Cross-strait relations entered a new stage with the signing of the Economic Cooperation Framework Agreement (ECFA) between Taiwan and China on Tuesday. The ECFA is, however, just what it says — a framework agreement — not a free-trade agreement (FTA). The real challenge for Taiwan comes now that the ECFA has been signed.
China has made big concessions in Taiwan’s favor in the ECFA’s “early harvest” list of goods and services for which there will be immediate tariff reductions or exemptions, clearly outweighing concessions made by the Taiwanese side. The early harvest list of Taiwanese-made products which will see tariffs cut covers 539 items, and China, on its own initiative, added a further 18 types of agricultural and fishery products. The list of Chinese products that will see import duties cut covers 267 items, mostly raw materials or unfinished products. Finished products included on the list are those that Taiwan does not make or produce in volume. In comparison, the early harvest list agreed between China and ASEAN is rather more balanced, with 593 concessions agreed by China as against 400 by ASEAN.
For some time now Taiwan has also enjoyed a trade surplus in excess of US$40 billion a year with China. Under the terms of the ECFA, Taiwan will continue, in contravention of WTO rules, to deny China most favored nation status by imposing unilateral bans or import restrictions on 2,249 Chinese products. It was not without good reason, then, that China’s representative at the ECFA negotiations, Association for Relations Across the Taiwan Strait executive vice president Zheng Lizhong (鄭立中) publicly commented that this agreement was unprecedented and very much loaded in favor of one side.
Nevertheless, the ECFA is likely to have limited benefits for Taiwan’s economy in the short-term, while its long-term benefits depend on the results of ongoing negotiations in four areas. The ECFA’s rules of origin, as they stand, include a value-added criterion to the effect that 40 percent to 50 percent of the ex-factory price of a product must originate from materials or processing in the exporting territory for it to be certified as a product of that territory and so qualify for zero tariffs.
In ASEAN’s experience, the administrative cost of rules of origin certification can account for as much as 10 percent to 25 percent of the price of goods traded, and this disincentive means that the proportion of intra-ASEAN trade taking advantage of preferential tariffs within the free-trade area has been held below 5 percent.
However, the ECFA is not an FTA, so it won’t immediately bring Taiwan the positive effect of adding 1.72 percent to its economic growth rate, as optimistically predicted by a government evaluation report. As to overseas investment being attracted to Taiwan or Taiwanese investors in China returning home, we cannot expect instant results in either area.
Taiwan and China are scheduled to launch negotiations in four areas within the next six months. These talks are aimed at achieving agreements on free trade in goods, services, investment and dispute resolution. The first three agreements will bring about a transformation in Taiwan’s economic structure, including changes in employment patterns and a redistribution of economic interests. There will be both winners and losers, and income distribution in Taiwan may become even more unequal as a result. Above all, the effects will be felt in the service sector, which provides nearly 60 percent of jobs in Taiwan. Nearly everyone will be faced with competitive pressures and have to bear the cost of adjustments as cross-strait trade and investment open up.
President Ma Ying-jeou’s (馬英九) administration has taken a blatantly protectionist approach in negotiating the ECFA with China. There are several reasons for this. Many in Taiwan are anxious about where cross-strait relations are headed. Taiwan also lacks a mechanism for coordinating industrial interests and there is neither political consensus between government and opposition nor public consensus on cross-strait issues.
Under such conditions, the government is afraid of accusations that the ECFA will cause job losses, damage domestic industries or widen the gap between high and low-income groups. It will be very difficult to move away from this protectionist approach as long as these conditions persist. In other words, a comprehensive cross-strait FTA before 2012 is highly unlikely. The most that can be expected is that China will make even more economic concessions to Taiwan.
Naturally, if China continues to make such concessions, it will expect political concessions in return. A recent report published by the Washington-based Peterson Institute for International Economics says that China’s main purpose in signing the ECFA is a political one, in that it hopes the agreement will help promote unification.
Although China can be expected to make further economic concessions to help Ma win a second term in the 2012 presidential election, it will certainly demand a political quid pro quo. That is what China means when it talks about mutual political confidence across the Taiwan Strait.
The Ma administration hopes the ECFA will open the door to Taiwan’s participation in East Asian economic integration and the signing of FTAs with its main trading partners. These ambitions will be a test of Beijing’s political flexibility and the skill of Taiwanese negotiators. The real challenge lies ahead. The ECFA will not be a free ride, and Taiwan must be prepared to face all future challenges.
Tung Chen-yuan is a professor in the Graduate Institute of Development Studies at National Chengchi University.
TRANSLATED BY JULIAN CLEGG
US President Donald Trump and Chinese President Xi Jinping (習近平) were born under the sign of Gemini. Geminis are known for their intelligence, creativity, adaptability and flexibility. It is unlikely, then, that the trade conflict between the US and China would escalate into a catastrophic collision. It is more probable that both sides would seek a way to de-escalate, paving the way for a Trump-Xi summit that allows the global economy some breathing room. Practically speaking, China and the US have vulnerabilities, and a prolonged trade war would be damaging for both. In the US, the electoral system means that public opinion
They did it again. For the whole world to see: an image of a Taiwan flag crushed by an industrial press, and the horrifying warning that “it’s closer than you think.” All with the seal of authenticity that only a reputable international media outlet can give. The Economist turned what looks like a pastiche of a poster for a grim horror movie into a truth everyone can digest, accept, and use to support exactly the opinion China wants you to have: It is over and done, Taiwan is doomed. Four years after inaccurately naming Taiwan the most dangerous place on
Wherever one looks, the United States is ceding ground to China. From foreign aid to foreign trade, and from reorganizations to organizational guidance, the Trump administration has embarked on a stunning effort to hobble itself in grappling with what his own secretary of state calls “the most potent and dangerous near-peer adversary this nation has ever confronted.” The problems start at the Department of State. Secretary of State Marco Rubio has asserted that “it’s not normal for the world to simply have a unipolar power” and that the world has returned to multipolarity, with “multi-great powers in different parts of the
President William Lai (賴清德) recently attended an event in Taipei marking the end of World War II in Europe, emphasizing in his speech: “Using force to invade another country is an unjust act and will ultimately fail.” In just a few words, he captured the core values of the postwar international order and reminded us again: History is not just for reflection, but serves as a warning for the present. From a broad historical perspective, his statement carries weight. For centuries, international relations operated under the law of the jungle — where the strong dominated and the weak were constrained. That
RSS