP. As such, Taiwan has to cope with the proliferation of regional trading arrangements by signing as many bilateral and multilateral free trade agreements as possible, lest it be marginalized. However, with its unique international status, Taiwan is still an outlier in the emerging mega trade-blocs, having only some symbolic free trade agreements with some tiny states.

In pursuing bilateral or multilateral FTAs with other countries, Taiwan faces the critical obstacles both externally and internally: on the one hand, many of its trading partners are wary of Beijing’s opposition, which has blocked Taipei from signing any trade accords with other countries. Taiwan’s incumbent government under President Ma has pursued a rapprochement with Beijing since coming to power in May 2008, and it signed the Economic Cooperation Framework Agreement (ECFA) with China in anticipation of Beijing not blocking Taiwan from signing FTAs with other countries. However, Taiwan has so far signed only two free trade agreements (FTAs) in the region, with New Zealand and Singapore. On the other hand, the government of Taiwan, as is the case in many other democratic countries, faces to resistance to trade liberalization through regional trade agreements from many interest groups that will have to compete with imports. Moreover, the deterioration of real wages, along with a high unemployment rate over the past decade, has tended to generate suspicion of any trade deal which could plausibly enhance trade and economic growth. Hence, there are big challenges both internally and externally that Taiwan must overcome to join the bandwagon of the emerging mega regionalism.

This paper addresses how Taiwan can adapt to the emerging trade blocs through comprehensive statecraft, in this way building domestic consensus so as to actively pursue membership of both the TPP and RCEP. In this study, this approach of economic statecraft – which usually is referred to as the management of commercial diplomacy – is shown by focusing on how tactics used to resolve domestic distribution coalition politics are applied to overcome the resistance of interest groups. By applying public choice theory to trade liberalization, this study argues that the puzzle can be resolved if the interest groups are clearly identified and disadvantaged groups are reasonably compensated. Theoretically, an optimum trade liberalization would make everybody better off and no one worse off. Empirically, policy actions must be undertaken well before trade liberalization. 

About the Speaker

Peter Chow is a professor of economics at the City College and Graduate Center, City University of New York. He was a research associate at the National Bureau of Economic Research and a contractual consultant for the World Bank. He has been a visiting research fellow at the University of California at Berkeley, the Hoover Institution at Stanford University, and visiting professor at Nagoya National University, Academia Sinica and National Taiwan University. 

His major interest is in economic development and trade, with a focus on late industrialized countries in East Asia. He is the author of Trade and Industrial Development in East Asia, published by Edward Elgar in 2012. 

In addition, he has published more than 50 articles in academic journals and as book chapters, and has presented more than 100 papers at academic conferences and think-tanks. Since 1998, he has been the Executive Director of the American Association for Chinese Studies, and economics editor for the American Journal for Chinese Studies.

He has also edited more than 10 books on economics and political economy, including Weather the Storms: Taiwan, Its Neighbors and the Asian Financial CrisisTaiwan in the Global EconomyTaiwan’s Modernization in Global PerspectiveChina’s Economy after DengEconomic Integration, Democracy and National Security in East AsiaThe ‘One China’ DilemmaNational Identity and Economic Interest; Economic Integration Across the Taiwan Strait; and U.S. Pivotal to Asia and Cross Strait Relations: Economic and Security Dynamics.

His book Mega Regionalism and the Trans Pacific Partnership Agreement is forthcoming.

About the Discussants

Jan Knoerich is Lecturer in the Economy of China at the Lau China Institute, King’s College London. His current research examines the internationalisation of mainland Chinese enterprises and Chinese outward foreign direct investment from business and political economy perspectives. Most recently, he has been working on analysing the emergence of mainland direct investment in Taiwan. In addition, Dr Knoerich has worked on issues in international investment law and policy. He has conducted extensive academic fieldwork in China, Indonesia and other countries. Dr Knoerich has published several peer-reviewed journal articles and book chapters and contributed to a variety of studies produced by the United Nations. Before joining King’s College London, Dr Knoerich was a Lecturer at the University of Oxford’s School of Interdisciplinary Area Studies, and prior to that he spent several years working for the United Nations Conference on Trade and Development (UNCTAD) in Geneva. He holds a PhD in Economics (with reference to China) from the School of Oriental and African Studies (SOAS), University of London.

Cheng-wei Liu is an Associate Professor of Strategy and Behavioural Science at Warwick Business School, UK. He is a Cambridge-trained PhD, and has held a fellowship position at Jesus College, Oxford and visiting positions at the Stern School of Business at New York University and the Wharton School of the University of Pennsylvania. Dr Liu’s research on how randomness complicates inferences about performance has won several awards and has been published in management and interdisciplinary journals such as Organization Science and PNAS. His work has been noted by media worldwide, including the New York Times, the Financial Times, and BBC. He also won multiple research grants and teaching awards. 

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