The government is promoting an economic cooperative framework agreement (ECFA) with China, and many worry that this might pose a threat to workers in traditional industries.
But this is not necessarily the case. More than 80 percent of workers in the manufacturing sector are employed in traditional industries. An economic pact with China is only likely to harm those traditional industries that are uncompetitive. Leading Taiwanese bicycle makers Giant Inc and Merida Industry Co are good examples of competitive traditional industries.
The theory of comparative advantage says that trade liberalization pushes countries to further specialize in areas of expertise within the global division of labor.
Regional trade agreements (RTAs) are conducive to market expansion and advancement of competition, which help competitive industries increase profits and further innovation through expanding economies of scale.
While uncompetitive industries will be driven out of business by augmented competition, the entire industrial structure will adjust and upgrade automatically courtesy of the market mechanism. The nation’s competitiveness will increase in turn. This may sound cruel, but it is the only way that countries can succeed in a free market.
One important function of the government is to provide assistance to disadvantaged social groups. If the two sides of the Taiwan Strait are to ink an economic agreement, the government should try its best to stem losses for affected industries.
In addition to a timetable that has competitive industries liberalizing faster than less competitive ones within a 10-year transitional period, an ECFA should make use of WTO remedial instruments that offer relief to industries injured by increased imports. These instruments include anti-dumping duties, countervailing duties and safeguard mechanisms.
In particular, a safeguard mechanism should be adopted that protects domestic industries from serious injury resulting from an increase in Chinese imports.
Signing an ECFA with China will only partly solve the problem of Taiwanese companies not competing on an equal footing in China with companies from other countries. But it cannot solve the problem of declining Taiwanese competitiveness.
Although it is each company’s responsibility to improve competitiveness, the government has the responsibility for setting up the regulatory and operational environment.
Therefore, the government should make every effort to improve administrative efficiency and enhance the investment environment.
Besides establishing an adjustment fund that provides disadvantaged industries with financing, technical support and worker training, the government needs to establish a structural fund to help upgrade the nation’s industries and improve worker skills. Only then can Taiwan survive amid fierce global competition.
To prevent Taiwan from falling into the “one China” trap, an ECFA can be signed between the “Mainland” and the “Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu,” including a clause stating that the parties may sign separate RTAs with other WTO members.
When an economic agreement is reached, it will be submitted to the legislature for approval. It is most important that notification of such an agreement is sent to the WTO so that obstacles preventing Taiwan from signing RTAs are removed.
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