At a press conference on July 1 last year, President Ma Ying-jeou (馬英九) said he thought the Economic Cooperation Framework Agreement (ECFA) would offer a new opportunity for Taiwan’s economic development in that it would allow Taiwan to sign free-trade agreements (FTAs) with other countries, improve the competitiveness of Taiwanese exports to China, create more domestic investment and attract more foreign investment to Taiwan.
It is worth noting that almost a year after the ECFA was signed, the early effects are far less impressive than expected.
First, Taiwan has only completed a joint study with Singapore into the signing of an FTA. It seems unlikely that such an agreement will be signed between the two countries in the near future, let alone with other Southeast Asian countries.
Even if Singapore and Taiwan were to sign an FTA, that would be of little significance to Taiwan’s economy as a whole, since trade between the two only makes up 3.6 percent of Taiwan’s foreign trade.
Furthermore, the international competitiveness of Taiwanese businesspeople is coming under great pressure from South Korea. South Korea, Taiwan’s main competitor in economic terms, has signed an FTA with the US and the EU, yet it seems the signing of any such agreement between Taiwan and the US or the EU lies in the distant future.
Second, following the implementation of the ECFA, the competitiveness of Taiwan’s exports to China has not improved. During the first quarter of this year, Taiwan’s exports to China grew by 14.3 percent, but fell by 61.3 percentage points compared with the same period last year.
Since Taiwan’s exports to China have fallen much more than exports to any other country, exports to China as part of Taiwan’s export total have dropped from 42.8 percent in the first quarter last year to 40.9 percent in the corresponding period this year.
Third, following the implementation of the ECFA, Taiwan’s investment momentum has continued to drop. In the 1980s and 1990s, Taiwan’s investment rates were 7.5 percent and 7.6 percent, respectively. Under the eight years of Democratic Progressive Party (DPP) rule, it was 0.95 percent. In the three years since Ma took office, the investment rate has been 0.09 percent. The Directorate General of Budget, Accounting and Statistics estimates that the investment rate this year will be a negative 2.26 percent.
In particular, the investment rate during the second quarter last year was 32.0 percent, but after the signing of the ECFA, it began to drop. In the first quarter this year it was a mere 4.7 percent, and according to estimates it will become negative in the second quarter, only to drop to an estimated negative 4.6 percent in the fourth quarter this year.
Fourth, following the implementation of the ECFA, foreign investment in Taiwan has continued to drop. After Ma’s inauguration, foreign investment in Taiwan dropped by 46.8 percent in 2008 to US$8.2 billion.
This was followed by a 41.8 percent drop in 2009 to US$4.8 billion. Last year, although the global financial crisis was over, it dropped again, this time by 20.6 percent to US$3.8 billion, and in the first quarter this year, it dropped by 34.1 percent to US$1.06 billion. In addition, Chinese investment in Taiwan during the first quarter this year was a mere US$13.83 million, a 50.6 percent fall.
Fifth, following the implementation of the ECFA, Taiwanese investment in China continued to grow rapidly. In 2008, Taiwanese businesspeople invested US$10.69 billion in China, an increase of 128 percent. In 2009, the figure was US$7.14 billion, 33 percent less than the year before because of the impact of the international financial crisis.
Last year, investment increased by US$12.23 billion, an 102 percent increase. In the first quarter this year, Taiwanese investment in China continued its rapid increase, growing by 65.4 percent, or US$3.71 billion, although Taiwanese foreign investment has declined by 4.8 percent.
Sixth, following the implementation of the ECFA, Taiwanese capital has continued to flow out of the country. During the three years of Ma’s presidency, a net average of US$20 billion of international capital has flowed out of Taiwan annually, much more than the US$13.2 billion that flowed out of Taiwan every year under the DPP administration.
In particular, a net US$12.4 billion of international capital left Taiwan in 2009, a number that more than doubled, to US$29.3 billion, last year, the year the ECFA was signed.
During Ma’s three years in power, industry has generally felt that cross-strait relations have stabilized and that the economy has opened up. In addition, industry already had high expectations of the ECFA effect and had ample time to prepare investments.
This means that it is not too early to discuss the ECFA effect. Perhaps parts of the ECFA will need more time to develop, but the data described here should be sufficient warning to the government of the need to review the situation in order to strengthen and improve Taiwan’s investment environment and implement appropriate adjustments to Taiwan’s global trade strategy.
Tung Chen-yuan is a professor at National Chengchi University’s Graduate Institute of Development Studies.
TRANSLATED BY PERRY SVENSSON
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