The government of President Ma Ying-jeou (馬英九) is determined to sign an economic cooperation framework agreement (ECFA) without consulting anyone else. Refusing to engage in dialogue with the opposition or with academics, government ministers speak for themselves alone when they claim that an ECFA will be good for Taiwan. Among the public, however, there is widespread concern that an ECFA will worsen Taiwan’s unemployment.
The principle of comparative advantage among nations states that once an ECFA is signed, economic resources and productive activity are bound to shift to China because production costs are lower there. Manufacturing industries will move out of Taiwan even faster than they have been, pushing unemployment even higher. In addition, the removal of tariffs and other barriers to trade between Taiwan and China will make it easy for vast quantities of cheap Chinese goods to be dumped on Taiwan. As a result, agriculture and traditional industries for whom Taiwan is the main or only market will see many businesses closing down or cutting production and fewer people will be employed in these sectors.
It is estimated that the number of unemployed people in Taiwan will shoot up by 122,900 as soon as an ECFA is signed. Based on the unemployment multiplier revealed in figures gathered by the Directorate-General of Budget, Accounting and Statistics over the years, the total number of people to lose their jobs as a result of the knock-on effect is likely to be 245,000 or more.
Let us further consider the income groups likely to be affected by unemployment. The population can be divided into five groups according to household income. On average, in the lowest and second-lowest income groups, only one member of each household is employed and most of them work in agriculture or the traditional manufacturing industry. It is likely, therefore, that an ECFA will worsen employment prospects for those with below average incomes and cut their household income.
White-collar workers, too, may face stagnant or falling wages following the signing of an ECFA. The factor-price equalization theorem states that when two countries interact closely, production factor prices in the two countries tend to equalize.
In the past, Taiwan interacted closely with the US and Japan, so wages were raised closer to those of workers in those two countries. In China’s case, however, wages are lower, so the more Taiwan relies on China in its trade relations, the more wages in Taiwan will tend to be pulled down closer to Chinese levels. The reason why real wages in Taiwan have been stagnant or have fallen for nearly 10 years is that Taiwan has gotten too close to China. If Taiwan goes on to sign an ECFA with China, wages will fall even further.
An ECFA negotiated between Taiwan and China will not promote the overall development of production in Taiwan. On the contrary, it will accelerate the loss of job opportunities, while wages will be pulled down toward Chinese levels under the influence of factor-price equalization. Under such circumstances, working people in Taiwan, and especially young people entering the job market, will be confronted with low employment, low wages and low growth.
There are many problems to be considered before signing an ECFA. We once again call on the government to recognize that the country’s sovereignty belongs to all its people. Proposals for an ECFA should be opened for public discussion and be put to a referendum. In this way, we can formulate policies that benefit everyone and Taiwan’s economy and production will be able to grow and improve.
Cheng Li-chiun is the chief executive officer of Taiwan Thinktank.
TRANSLATED BY JULIAN CLEGG
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