Trade Agreements Will Drive Growth in Taiwan

This year, prices have risen to levels not seen in more than a century. To a large extent, China has fueled this rise with an insatiable demand for imported cotton and textile products. Its resurgence after the financial crisis has given Taiwan’s textile industry a much-needed boost, which combined with recent political breakthroughs, shows Taiwan has a bright future.

Major geopolitical policies are removing most of the barriers to regional trade. The ASEAN-China Free Trade Agreement (ACFTA) went into full effect at the beginning of 2010, making trade between China and the ASEAN (the Association of Southeast Asian Nations) countries even more fluid than before.

With its domestic retail demand growing rapidly as it emerges from the financial crisis, China is becoming more significant as a retail buyer rather than just a value-added garment manufacturer for the West. Its development as a retail consumer has far-reaching implications for Asian countries.

The Chinese are beginning to develop their own fashion tastes, leading to clothing trends that diverge from those of the West. This has caused changes in products demanded from textile suppliers in South Asia and Southeast Asia. Even leading international brands have noticed this trend, with several brands expanding their retails operations in China, and some even announcing the development of China-specific branding initiatives.

Because of these developments, Taiwan is poised to be one of the main beneficiaries of the growing Chinese economy and influence on the textile industry. With the passing of the Economic Cooperation Framework Agreement (ECFA), Taiwan has made a major political breakthrough by achieving many of the same benefits afforded to other Asian countries by ACFTA.

This is a remarkable achievement, given Taiwan’s sensitive relationship with China. It places Taiwan in a unique position to benefit from free regional trade, given its close proximity and cultural similarity to China.

Taiwan’s open-end mills have prospered largely due to demand from China, which now accounts for the bulk of Taiwan’s open-end yarn exports. ECFA’s first wave of policies went into effect on January 1, 2011, so open-end yarn sales to China look poised to increase even further as tariffs drop to zero. With open-end mills accounting for about 40 percent of Taiwan’s cotton consumption, further growth in this sector should reverse Taiwan’s recent reductions in cotton consumption.

ECFA also opens the door to more textile investment from Taiwan mills. In years past, due to political issues, businesses in Taiwan have been discouraged from investing in the mainland for fear that economic dependence on China would weaken Taiwan’s political position. With ECFA’s framework opening up opportunities not only in manufacturing but finance and services, Taiwan mills will be better able to increase their operations in China during the coming years.

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