Since Taiwan and China signed the cross-strait service trade agreement in June last year, it has caused much controversy. However, the majority are unaware that the pact was signed in accordance with Article 4 of the cross-strait Economic Cooperation Framework Agreement (ECFA). The ECFA — signed by Taiwan and China in June 2010, involves economic cooperation, commodity and service trade, investment protection, intellectual property rights, trade defense measures and settlement mechanisms for business disputes.
In fact, the Cross-Strait Investment Protection and Promotion Agreement signed in August 2012, the controversial service trade agreement and the signing of the cross-strait agreement on trade in goods, which is to take place at the end of this year or the beginning of next year, are all part of the huge ECFA framework.
To address the current controversy, we need to look into the ECFA negotiation process. It was negotiated as a framework agreement. This means the two sides agreed which sectors they were going to open up, but the details of the follow-up agreements were to be negotiated at a later date.
The Chinese economy is much larger, so it adopted a “minimax” standpoint — a mode of decisionmaking used in decision theory to minimize potential losses in a worst-case, or maximum-loss, scenario.
Taiwan, however, should act cautiously at the negotiating table and not risk letting its markets be swallowed up. It should therefore take a “maximin” stance, trying to maximize the minimum gain. It should sign agreements one at a time, and not rush into signing such large-scale economic cooperation frameworks.
Yet Taiwan also adopted the “minimax” mode, which meant that it was unable to carry out an impact evaluation in a timely manner and was unable to gain a comprehensive understanding of the pact’s real impact on the service sector. This is why it has been causing endless disputes. The ECFA actually states that the two sides should start negotiations on follow-up agreements within six months of the ECFA coming into effect and complete them promptly. That meant Taiwan was forced to carry out talks with China in a hurry after the ECFA was signed.
Sometimes, due to the inefficiency of the government agencies concerned, officials are forced to negotiate before a complete evaluation of impacts on industry is made. In other words, signing the ECFA first may have made cross-strait negotiations less flexible, leaving less buffer time and room to maneuver, which made it very easy for officials to misjudge the situation. One mistake is likely to be followed by a series of mistakes.
Take the service trade agreement for example: China will deregulate 80 sectors and Taiwan 64, but the government has failed to produce impact evaluations that allow a full understanding of the ramifications. When officials did give a report to the legislature on the impact on industries of the agreement’s timetable, content and benefits, some legislators realized the report was a copy of the impact evaluation on the signing of the ECFA in 2010. Was that impact evaluation, conducted several years ago, still applicable?
When it came to signing the agreement, the government agencies concerned exposed loopholes at the negotiating table. In response to this, Taiwanese students occupied the Legislative Yuan in protest.
However, President Ma Ying-jeou’s (馬英九) administration has insisted it will not withdraw the pact or initiate a new round of talks.
If the Ma administration does not address the differences between Taiwan and China’s cross-strait negotiation strategies, it might suffer badly during the talks, and Taiwan will lose more than it gains.
Kuo Chen-hero is an adjunct professor at Soochow University’s School of Business.
Translated by Eddy Chang
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