Sun, Dec 27, 2009 - Page 8 News List

Pros, cons of a cross-strait ECFA

By Lin Wuu-long 林武郎

The need for an ECFA is more urgent now given that the grouping of ASEAN 10+1 will include China, that ASEAN 10+3 next year will incorporate Japan and South Korea in an FTA, and that ASEAN 10+6 will then include Australia, New Zealand and India. ASEAN is emerging as a strong regional bloc in the 21st century; its potential, as production base or market, is not to be ignored.

Taiwan is geographically close to ASEAN. Although Taiwan is not part of the grouping, its economic ties to ASEAN remain very close. In 2007, ASEAN 10+3 accounted for 54 percent of all Taiwanese exports and 75 percent of all Taiwanese FDI. The addition of China to ASEAN will thus be hazardous to Taiwan as 40 percent of its exports already go there.

Two reports have also revealed that an ECFA could result in extra GDP growth, with separate estimates of 1.83 percent and 1.65 percent to 1.72 percent in the short term. In addition, the unemployment rate was predicted to fall to 2.63 percent.

This is good news, because Taiwan suffered a record 10.78 percent economic contraction in the first five months of this year. Also, the unemployment rate, which stayed the same in 2007, increased by 0.23 percent last year and then 1.84 percent in the first five months of this year. All this was caused by significant negative export growth of 34.84 percent in the first five months of this year amid the prolonged worldwide economic recession.

An ECFA would also benefit Taiwan’s plastics, petrochemicals, petroleum, machinery, textiles, coal and steel sectors, according to a study by the Chung-Hwa Institution for Economic Research. These areas are highly competitive and make up a substantial proportion of Taiwan’s exports to China. Were an ECFA to end high tariffs imposed by China, there would be strong growth in Chinese demand for these products, stimulating production in Taiwan.

As to petrochemicals, the China market absorbs 66 percent of Taiwanese exports. If an ECFA is signed before China signs an FTA with Japan and South Korea, Taiwan’s petrochemical suppliers will more than double their share of the Chinese market, from the current 15 percent to 38 percent.

The textiles industry used to be a big contributor to Taiwan’s foreign currency earnings in the 1970s and the 1980s. Unfortunately, it has since been cited as a sunset industry and many have relocated to China and Southeast Asia since the 1990s, not only because of the well-known factor of lower labor costs, but also because of advantages such as market proximity and ASEAN integration.

The Taiwanese textile industry would be one of the greatest beneficiaries under an ECFA, with less pressure on firms to relocate to ASEAN states. Without an ECFA, ASEAN 10+3 would place in jeopardy 12,000 out of the present 200,000 jobs in the sector.

Finally, Taiwan will attract more FDI. Wages are lower in China, but the quality of labor and intellectual property protection is more advanced in Taiwan. Thus, FDI in production could benefit Taiwan even as marketing targets China with its massive population.

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