Fri, Apr 11, 2014 - Page 8 News List

Trade pact has unique challenges

By Chen Hurng-yu 陳鴻瑜

Free trade is the prevailing global economic trend and the East Asia region has been caught up in it. There have been a succession of regional free trade agreements signed and they are happening at an increasing pace. Up to now, the agreements have been predominantly for trade in goods and the second phase of agreements for trade in services remains in the early stages.

The East Asia region has seen the Agreement on Trade in Services — part of the Framework Agreement on Comprehensive Economic Cooperation between ASEAN and China signed in January 2007; the Agreement on Trade in Services under the Framework Agreement on Comprehensive Economic Cooperation signed between ASEAN and South Korea signed in November 2007, the New Zealand-China Free Trade Agreement — including trade in services — signed in April 2008; a similar agreement signed between China and Singapore in October of that year and, more recently, the free-trade agreement in services and investments signed between India and ASEAN last month, although this last one is subject to final approval.

The situation between China and Taiwan is different. The political divisions mean that relations have yet to normalize. The ruling parties initially agreed to follow a strategy of addressing economic issues prior to tackling political issues, which is why they have been able to develop economic and trade relations despite the lack of political trust.

It is likely that had these relations been limited to trade in goods or to having Taiwanese businesses seeking to invest in China, the model would not have given rise to concerns among the Taiwanese public, because it would not have brought about any significant changes to people’s daily lives.

As soon as the service trade pact was signed, it became clear that the Taiwanese market was to be opened up to China. While government officials tried to explain that this would promote competition, it is not an issue that can be reduced simply to competition. Such an explanation would have been acceptable had the agreement been signed with any other advanced nation, but to sign such an agreement with China introduces additional factors. These include public distrust of the government, concerns over Beijing’s attempts to manipulate politics through business, fears that Taiwan may lose its sovereignty and its way and quality of life and the impact of cheap Chinese labor coming into the market.

Young people are worried, perhaps mostly about the poor potential for growth in jobs coupled with falling salaries. Over the past decade, the economy has gone through considerable structural changes. In 2011, the service sector accounted for 58.65 percent of GDP and this rose to 68.2 percent the next year. In other words, deregulating trade in the service sector will have a huge impact on the domestic service sector.

The Ministry of Economic Affairs’ take on this is that it will “open up the service sector preferentially to the China market, which will expand business volume,” disregarding the impact it will have on the economy or on the public. Also, the pact has been interpreted as a government effort at tailoring an agreement that would suit major companies in the service sector, something that people have found suspicious yet hardly surprising.

The government signed the Economic Cooperation Framework Agreement (ECFA) with China in June 2010, saying at the time that it would be good for economic development. It has now been almost four years since the ECFA was signed and there should have been an assessment report of the benefits or the pros and cons of the agreement.

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