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.
According to the Ministry of Economic Affairs, this would cause exports to decrease anywhere from NT$68 billion (US$2.3 billion) to NT$105 billion causing a real decline in GDP of NT$130 billion.
Asia-Pacific countries are all actively taking part in negotiations for the Regional Comprehensive Economic Partnership (RCEP) or the Trans-Pacific Strategic Economic Partnership Agreement, otherwise known as the Trans-Pacific Partnership (TPP). Sixteen countries are taking part in negotiations for the RCEP, accounting for 27.7 percent of world trade volume and 28.4 percent of gross world product (GWP). Twelve countries taking part in negotiations for the TPP, accounting for 25.3 percent of world trade volume and 37.8 percent of GWP.
If negotiations on these two agreements are completed, the entire pattern of trade strategy in the Asia-Pacific will change. However, in the short-term, Taiwan will have no chance to participate in these two agreements.
China still views things in political terms and does not consider Taiwan’s economic pressures. China hopes that Taiwan can first of all complete the follow-up negotiations on the ECFA and then negotiate an appropriate status and conditions with China so the two nations can jointly take part in the RCEP and the TPP. However, such a mindset causes cross-strait economic integration to fall into a stalemate, because there are concerns that if the economy becomes too reliant on China, political and economic security, and social stability will be threatened.
If Taiwan could participate in the regional economic integration system, there would most likely be a greater consensus and more confidence when it comes to greater cross-strait trade liberalization.
At the end of one of the symposia, the Chinese Academy of Social Sciences’ Institute of Taiwan Studies director Yu Keli (余克禮) said that a major prerequisite for improved cross-strait economic cooperation is an improvement in political relations and that because they are yet to be normalized, there are many limitations on economic cooperation. Yu also said that differences between the pan-blue and pan-green political parties means that it will be very difficult for advancements to be made with cross-strait political relations.
Yu’s remarks accurately described the current problems with cross-strait economic cooperation, problems that will need to be solved via cooperation between the Taiwanese and Chinese governments.
Tung Chen-yuan is a professor in the Graduate Institute of Development Studies at National Chengchi University.
Translated by Drew Cameron