South Korea wary of growing trade links between China and Taiwan

The two Cold-War rivals signed a historic trade pact in late July to cut tariffs and open their markets wider to each other, paving the way for an a pan-Chinese economic community.

The economic cooperation framework agreement (ECFA) is expected to affect Korean exporters, especially in high-tech industries, which compete closely with Taiwanese firms in the global market.

“There will be synergies of combining China's capital and Taiwan's technology. Taiwanese goods will become much more competitive especially in China,” said Kwon Hyuk-jae, a China expert at the Samsung Economic Research Institute.

The trade pact will allow Taiwanese companies to attract wider pool of investors and consumers from the mainland.

“It's difficult to quantify the pact's implications on Korea but the deal definitely disadvantages Korean firms in the long run,” he added.

The deal calls on China to lift tariffs on 539 Taiwanese products and open 11 service sectors to Taiwanese companies, such as banking, accounting, aircraft maintenance, insurance and hospitals.

In return, Taiwan is giving up tariffs on 267 Chinese exports worth US$2.85 billion.

The change is expected to increase Taiwanese exports by US$13.8 billion over the next two years.

For China, it is a major achievement in its efforts to form a pan-Chinese economic bloc with a 1.4 billion population, encompassing China, Taiwan, Hong Kong and Macau whose population.

Korean LCD, petrochemical, and white goods makers are expected to be hit hardest in the face of competition with Taiwanese counterparts.

Of 100 Chinese buyers surveyed, 39 picked Korean electronics would be the most affected, and 22 picked agricultural goods, the Korea Trade Investment Promotion Agency said.

Korea and Taiwan each make up 10.2 percent and 8.6 percent of China's imports. A total of 14 products overlap between the two countries in its list 20 major of exports to China. For Korea, the 14 items make up 60 percent of Korea's total export to China.

“Exporters should more actively pursue strategic alliances with Taiwanese companies like the way Japanese did to penetrate the Chinese market,” Kwon said.

Experts are calling on the government to speed up negotiations for a bilateral free trade agreement with China and push harder for East Asian trade liberalization.

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