Former minister of economic affairs Yiin Chii-ming (尹啟銘) touted the potential benefits of an economic cooperation framework agreement (ECFA) with China and went to great lengths to conceal the potential negative impact.
By contrast, Minister of Economic Affairs Shih Yen-shiang (施顏祥) has conceded that an ECFA could have a negative impact and has shown openness in allowing a more objective debate. This is a big improvement.
PROS AND CONS
Academically, there may not seem to be anything wrong with saying that substituting a free-trade agreement (FTA) with an ECFA is a matter of “trade liberalization.” Yet economic liberalization always comes with pros and cons, as Taiwan experienced when it joined the WTO. If we want the pros to outweigh the cons, liberalization must be handled carefully. Financial liberalization that Taiwan carried out under pressure from the US went smoothly because the government took great care.
Because of the government’s determined promotion of an ECFA, some people believe it would help Taiwan sign FTAs with Southeast Asian countries. Yet China has said that FTAs can only be signed between two countries.
The idea that Beijing would stand by and allow Taiwan to sign FTAs with other countries is wishful thinking.
CONDITIONS
From the perspective of economic and trade liberalization, I am not completely opposed to an ECFA. However, to reap the benefits of economic liberalization, an ECFA should be signed only after Taiwan has signed FTAs with the US, Japan and European countries.
If Taiwan cannot achieve this goal, it must demand that China not block it from signing FTAs with other countries once Taipei and Beijing have inked an ECFA.
Under the economic principle called the Theory of the Second Best, if Taiwan can only sign an FTA with one or a limited number of countries, the results may actually be worse than not signing an FTA with any country.
An ECFA should therefore only be signed if Beijing promises not to interfere with Taiwan signing FTAs with countries other than Singapore (Singapore being the only country that China would likely allow to ink an FTA with Taiwan).
The biggest con of an ECFA would be its impact on the survival of Taiwan’s small and medium-sized enterprises and their employees.
COMPENSATORY FUND
The government has proposed a compensatory fund of NT$30 billion to deal with the negative impacts of an ECFA, which is its responsibility. Yet NT$30 billion would not be enough to cover the losses these businesses would incur, nor would monetary subsidies alone be able to prevent structural unemployment, the undermining of industries and other long-term effects of an ECFA.
Although there is not space to offer a detailed analysis of possible solutions here, a first question to ask is why taxpayers should foot the bill for the damage caused by an ECFA. Would the public share in the benefits that certain industries would reap from an ECFA at the expense of others?
If the government intends to proceed with an ECFA, it should increase taxes on businesses that stand to gain from it (such as Formosa Plastics Group) to raise money for a compensatory fund.
The public should not have to foot the bill.
Chiou Jiunn-rong is a professor of economics at National Central University.
TRANSLATED BY DREW CAMERON
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