An old maxim says that one shouldn’t negotiate from a position of fear. However, the haste with which President Ma Ying-jeou’s (馬英九) government is engaging in negotiations with China is based on fear — an intense fear.
Opening direct links was always part of China’s national policy. To suck Taiwan in, China agreed to allow Taiwanese flag-of-convenience ships to sail in the Taiwan Strait, and when Ma’s fear that Taiwan would become marginalized forced him to enter negotiations, a direct links agreement was quickly signed. But when the Taiwan Strait was defined as a domestic Chinese route, flag-of-convenience ships were no longer allowed and the shipping companies that originally pushed the Ma administration to establish direct links began to kick themselves.
Now certain businesses with vested interests are pressing Ma to engage in talks on an economic cooperation framework agreement (ECFA) so they can gain tariff reductions and exemptions on exports to China. The government’s fear of being marginalized is now telling them that when ASEAN Plus One (China) begins operating next year, Taiwanese exports to China will be replaced by exports from other nations and Taiwan’s petrochemical industry, worth NT$4 trillion (US$116 billion), will be lost. The Ma administration is also worried that the ASEAN Plus Three agreement (Japan, China and South Korea) will make things even worse.
ASEAN’s free-trade agreements (FTAs) have been criticized for being poorly planned and ASEAN Plus One has been criticized as being simplistic. In terms of tariff concessions, we will have to wait until 2015 before Taiwan’s petrochemical products are eligible for a 50 percent reduction in tariffs. They will not be tariff-free next year as officials say. It is disturbing that the government is talking about future risks and problems when they have not even gained a basic understanding of the situation we face now.
As for our real potential competitors, South Korea and Japan, it does not look like they will pose a threat for quite some time because they are having their own fair share of problems signing FTAs under the ASEAN Plus Three framework.
Taiwanese exports of petrochemical products to China will face a big threat, but not from ASEAN Plus One or ASEAN Plus Three. China has recently released a plan to build nine large refining bases with an expected capacity 10 times that of the sixth naphtha cracker plant in Mailiao, Yunlin County. This would turn China from a petrochemical importer into an exporter and when that happens, Taiwan will not be the only one affected; Japan, South Korea and the rest of the world will also suffer as a result. At that time, an ECFA with China will not help us.
For Taiwan, the best response is to plan to adjust and upgrade our overall industry structure.
Finally, while tariffs remain a barrier to exports to China, 40 percent of Taiwanese exports to China are already tariff-free and there is still room for compromise.
The vast majority of Taiwanese exports to China are processed raw materials and semi-finished goods, the majority of which already receive preferential treatment from China in the form of tax rebates. If these tax rebates are subtracted from the 4.427 percent of tariffs charged on Taiwanese products, the actual tax rate falls below 2 percent.
The Ma administration does not clarify these issues and is being driven to the negotiation table purely out of fear. This is cause to worry that the government will repeat the mistakes it made in the talks on air and sea cargo shipments.
Lin Cho-shui is a former Democratic Progressive Party legislator.
TRANSLATED BY DREW CAMERON
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