I recently went to China to take part in two academic symposia. While there, I realized that many Chinese believe that with the cross-strait service trade agreement, China is yielding benefits to Taiwan and therefore Taiwanese should not be fearful of the arrangement because it will benefit the economy.
As the negotiations for economic integration gain pace, the two nations can also participate in the Asia-Pacific regional economic integration. However, Chinese do not understand the disputes the cross-strait service trade agreement has caused here. They find it difficult to understand the anxieties Taiwanese have about participating in regional economic integration.
Deregulation of Taiwan’s economy to allow Chinese investment in the agreement is quite limited, yet it has still been met with much resistance. President Ma Ying-jeou’s (馬英九) administration lacks both the will to deregulate the economy and a comprehensive strategy to do so. The government’s lack of transparency on the pact’s details and the dearth of measures to support it are important factors that limit the degree of deregulation. There is still much trepidation about the repercussions of the agreement. Taiwan is already too reliant on China’s economy, which is another reason behind the government’s reluctance to share too many details.
Three years ago, Taiwan and China inked the Economic Cooperation Framework Agreement (ECFA). Taiwan opened up to 267 “early harvest” items from China, only 2.4 percent of the 11,016 items listed. Because China’s access was limited so much, the ECFA has not produced many noticeable benefits for the economy. Last year, exports to China grew by 5.8 percent. However, export in items from the early harvest list grew by only 2.3 percent. For the first half of this year, Taiwan’s exports to China grew by 36.8 percent, however early harvest exports only increased by only 13.3 percent.
To evaluate the benefits of the trade pact, the government commissioned a report from the Chung-Hua Institution for Economic Research (CIER), which showed that GDP would grow by 0.025 to 0.034 percent. According to the CIER, the reason for this limited effect was that “the degree of cross-strait deregulation is at present limited, in particular the degree of Taiwan’s deregulation to Chinese investment, and Chinese investors are still not accorded equal status as other foreign investors in many sectors of Taiwan’s economy.”
There is a growing anxiety about how Taiwan is unable to participate in the Asia-Pacific regional economic integration system, while China is still fixated on political considerations. For the eight years the Democratic Progressive Party was in power, the number of economic integration agreements that came into effect around the world each year averaged 5.5. In the five years Ma has been in office, the number is 36; 7.2 on average.
There have been surprising developments in the regional economic integration system, but apart from signing the ECFA with China, Taiwan has only signed agreements with five of our diplomatic allies plus New Zealand. Taiwan enjoys tariff free treatment on approximately 7.1 percent of its exports, which is much lower than South Korea’s 36.2 percent.
Even if the signing of an economic integration agreement between Taiwan and Singapore goes ahead without problems, Singapore accounts for only 3.6 percent of international trade. If South Korea signs free trade agreements with China and Japan, it will enjoy tariff-free treatment on 71.7 percent of its exports and Taiwan will see an increase to 90 percent of its exports that will be affected.