Monday last week was the 10th anniversary of the signing of the Economic Cooperation Framework Agreement (ECFA). Unless something unexpected happens, it will probably be renewed.
All the talk several months ago about how the ECFA benefits Taiwanese industry and that ending it would bring economic disaster was just an election strategy of the Chinese Nationalist Party (KMT), trying to create the impression that the party’s presidential candidate, then-Kaohsiung mayor Han Kuo-yu (韓國瑜), would — as president — extend the agreement. Han even spoke at campaign events about the necessity of doing so.
Talk about ending the ECFA soon petered out, although some insisted that the decision on whether to extend the agreement was in the hands of China: If Beijing did not want to, it was game over. Those people have forgotten how the Sunflower movement ended the follow-up to the ECFA and brought down the KMT: This year’s decision might also be in Taiwanese hands.
Free-trade agreements (FTAs) are based on bilateral reciprocity and not on unilateral concessions. The ECFA is good for Taiwan and China, and political considerations would be the only reason to end it. Still, whether extending it would be a great injection to the economy is a different matter; it should not be taken for granted that it is.
Consider machine tool exports to China, an item on the ECFA’s early-harvest list: In 2011, such exports stood at US$870 million. Their value fell year-on-year for the next five years, and by last year had fallen to US$560 million, a 35 percent decline.
In 2011, Taiwanese exports of vehicle parts to China totaled US$330 million, but last year had fallen to US$220 million, a 33 percent decline. Vehicle part exports on the ECFA early-harvest list were at US$270 million in 2011, but last year had fallen to US$160 million, a 40 percent decline.
It is not surprising that the auto-parts industry says that ending the ECFA would have limited impact.
The Chinese-language CommonWealth Magazine gave a conclusive evaluation of the ECFA in a report in its May 2014 issue titled “The ECFA early-harvest list: Decrypting the result of the first three years.”
In October last year, KMT Legislator William Tseng (曾銘宗) asked then-minister of economic affairs Shen Jong-chin (沈榮津) about the expected effects of canceling the ECFA. It would affect about 5 percent of Taiwan’s foreign trade, mainly the petrochemical industry, Shen said, adding that the government would assist businesses with market diversification, and industrial upgrades and transformation.
This implies that the petrochemical industry is the main beneficiary of the ECFA, but is that really the industry Taiwan should concentrate on as it promotes sustainable development?
Someone like Taichung Mayor Lu Shiow-yen (盧秀燕), who thinks air pollution is an important issue, should answer this question with a resounding “no.”
According to media reports, the benefits of the early-harvest list have fallen over the years. From a business perspective, the focus should be on FTAs. This is probably public consensus and would also be the next step for the ECFA.
To negotiate FTAs, Taiwan needs a comprehensive industrial development strategy. The government must not repeat its mistakes. Following that, industrial competitiveness is vital. If Taiwan were to sign FTAs with the US and Japan, the government must not make a big deal out of it as it did with the ECFA, which only led to confusion.
Lin Shang-jung is a high-level manager at a TAIEX-listed company.
Translated by Perry Svensson
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