President Ma Ying-jeou (馬英九) says that an economic cooperation framework agreement (ECFA) with China would not involve political issues of sovereignty and the “one China” principle. He says that after a free trade agreement between China and ASEAN comes into effect next year, Taiwanese products will lose their price competitiveness against products from ASEAN nations because of increased tariffs. Worse yet, Taiwan will be marginalized, domestic companies will move abroad and the nation will stand to lose 114,000 jobs. This economic discourse contains many fallacies.
This is not the first time the government has made such outlandish statements. In the past, the government claimed that more China-based Taiwanese businesspeople would return and invest in Taiwan following the opening of direct cross-strait transportation links. However, official statistics show that between September and January, they only invested about NT$10 billion (US$290 million) in Taiwan, while domestic companies invested more than NT$140 billion in China.
Moreover, a survey conducted at the end of last year on the willingness of Taiwanese businesspeople in China to invest in Taiwan following the opening of direct links showed that 63 percent of respondents said they would not change their investments, 28 percent said they would double their investments in China and only 9 percent said they would reduce their investments in China.
Ma has once again made a spurious assertion, only this time the subject has changed from direct transportation links to signing an ECFA with China.
The Ma administration has also suggested that if the two sides of the Taiwan Strait were to sign an ECFA, domestic companies would not move to China. This statement does not hold true. Were Taiwan to sign an economic pact with China, factor-price equalization theory tells us that manufacturing activities move to areas that have lower costs. In other words, an ECFA with China would only accelerate the relocation of domestic businesses to China and increase unemployment.
Ma says Taiwan is facing losing 114,000 jobs if it does not ink an economic agreement with China. The presumption of the study he cited does not tally with the real situation. Not only does it fail to take into consideration the differences between nominal and actual tariff rates, but the subjects of the study were ASEAN Plus Three — China, Japan and South Korea — rather than ASEAN Plus One — China. Therefore, the figures the government quoted may very well be exaggerated 24 times.
The Ma administration also says Taiwan will be marginalized by the launch of ASEAN Plus Three if the nation does not ink an economic pact with China. However, a study showed that the damage would amount to less than 0.2 percent of the nation’s GDP and that it would not inflict severe damage on Taiwan’s economy. Ma has exaggerated the adverse impact of ASEAN Plus Three on the nation, and besides, signing an ECFA with China does not automatically lead to Taiwan joining the ASEAN market. Unless China promises that, the government should not talk of big pie in the sky to fool the public.
The Taiwanese economy should rely on signing economic pacts with economies with higher national incomes, such as the US, Japan and the EU. Only then can we improve our manufacturing technologies and raise the profitability of our exports.