The world economy has grown rapidly since globalization started spreading in the mid-1980s. Between 1986 and 2007, the world economy expanded by an average of 3.59 percent, with average growth in exports reaching a high 11.45 percent. As of December last year, there were 230 regional trade arrangements around the globe registered with the WTO, of which 205 — or nearly 90 percent — were established after 1990.
Regional groupings in East Asia were originally driven by market integration; however, after the 1997 Asian Financial Crisis, East Asian nations started to move toward institution-led integration. For example, the ASEAN Plus Three (China, Japan and South Korea) was set up to strengthen the East Asian economies and encourage their steady development.
The ruling and opposition parties in Taiwan are now arguing over whether an institution-led agreement should be signed between Taiwan and China. One bone of contention was the pact proposed by the Chinese Nationalist Party (KMT), called the comprehensive economic cooperation agreement or CECA (before the government revised it to economic cooperation framework agreement), was too similar in name to China’s Closer Economic Partnership Arrangement, or CEPA, with Hong Kong and Macau.
Viewed realistically and in terms of Taiwan’s future development, there is a definite necessity for the signing of an institution-led agreement on trade between Taiwan and China.
Official statistics show that from 1991 to last October, Taiwan had invested a total of US$73.8 billion in China, with cumulative trade reaching as much as US$752.4 billion. However, not one single official investment guarantee or trade agreement has been signed between Taiwan and China. This makes Taiwanese trade with China risky as it lacks any safeguards. It also goes against the spirit of the WTO and is potentially damaging to the Taiwanese economy.
An institution-led agreement on trade between Taiwan and China should be signed under the WTO framework. This is the only way to improve bilateral relations between Taiwan and China and promote multilateral relations with other East Asian nations. With improved multilateral relations, the presence and placement of Taiwanese businesses around the globe, as well as their international competitiveness, would be greatly enhanced. We cannot afford to sacrifice long-term multilateral benefits at the expense of short-term benefits that may come from over-emphasizing a special bilateral cooperative relationship between Taiwan and China.
The normalization and institutionalization of trade between Taiwan and China would be helpful to Taiwan’s internationalization and would also help stop Taiwan from being marginalized. The US and ASEAN have already made their stance clear by saying they wanted Taiwan to sign a trade agreement with China first before they would consider signing free trade agreements with Taiwan.
We should bear this in mind because other nations may harbor the same expectations toward Taiwan. If Taiwan were marginalized while other countries enjoy preferential treatment such as zero tariffs as a result of the agreements they ratified with other nations, Taiwanese manufacturers would lose their international competitiveness and would have to either close down or move all of their business operations to China. The result of this would be a Taiwan even more reliant on China economically and a government with even more China-leaning policies.
Institution-led negotiations carried out under the WTO framework could incorporate exclusion clauses to provide controls and restraints where necessary. This would help protect weaker industries such as agriculture and select service industries, as well as reduce the damage to such industries after an economic opening. Before any discussion with other nations is conducted, a consensus on critical issues should first be formed in Taiwan. Issues such as which local markets would be opened up and how those who may suffer as a result of the market opening would be compensated should be clearly defined before any action is taken. This would help erase public doubt and ease worries about the opening.
The institutionalization of trade does not equate to the institutionalization of politics. Economies are influenced by markets, while politics is shaped by democratic process. The EU is a clear example of this. Taiwan is an independent and sovereign democratic nation where the people have the final say.
In conclusion, to promote internationalization while protecting Taiwanese investment and trade with China and avoid Taiwan being marginalized, Taipei and Beijing should carry out discussions on institution-led agreements and ratify them as soon as possible. The reasons for doing so are obvious. The name of the agreement is not important as long as its content is in line with the spirit and content of the free trade agreements under the WTO framework.
The ruling and opposition parties should stop wasting their energy squabbling over what the agreement should be called and start focusing on openly discussing the framework and details of a cross-strait trade agreement that would benefit and promote Taiwanese welfare.
Chuang Yih-chyi is an economics professor at National Chengchi University.
TRANSLATED BY DREW CAMERON
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