From protests to legislative deadlock, the recent delays in ratifying the cross-strait service trade agreement could limit GDP growth this year, according to research from Bank of America Merrill Lynch.
The legislative chamber has been occupied by student-led protesters since Tuesday last week.
“In our view, the current dispute over service trade agreement creates uncertainty over the timing for Taiwan to discuss the subsequent goods agreement, which we see as having a larger impact on Taiwan than the service trade agreement, given Taiwan’s higher reliance on goods trade,” Marcella Chow, a Hong Kong-based economist at Merrill Lynch, wrote in a report issued on Tuesday.
She echoed the government’s stance that trade deals with China must come before Taiwan has a chance of entering the Trans-Pacific Partnership and Regional Comprehensive Economic Partnership, two regional free trade blocs currently being negotiated.
The delay in service agreement ratification is preventing the nation from achieving its goal of trade liberalization while providing regional trade rivals with a competitive advantage that poses a threat to Taiwan’s long-term growth prospects, she added.
“We currently expect 2014 GDP to grow 2.9 percent year-on-year, but, in our view, growth may be capped at 2.5 percent if lawmakers fail to pass the cross-strait services agreement,” Chow said. “In addition, a lack of willingness to open up the service sector may send a dire signal to other countries that Taiwan is not ready to commit to greater economic liberalization.”
The trade pact with China, which was inked in June last year, builds on the cross-strait Economic Cooperation Framework Agreement signed in 2010. The services pact was signed in June last year, but did not make it into the legislature for review until this month.