History shows us that economic agreements create winners and losers, that they have positive and negative consequences. Despite this truism, the government is determined to sign an economic cooperation framework agreement (ECFA) with China while doing all it can to avoid discussing the hidden risks behind the deal. Following the publication of ECFA, The Unspeakable Secrets (ECFA不能說的秘密?), Taiwan Thinktank more recently released a report entitled “Who Are the New Losers with ECFA? The Middle Class Unemployment Crisis” (誰是ECFA的新輸家? 中產階級失業危機). This report suggests that in addition to traditional industry, the service sector, the electronics and electrical sectors, the steel industry and the petrochemical industry could also suffer. It predicts a worst-case scenario of NT$12.6 trillion (US$400 billion) in losses and as many as 5.9 million people losing their jobs.
How will an ECFA hurt the service sector? By joining the WTO, Taiwan was required to open its job market to foreign white-collar workers and individuals with special technical skills. Presently, this has not had a serious impact, partly because of the language barrier but also because China refuses to accord Taiwan equal status and files complaints against it at the WTO. This has enabled Taiwan to avoid greater negative impact and limit the number of Chinese citizens working in Taiwan by refusing to recognize their academic qualifications while adhering to the Statute Governing the Relations Between Peoples of the Taiwan Area and the Mainland Area (兩岸人民關係條例). Now the government has declared its intention to recognize Chinese qualifications by September and relax restrictions on white-collar workers. Given the central importance of reciprocity in WTO dealings, how exactly does Taiwan plan to restrict Chinese white-collar workers from coming to Taiwan after an ECFA is signed?
Exports from our electronics and electronic components industries to China are already virtually tariff-free, at an average of 0.58 percent. An ECFA will be of no substantial help to those industries. However, once an ECFA is signed and restrictions on investment are removed, the two central pillars of Taiwan’s electronics industry, TFT-LCD display manufacturers and wafer foundries, could well move their operations to China. Such core technologies would be handed over to China, and interconnected industrial chains rapidly decimated.
In addition, China’s raw steelmaking capacity has skyrocketed in recent years, resulting in a dramatic increase in overseas dumping. After an ECFA is inked, approximately 300 mid and low-stream steel products from China originally banned for import will flood into Taiwan. This could seriously undermine upstream steel operators such as China Steel and in the mid to long-term, the survival of downstream metal product makers will also be questionable.
Despite the government’s efforts to play up the benefits of an ECFA to the petrochemical industry, the only company that stands to benefit is export-oriented Formosa Petrochemical Corp. China Petroleum Corp (CPC), which is more oriented toward domestic sales, and the mid to downstream operators dependent on it for raw materials would gain nothing. Once an ECFA is signed, it is not impossible that Formosa Petrochemical would establish upstream plants in China and then sell its products back to Taiwan. That would have a disastrous impact on CPC, a major local employer.
The government has shown little in the way of new ideas to deal with the problem of rising unemployment. Given this, it is hard to muster any confidence in its ability to deal with the coming storm of unemployment that will be unleashed by the ECFA.
Cheng Li-chiun is chief executive of the Taiwan Thinktank.
TRANSLATED BY DREW CAMERON
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