Sun, Jul 27, 2008 page8

• Taiwan needs smart deregulation

  • By Honigmann Hong 洪財隆
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  With the deregulation of cross-strait trade, the only restrictions remaining are probably the ban on Chinese workers from being freely employed in Taiwan and the import restrictions on some Chinese products, which is not in line with WTO regulations. All other areas of trade, including education — allowing Chinese students to study in Taiwan — and broadcasting — allowing China Central Television to be aired in Taiwan — are part of the deregulation.

  These will have an almost unfathomable impact on Taiwan. Whether we take a proactive or a reactive approach to this, the issue can no longer be avoided.

  The establishment of Taiwanese awareness does not necessarily contradict the deregulation of cross-strait trade. It is often said that good fences make good neighbors — the concept of awareness — and that good brakes are a prerequisite for cars to run fast and steadily — the speed of deregulation. These concepts also apply rather well to the management of cross-strait economic and trade relations. If a country understands its own status and knows what it wants, it will find international exchanges a lot easier to conduct.

  The gradual normalization of cross-strait trade is a good thing. For example, Taiwan can unilaterally deal with investment caps on Taiwanese businesses in China and partially solve the issue of legally converting yuan to NT dollars in Taiwan, while agreements on direct cross-strait flights and the promotion of Taiwan as the first tourist destination for Chinese tourists require bilateral negotiations. The reason this is good is that these deregulation measures are only tools; the goal is to increase Taiwan’s strength.

  Take the deregulation of restrictions on the cap on investment in China, for example. Apart from concerns that globalization has led to increased capital mobility, which often makes regulatory policies ineffective — even harmful — the purpose is to alleviate Taiwanese businesspeople’s burden amid unfair competition with other international enterprises in China. By doing so, Taiwanese businesspeople’s ability to conduct cross-strait and regional planning could be improved, while the profit from these investments could more likely be transferred back to Taiwan.

  From this perspective, no matter to what extent cross-strait economic and trade exchanges are opened up, Taiwanese identity is obviously sufficient to become a bright light in a dark night. To the government, consolidating the nation’s leverage to attract talent and capital is indeed significant in terms of living quality, investment and taxation.

  As far as topics for cross-strait economic and trade negotiations are concerned, avoiding double taxation should be the priority, as it will be conducive to the repatriation of profits for Taiwanese businesspeople and effectively boost the nation’s weak consumer demand rather than rely on the ideals of the cross-strait common market and the free trade agreement.

  Of course, due to the fact that there have been few cases of Chinese real estate investment in Taiwan, bilateral investment and taxation treaties are certainly not what the Chinese government is interested in. This situation will only get better after Chinese investment arrives in or when bilateral exchanges cause problems.

  When the Straits Exchange Foundation and China’s Association for Relations Across the Taiwan Strait resumed negotiations last month on administrative and functional matters, the Chinese representatives simply removed the issue of chartered cargo flights —which is unfavorable to China — from the agenda, as they knew the Taiwanese government had to carry out President Ma Ying-jeou’s (馬英九) campaign promises of weekend chartered flights and opening up the nation to Chinese tourism by July 4.

  From this, one can learn that China is a rational, tactical expert on setting the agenda for negotiations. On the other hand, it also implies that “rational” opponents’ behavior can be expected to some extent through preparation in advance.

  In other words, this preparation requires an analysis of cost and benefit still applicable to Beijing even if it is eager to push forward unification via the economy. Instead, Taiwan wishes to boost the economy by allowing Chinese tourists to travel to Taiwan, which defies the imagination.

  The estimated total annual consumption in Taiwan by Chinese tourists is approximately US$1 billion, only accounting for a minimal portion of Taiwan’s GDP, which exceeds US$380 billion. If both sides of the Taiwan Strait should engage in political negotiations, Taiwan should have more brains.

  It is clear that the Chinese Nationalist Party (KMT) has attempted to stimulate Taiwan’s economy by improving cross-strait economic and trade relations. However, realizing the benefits of relaxing restrictions on economic trade and reforming the economy is always time-consuming and unpredictable.

  On the contrary, the burdens of social adjustment costs are more immediate and evident, including the worse income distribution and increased unemployment, at least in the short run. It is very important for the opposition parties to assist those disadvantaged groups in voicing their opinions in order to gain more resources to survive the impact and to update their discourses on national security and China to gain a majority of public support.

  All in all, even if it is reasonable to relax cross-strait economic policies, the government cannot act in a rush. In particular, the government must be cautious about regulations about Chinese investment in Taiwan as it is going to be a sensitive and contentious topic.

  How to map out pragmatic and open policies with a focus on Taiwanese consciousness and allow Taiwanese to be able to feel comfortable and grab more opportunities for creating added value during the process should be the ultimate goal of the government.

  Honigmann Hong is an associate research fellow at the International Affairs Division of the Taiwan Institute of Economic Research.

  Translated by Ted Yang
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