Taiwan is mired in confusion and controversy over the cross-strait service trade agreement, which was signed by delegates from Taiwan and China in June, but has not yet been ratified by the legislature.
The issue has become heavily politicized and this has put a big obstacle in the way of the nation’s participation in regional economic integration.
Although the Chinese government was prepared for some negative reaction, it could not have foreseen the extent of the public backlash in Taiwan. A major reason for the backlash is that the two sides went hastily to the negotiating table before any cohesive public consensus had been achieved.
The impasse over the agreement is causing uncertainty over the agreements that are supposed to follow on from it — on trade in goods and on settlement of disputes.
No matter what benefits cross-strait trade may bring, it will not change the fact that Taiwan is much more dependent on China than China is on it; Taiwan is the weaker and more sensitive nation. Cross-strait trade is asymmetric; it is by no means a case of mutual dependence.
The “turnpike theory” proposed by US economist Paul Samuelson says that economies will only develop if governments find the best strategy for development. If the economic structure is unbalanced, the government should balance it to allow it to develop.
This state of equilibrium is what Samuelson calls the “turnpike,” which implies a pragmatic circumvention strategy. For example, the two nations are constrained by their political confrontation, but their main purpose in signing the Economic Cooperation Framework Agreement (ECFA) in 2010 was to systematize and liberalize their economic and trade relations. It is rather like using economic and trade development to build a freeway that enables the two sides to come and go freely, thus providing dependable and unimpeded economic benefits.
The freeway they build may not be the best possible route across the Strait. It is still a circuitous path to get to the onramp. However, once on it, travel should be unimpeded.
The already-signed agreement on investment protection and promotion, the service trade agreement and the planned agreements on goods trade and dispute settlement, which are now under intense negotiation, are four important bridges that make up part of the ECFA freeway. The key factor that will determine whether traffic can flow freely will be the construction quality of these four bridges, which may be more important than the completion date.
Agreements on cross-strait liberalization may occasionally be put on hold, but sometimes going slowly gets better results. Taiwan’s economy is not yet so sick that an extra strong remedy is the only way to fix it.
The service trade agreement issue can be quite perplexing. The government often trumpets the agreement’s benefits for certain sectors, while accusing its opponents of protectionism, yet it also calls on sectors that are set to suffer from the agreement to make sacrifices for in the name of free competition and active deregulation. This is an absurd case of applying socialism to the rich and capitalism to the poor.
The media’s agenda, on the other hand, is to portray the agreement as having no merit whatsoever, indirectly aggravating opinions opposed to the pact as if it were a doomsday herald.
The agreement has implications for the nation’s development strategy for industrial upgrade and economic transition. However, the authorities are divided and have not offered a reassuring political analysis. Instead, they are fumbling about muddle-headedly.
Mark Lin is an assistant research fellow at the Taiwan Institute of Economic Research.
Translated by Julian Clegg