Thu, Jan 07, 2010 page8

• ECFA talks must focus on FTAs

  • By Chao Wen-heng 趙文衡
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  While discussions on the proposed cross-strait economic cooperation framework agreement (ECFA) are focused on what effects the agreement is likely to have on Taiwan’s economy, everyone has overlooked the potential effect on the trade activity of other Asian countries.

  This effect will cancel the ECFA’s economic and trade benefits for Taiwan. Worse, it will make the ECFA a strong counterproductive factor that will stifle Taiwan’s trade and lead to its marginalization.

  What I am talking about is the domino effect of such an agreement. Put simply, other Asian countries, worried about the threat posed to their exports by the ECFA’s trade diversion effect, will seek to offset this effect by signing a string of free-trade agreements (FTA).

  In October, South Korea changed its long-held opposition to a China-South Korea FTA and agreed to the two countries actively negotiating just such an agreement. As some South Korean analysts explained, this surprising turnaround was prompted by the threat a cross-strait ECFA poses to South Korean exports to China, such as LCD display panels.

  Japan, too, is making moves in response to the ECFA proposal. At a recent meeting of finance and trade ministers from Japan, China and South Korea, it was decided to start up government-industry-academia joint research on an FTA in the first half of the year. So, although an ECFA is concerned with trade and business across the Taiwan Strait, it may unexpectedly prompt the signing of an FTA between Japan, China and South Korea, something that has been on the drawing board for a long time. That could be followed by the establishment of an East Asian Free-Trade Area (EAFTA), that includes ASEAN nations, China, Japan and South Korea (ASEAN+3), something that Taiwan has feared for a long time.

  Discussions about the feasibility of an EAFTA were held at October’s ASEAN+3 summit in Thailand. Previously, it was generally thought that there was not much chance of an ASEAN+3 FTA because of differences between China, Japan and South Korea, but now some Japanese analysts are suggesting that the planned ECFA between Taiwan and China could become a motive force for Asian integration.

  Whether such a development will be good for Taiwan depends mainly on whether Taiwan can be a part of the East Asian integration process. More precisely, it’s a question of whether Taiwan can join the EAFTA. If Taiwan is prevented from joining it because of China’s interference, then Taiwan’s quest for an ECFA will have the self-destructive result of hampering exports. East Asian integration without Taiwan would lead to Taiwan’s complete marginalization.

  Therefore, in trying to avoid the threat of an ASEAN+1 (China) FTA, Taiwan has prompted an even greater threat — that of an ASEAN+3 EAFTA. Some businesses that are urging an early signing of an ECFA expect that it will make them more competitive in China. What they have not thought about is that signing an ECFA will not only fail to give them an advantage in the Chinese market, but will also cause them to lose out in all other markets in East Asia.

  For China, on the other hand, an ECFA will enable it to attain a strategic position in the East Asian region that has long eluded it. Since 2001, China has made the establishment of a Southeast Asian free-trade area the supreme guiding principle of its economic and trade strategy, with the aim of using this free-trade area to expand its influence in Southeast Asia.

  Despite progress in signing an FTA with ASEAN, however, China has for a long time been unable to move forward on an FTA with Japan and South Korea, mainly because of historical conflicts between the countries, as well as their misgivings about China. Clearly, an ECFA between Taiwan and China will help China break this deadlock, making such a pact the master key to China’s overall economic and trade strategy.

  China will use the ECFA to push for the ASEAN+3 EAFTA, with the ultimate aim of consolidating its leading position in the East Asian region. Clearly, signing an ECFA would bring enormous benefits to China, much greater than the benefits Taiwan stands to gain from it.

  Equally, China would suffer more from not signing an ECFA than Taiwan would, and that is a bargaining chip in Taiwan’s hands. There is no need, then, for Taiwan to bow and scrape, and give China whatever it wants. If we don’t use this bargaining chip now to ensure that the pact includes a guarantee that Taiwan will be able to sign FTAs in the future, then, once the agreement is completed, Taiwan will have no further chance to obtain such an undertaking from China.

  The government should not naively think that China, having signed an ECFA, will then automatically stop blocking Taiwan from signing FTAs with other countries. Taiwan’s negotiators should not refrain from dealing with this issue at the ECFA negotiations for fear of causing unnecessary complications. It is unrealistic to think that this issue can be left to the future, so we should not be panicked into making the wrong decision now.

  If this problem is not dealt with in the ECFA text, it will give China the green light to go on obstructing Taiwan and the result will be that all the positive effects of an ECFA will become negative. It would make the signing of an ECFA worse than pointless by putting Taiwan’s economy in a more difficult situation than ever before. We should expect better than that from any government.

  So, in the course of the ECFA negotiations, the most important thing for Taiwan is not the ECFA itself, nor is it short-term gains or lower tariffs. The key point is to include in the pact a guarantee of Taiwan’s right to sign FTAs. Only if that is done will the ECFA be of benefit to Taiwan’s economic development.

  Chao Wen-heng is an associate research fellow at the Taiwan Institute of Economic Research.

  TRANSLATED BY JULIAN CLEGG
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