Thu, Jul 18, 2013 - Page 8 News List

The economy needs liberalization

By Tung Chen-yuan 童振源

According to an assessment report from the Chung-Hua Institution for Economic Research, the recently inked service trade agreement between Taiwan and China “will only have positive, but not very substantial effects on Taiwan’s overall economy, the trade in services, the service sector and the employment market.” The report also said that because there is still a limited amount of liberalization between Taiwan and China, especially when it comes to the extent to which Taiwan has opened up toward China, there are still many parts of the economy that Chinese investors do not have access to, unlike other foreign investors. That there is such a result after these talks have been going on for two years clearly indicates a problem. So, just what exactly is the problem?

The entire report only mentioned positive effects and did not mention even one negative effect of the agreement. President Ma Ying-jeou (馬英九) and his administration keep saying that the agreement has more positives than negatives. However, just what are these negatives? If there were no negatives, why would the government be unwilling to give China most-favored-nation status when it comes to services and even open up all parts of our service sector to China in order to increase Taiwan’s economic benefits?

The government should make the reasons clear as to why it is not willing to open up more of Taiwan’s economy to China in order to help boost its performance. In other words, the assessment report from the Chung-Hua Institution for Economic Research is just one aspect of an economic assessment and it is one that could even contain some errors. In addition, this assessment report is not complete, as it still needs to account for economic safety, the costs of economic transformation and the spillover effects of international negotiations.

On the whole, the service sector accounts for 70 percent of Taiwan’s GDP, while it employs 60 percent of the Taiwanese workforce. This means that it is very important to Taiwan’s economy. However, over the past decade, the service sector has only accounted for 45 percent of Taiwan’s economic growth. While manufacturing accounts for less than 30 percent of Taiwan’s GDP, it has accounted for as much as 55 percent of our economic growth. If we want to bring the Taiwanese economy back to life, a key aspect will be to come up with ways to use reforms to increase the competitiveness of Taiwan’s service sector.

Furthermore, Taiwan’s competitiveness in terms of the export of services is rapidly declining. In 2000, Taiwan was ranked 18th in the world for service exports, but by last year the ranking had dropped to 26th. Not only are China, India, Japan, Singapore, Hong Kong and South Korea way ahead of Taiwan, Thailand has also surpassed Taiwan and Macau is catching up fast. This makes it very important for Taiwan to figure out how to leverage Taiwan’s competitive advantage in the service sector.

Taiwan’s major competitor, South Korea, has already signed service trade agreements with major trading partners like the US, the EU, ASEAN and India, and the extent to which they have opened up their economies is substantial. For example, using the method used by the WTO for measuring the extent to which an economy has opened up, shows that the degree to which South Korea has opened up toward the US in terms of services has gone up from the 48.8 percent when it first gave the US most-favored-nation status to the current level of 67 percent under the bilateral trade services agreement between the US and South Korea. This is much more than the cross-strait trade service agreement has brought about.

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