Mon, Mar 31, 2014 - Page 8 News List


Wider implications of pact

The cross-strait service trade pact has no political or economic merit

Most opposition to the agreement has focused on its political effects. There has been surprisingly little debate about the economic merits of the pact itself. Both the pact’s defenders and opponents seem to have assumed that the agreement will benefit Taiwan’s economy.

That assumption is highly debatable. The pact will distance Taiwan from its chief trading partners and tie the nation’s economy to an unstable partner.

The pact is a highly dubious proposition on both political and economic grounds.

If the pact is implemented, many firms in Taiwan will be Taiwanese in appearance, but People’s Republic of China (PRC) in substance, thanks to increased levels of Chinese investment. Foreign companies will be less likely to share intellectual property with Taiwanese firms if they suspect Chinese involvement.

Most importantly, the pact will entangle Taiwan with the PRC and its black-box system of state-owned enterprises (SOEs), preventing Taiwan from acceding to the Trans Pacific Partnership (TPP).

TPP negotiators will flatly refuse to allow Chinese SOEs backdoor access to their markets.

While the PRC is indeed an important trading partner of Taiwan, it is not Taiwan’s most important partner.

The economies of the TPP countries, when combined, form the largest economy in the world, accounting for more than 32 percent of last year’s global GDP (all GDP figures are purchasing power parity at current rates, according to the IMF this year).

Importantly, these economies accounted for more than 36 percent of Taiwan’s trade last year (all trade figures are from the Bureau of Foreign Trade).

The PRC (including Hong Kong and Macau) constituted 16 percent of world GDP and 28.8 percent of Taiwan’s trade last year.

Furthermore, this comparison likely understates the future economic weight of the TPP: other likely signatories include India, Indonesia, Colombia, Philippines and South Korea. It also does not include other liberal democracies, such as EU nations. When the TPP partners, the TPP likely signatories and the EU are combined, they comprise 50.2 percent of world GDP and 55.4 percent of Taiwan’s total trade last year.

Finally, Taiwan must consider the future economic environment. While it is fashionable to assume that the PRC’s economic growth will continue unabated, economic gravity may expose that nation’s contradictions.

A real-estate crisis, an environmental crisis, a shadow banking crisis, or a local government debt crisis may slow or even reverse growth.

Autocratic policies that have boosted the PRC’s GDP growth in the short run may derail it over the long term. Meanwhile, reports of the death of the US led liberal economic order have, once again, been greatly exaggerated.

The North American energy revolution has supplemented the innovative edge of Canada, the US and Mexico.

The TPP’s prospects for future growth appear increasingly promising.

Taiwan’s trade relationship with the TPP countries and the liberal democracies is more important than its trade relationship with any other country.

Even if the service trade agreement will enhance the nation’s economy — which it will not — there is no substitute for liberty. Former US president Abraham Lincoln expressed the essence of liberal democracy when he said: “We are for both the man and the dollar, but in case of conflict the man before the dollar.”

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