Over the past five years, the cross-strait political “achievement” President Ma Ying-jeou (馬英九) has been the most proud of has been the cross-strait Economic Cooperation Framework Agreement (ECFA). However, the ECFA is merely a framework agreement and even though the agreement has been in effect for more than two-and-a-half years, its benefits have so far been limited to the items opened up for trade on the “early harvest” list.
In terms of export competitiveness, in 2011, Taiwanese exports to China increased 8 percent, while the export of items opened up to trade on the ECFA’s early harvest list fared only slightly better at 9.9 percent. Last year, Taiwanese exports to China grew 5.8 percent overall, while the export of items on the early harvest list increased a mere 2.3 percent. From January to February this year, overall exports to China increased 39.9 percent, but the export of items on the early harvest list merely rose 19.2 percent. It is becoming clear by looking at the export statistics for the past two years that the ECFA has not had much effect.
Second, Ma expected that the ECFA would help attract more foreign investment to Taiwan. However, over the past five years, foreign investment in Taiwan has remained low. In 2007, Taiwan attracted US$13.6 billion in foreign investment, but in 2008, this dropped to US$6.7 billion, and after 2009, it was less than US$4.5 billion. Last year, foreign investment was only US$4.2 billion, a decrease of 4.5 percent compared with the year before.
From 2008 to 2011, Taiwan only managed to attract 0.2 percent of global foreign investment, putting Taiwan last among the four Asian Tigers and even lower than Thailand, Indonesia and Vietnam. In 2011, foreign investment in Taiwan was, shockingly, the second-lowest in the world.
Let us take a closer look at international capital flows, including both direct and securities investment. In the 1990s, the net outflow of funds from averaged US$1.98 billion per year. It was US$13.23 billion during former president Chen Shui-bian’s (陳水扁) eight years in office and rose to US$35.29 billion for the five years that the Ma administration has been in office, 2.6 times more than under Chen’s administration.
Especially worthy of notice is Taiwan’s net outflow of funds in 2011, which reached an unprecedented US$50.4 billion, and rose further to US$52.3 billion last year.
Third, the ECFA has not helped increase domestic investment. In the 1990s, the domestic investment rate was 28 percent, during Chen’s eight years in office it was 23.7 percent, and after Ma’s five years in office it has dropped to 17.2 percent. The Directorate-General of Budget, Accounting and Statistics estimates that domestic investment would drop to an all-time low of 16.2 percent this year and could be further adjusted downward.
Fourth, the ECFA is in some ways beneficial to Taiwan’s negotiation of economic integration agreements with other nations, although it cannot fundamentally solve Taiwan’s international isolation.
Taiwan is about to complete economic partnership negotiations with Singapore and New Zealand, but these two countries only account for 3.6 percent of Taiwan’s total trade volume and offer limited benefits to the economy. On the other hand, South Korea has already signed free-trade agreements with nine economies, including the US, the EU, the ASEAN countries and India, and it is negotiating free-trade agreements with China and Japan, which will place a lot of competitive pressure on Taiwan.
Countries in the Asia-Pacific region have been actively taking part in negotiations for the Regional Comprehensive Economic Partnership (RCEP) or the Trans-Pacific Partnership (TPP), with only Taiwan being excluded from these talks. This further highlights Taiwan’s international isolation. Countries involved in the RCEP negotiations include the 10 ASEAN countries, China, Japan, South Korea, India, Australia and New Zealand and the negotiations are expected to be finished in 2015. When that happens, it will form the world’s largest free trade zone.
Furthermore, the US is in charge of the TPP negotiations and it hopes the TPP can become a high-quality free-trade agreement, with 12 countries in the Asia-Pacific region currently involved in negotiations. Last year, Ma proposed joining the TPP within eight years, but we have yet to see any substantial plans or progress.
In conclusion, the ECFA is just a framework agreement which to date has had relatively limited effects. How effective it will be depends on the results of the negotiations on another four areas of trade that will be conducted in future: agreements on the trade in goods, the trade in services, investment and dispute resolution.
The Ma administration should take a closer look at the nation’s strategies for global economic integration, integrate the interests and advantages of our domestic industries as soon as possible, come up with various strategies for transformation and corresponding policies. This is the only way to handle the tough challenges Taiwan faces in terms of regional economic integration.
Tung Chen-yuan is a distinguished professor in the Graduate Institute of Development Studies at National Chengchi University.
Translated by Drew Cameron