A government official yesterday said there are downsides to inking an economic pact with China and that China has been the major obstruction to the government’s efforts to sign free-trade agreements with advanced nations.
“If we were to make the best policy decision [for Taiwan], of course it would be best not to sign an ECFA [economic cooperation framework agreement] with China,” Mainland Affairs Council (MAC) Deputy Minister Kao Charng (高長) told a forum in Taipei.
However, Kao said it is not feasible not to sign an ECFA with China, given that China is the world’s second-biggest economy and Taiwan’s biggest economic and trade partner.
“So we resorted to the ‘second-best’ choice while striving to sign economic cooperation agreements with other countries,” he said.
Economists and government officials gathered to discuss the macro-economic impacts of an ECFA at a forum at the Public Economics Research Center at National Taiwan University (NTU).
NTU economics professor Kenneth Lin (林向愷) said Taiwan should sign FTAs with advanced nations and that an ECFA with China would only marginalize Taiwan, citing economist Paul Krugman’s hub-spoke effect.
Under the hub-spoke model, preferential economic and trade relations only exist between “spokes” and the hub, Lin said.
“The problem now is that after signing an ECFA with China, Taiwan would become a ‘spoke,’ which means it doesn’t share any preferential treatment with other nations” Lin said, adding that China would become the “hub” attracting more foreign investment.
He also criticized a report by the Chung-Hua Institution for Economic Research (CIER), saying it overestimated the benefits of a cross-strait economic pact with China using two hypotheses that defy economic reality.
The two hypotheses referred to full employment conditions in which production resources can move freely between industries and the assumption that Taiwanese products may “completely replace” products from Japan, South Korea, ASEAN countries and others in the Chinese market.
“In a full employment model, an engineer from Taiwan Semiconductor Manufacturing Co (台積電) could work at a farm in Miaoli and then farmers from Yunlin County could immediately work on a petrochemical research project,” Lin said.
In response, Kao said the government has been striving to sign FTAs with other countries, but the results were limited because of the international reality. He also said he agreed that the CIER’s economic hypotheses had limitations, but added many other studies found an ECFA would bring more benefits than harm to Taiwan.
Taiwan Thinktank (台灣智庫) chairman Chen Po-chih (陳博志) said the government only talked about the good sides of an ECFA, failing to inform the public of its possible adverse impacts.
Moreover, he accused the government of distorting the results of academic studies by eliminating any negative impact.
Both Kao and Vice Minister of Economic Affairs Lin Sheng-chung (林聖忠) said upon signing an ECFA the government would provide measures to minimize harm and help transform disadvantaged traditional industries.
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