Free trade is the prevailing global economic trend and the East Asia region has been caught up in it. There have been a succession of regional free trade agreements signed and they are happening at an increasing pace. Up to now, the agreements have been predominantly for trade in goods and the second phase of agreements for trade in services remains in the early stages.
The East Asia region has seen the Agreement on Trade in Services — part of the Framework Agreement on Comprehensive Economic Cooperation between ASEAN and China signed in January 2007; the Agreement on Trade in Services under the Framework Agreement on Comprehensive Economic Cooperation signed between ASEAN and South Korea signed in November 2007, the New Zealand-China Free Trade Agreement — including trade in services — signed in April 2008; a similar agreement signed between China and Singapore in October of that year and, more recently, the free-trade agreement in services and investments signed between India and ASEAN last month, although this last one is subject to final approval.
The situation between China and Taiwan is different. The political divisions mean that relations have yet to normalize. The ruling parties initially agreed to follow a strategy of addressing economic issues prior to tackling political issues, which is why they have been able to develop economic and trade relations despite the lack of political trust.
It is likely that had these relations been limited to trade in goods or to having Taiwanese businesses seeking to invest in China, the model would not have given rise to concerns among the Taiwanese public, because it would not have brought about any significant changes to people’s daily lives.
As soon as the service trade pact was signed, it became clear that the Taiwanese market was to be opened up to China. While government officials tried to explain that this would promote competition, it is not an issue that can be reduced simply to competition. Such an explanation would have been acceptable had the agreement been signed with any other advanced nation, but to sign such an agreement with China introduces additional factors. These include public distrust of the government, concerns over Beijing’s attempts to manipulate politics through business, fears that Taiwan may lose its sovereignty and its way and quality of life and the impact of cheap Chinese labor coming into the market.
Young people are worried, perhaps mostly about the poor potential for growth in jobs coupled with falling salaries. Over the past decade, the economy has gone through considerable structural changes. In 2011, the service sector accounted for 58.65 percent of GDP and this rose to 68.2 percent the next year. In other words, deregulating trade in the service sector will have a huge impact on the domestic service sector.
The Ministry of Economic Affairs’ take on this is that it will “open up the service sector preferentially to the China market, which will expand business volume,” disregarding the impact it will have on the economy or on the public. Also, the pact has been interpreted as a government effort at tailoring an agreement that would suit major companies in the service sector, something that people have found suspicious yet hardly surprising.
The government signed the Economic Cooperation Framework Agreement (ECFA) with China in June 2010, saying at the time that it would be good for economic development. It has now been almost four years since the ECFA was signed and there should have been an assessment report of the benefits or the pros and cons of the agreement.
In the four years since the signing, the economy has remained stagnant and the general public has yet to feel any of the improvements promised when the agreement was signed. There has been inflation, falling salaries and difficulty finding jobs.
The government’s response has been to encourage Taiwanese-owned businesses to return from China, to entice Chinese tourists and students to the nation and to increase incentives for Taiwanese manufacturers to invest in China. All of these measures give the impression that the government’s sole answer to the current economic malaise is to rely more heavily on China.
The government ought to revisit the predictions made prior to the signing of the ECFA to see whether they have turned out to be accurate and then proceed with the next step.
The ministry published a forecast of the impact of the signing of the service trade agreement on Taiwan’s economy and industry. This forecast looked purely at the economic side of the argument, ignoring the less-than-rosy picture of its political and social impact. The report quoted the results of a simulation conducted by the Chung-Hua Institution for Economic Research, which suggested that the total output of Taiwan’s service sector would increase by about US$400 million as a result of the pact — growth of 0.11 percent — and that it would generate about 12,000 jobs, representing growth of 0.16 percent.
However, the forecast said the service sector would also boost export trade volumes to the tune of NT$402 million (US$13.4 million) — representing an increase of 37.2 percent — while the volume coming the other way would only be US$92 million, a growth of 9.08 percent. In addition, the projections on the amount of investment the Taiwanese service sector intends to make in China are a little on the conservative side.
Major players in the service sector are lobbying the government to get the service trade agreement signed, as it is their intention to open up service centers in China and invest there. The result of future development is sure to be further outflows of Taiwanese capital to China.
The ECFA and the service trade pact will see an increase in the rate of capital outflow from Taiwan, but there will be little capital inflow from China, nor many plants or service centers set up in the nation. The lack of significant investment within Taiwan will mean that few new jobs will be created. Despite this, the market will still be opened up to China, so Chinese will be able to increase their influence. It is foreseeable that this will cause tensions.
The government has yet to make clear the exact nature of the cross-strait relationship. Is it friend or foe, neither or both? It has been said repeatedly that cooperation with China is essential or that the issue should be discussed with China first. The nation is not clear where it stands.
However, do the agreements with China mean that Beijing is already showing goodwill to Taiwan — that it has given up the notion of using military force against Taiwan, preferring to seek unification through economics and trade instead? If the policy of maintaining a separation between politics and economics is to be maintained, the impact of economics on politics must be reduced to the bare minimum or there need to be measures in place to deal with the repercussions.
At root, the signing of an agreement on trade in services with countries that have different languages or cultures would not have had the same effect on Taiwan. The differences that do exist between Taiwan and China involve political and social problems and this is something that the ministry’s report failed to take into account.
Chen Hurng-yu is a professor in the Graduate Institute of Asian Studies at Tamkang University.
Translated by Paul Cooper
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