Free trade has strong advocates in Taiwan, like in many other countries, because it is believed to facilitate more efficient use of global resources and lead to a better society.
The government’s determination to push forward either bilateral or regional free-trade pacts reflects part of that belief, but only when the government has completed the necessary impact assessments, adopted measures to improve local companies’ competitiveness and provided complementary measures for affected firms should the nation open the door.
While these are no easy tasks, the nation’s internationalization and the necessity of signing more free-trade agreements remain important issues, although the government has sometimes provided different calculations of the benefits and drawbacks to local industries, which shows little of policymakers’ sense of right and wrong, as it is a political tactic.
Take the free-trade agreement between China and South Korea as an example: China is the biggest export market for both Taiwan and South Korea, and a potentially generous tariff reduction for South Korean goods certainly poses a threat to Taiwan’s exports. Therefore, the important questions for Taiwanese exporters are what products could be most affected by the Beijing-Seoul deal, and what value of exports could be potentially diverted to South Korea when the free-trade agreement is in place.
Ironically, the Ministry of Economic Affairs has released two impact assessments of the deal on Taiwan over the past five months, with the results of the two evaluations varying widely.
According to the ministry’s latest impact evaluation released on Friday, Taiwanese industries — especially petrochemicals, textiles, glass, flat panels, machinery and automobiles — could face losses of between US$2.34 billion and US$6 billion once the free-trade agreement takes effect at the beginning of next year. The evaluation also shows that the nation’s GDP could decline by 0.04 percentage points after the agreement has been in effect for a year and the loss could extend to 0.15 percentage points in 20 years.
The estimated potential impact is significant, but it is a far cry from a previous assessment the ministry published in November last year, after Beijing and Seoul agreed on the content of the deal following two years of negotiations. At that time, the ministry said the draft pact would cause Taiwanese industries a potential loss of between US$8.32 billion and US$20.81 billion a year and the economy could face as much as a 0.5 percentage point decline.
The ministry said the big discrepancy was because China’s final tariff reductions on South Korean goods — detailed in a draft free-trade deal signed in February — were far lower than expected. The ministry warned that the Beijing-Seoul deal would still affect Taiwanese industries in the long term.
The ministry’s poor job in conducting an impact assessment will not increase the government’s credibility, and raises public doubt over the necessity of the cross-strait service trade agreement and a cross-strait trade in goods agreement.
The government claims free trade can help revitalize the nation’s economy and promises that it will do its utmost to mitigate the potentially damaging effects to society. However, its track record on such pledges is not encouraging. Instead, growing evidence shows that the government exaggerated the impact of the pending Beijing-Seoul treaty to coerce Taiwanese into supporting the agreements with China.
If Taiwan does not react quickly with industrial upgrades and innovative products, and if local industries do not become more competitive, free-trade agreements will come at a cost for domestic companies, as they lose market share to foreign competitors and fail to generate the maximum benefit for the nation’s economy.
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