The signing of the economic cooperation framework agreement between Taipei and Beijing means that cross-strait relations have now entered a new era. It also presents both the ruling and the opposition parties with a new set of challenges.
According to the terms of the agreement, mainland China agrees to eliminate import tariffs on 539 goods from Taiwan, and Taiwan agrees to do the same for 267 mainland goods. The goods from Taiwan to the mainland are worth an estimated US$13.8 billion; those from the mainland to Taiwan, by contrast, are worth only one fifth as much.
Taiwan had been afraid that it would be forced to open its markets to mainland Chinese agricultural goods. In the end, this did not happen; instead, the mainland has agreed to open its markets to an additional 18 agricultural products from Taiwan. On the whole, then, Taiwan will benefit more from the ECFA than the mainland will.
In the short term, the most notable consequence of the ECFA is that 539 goods from Taiwan to the mainland will have their tariffs eliminated, which will help make the goods in question more competitive. This will have several positive effects, including increasing business revenues, spurring growth in the nation’s gross domestic product, and lowering the unemployment rate.
In the long term, the ECFA will help normalize cross-strait trade relations. It will also help dispel the fear that the economy of Taiwan is becoming marginalized—after all, in joining its economy with the mainland, Taiwan is also joining the Association of Southeast Asian Nation free trade zone, the world’s largest free trade area.
What is even more important is that ECFA will redefine Taiwan’s position in the Asia-Pacific region and even in the entire world.
During the previous administration, the rise of mainland China, poor cross-strait relations, and a lack of direct transportation links between Taiwan and the mainland all caused Taiwan’s economic position to fall, so that not only did foreign businesses forsake the island, even local businesses packed their bags and left.
The picture has changed dramatically for the better since 2008, when the Kuomintang took over the reins of power from the Democratic Progressive Party. Cross-strait relations have improved, restrictions on cross-strait trade have been lifted, and direct transportation links, including direct cross-strait flights, have now been put in place.
As a result, the so-called “peace dividends” have now resulted in a “re-rating” of the local stock market, causing it to soar. Many businesses that had left have now returned and even relisted on the local bourse.
After the Great Recession struck, mainland China has also helped boost the Taiwan economy by sending numerous procurement delegations to the island.
Taiwan is thus beginning to play a more prominent role in the greater China market and even within the Asia-Pacific economic sphere. And the signing of the ECFA can be said to have put the capstone on all these improvements of the last few years.
At the same time, this newspaper must remind the current administration that improving cross-strait relations, establishing direct links with the mainland, and even the signing of the ECFA, are in themselves insufficient. In no way will these measures ever become the “engines” of economic growth; nor are they a magic potion that will bring about the much-talked-about “golden decade.”
No doubt, these measures can help create a more favorable economic environment, but other things—such as improving the investment environment, boosting the economy, reducing the unemployment rate and so on—will still require the never-ending attention of the government, for these are goals that can never be fully reached.
With the ECFA, Taiwan will be able to have its tariffs on some 539 goods reduced, but at the same time the mainland will receive the same treatment for 267 of its goods. Thus the trade agreement will have both pluses and minuses. The ruling party must consider how it can make the most of the pluses while minimizing the minuses.
When Taiwan joined the World Trade Organization in 2002, some industries were faced with increased pressure from foreign competition, and it took several years for the negative effects of joining the WTO to wear off.
But becoming a part of the WTO was considered a purely economic decision, and as no politics was involved there was consensus on the island that becoming a part of the WTO was the right thing to do.
The ECFA, on the other hand, has to do with the sensitive issue of cross-strait relations, so that opponents of the trade pact have been able to politicize it, and in the future, all the negative effects of the agreement will be greatly emphasized.
Sooner or later, some less-competitive industries will see a fall in their revenues; they could be shut down, and their employees will be out of work. The government must consider how it can help these endangered industries increase their competitiveness. It must also consider how it will help those who lose their jobs because of the ECFA find new employment opportunities.
When everything about the ECFA is liable to become politicized, the government must not stand idly by as the free market slowly absorbs all those adverse effects of the deal. Otherwise, hard-to-control political and social consequences are bound to follow.
The present administration should also try to sign free trade agreements with other nations, so that the nation has a diverse range of trading partners.
These are all very severe challenges that the government will have to face as soon as the ECFA takes effect at the start of 2011.
As to the opposition party, the DPP should thoroughly consider whether it is time for it to make fundamental changes to its cross-strait policy, now that the ECFA has been signed and commerce between Taiwan and the mainland will become ever more integrated. In the last two years, the DPP has been against almost all policy proposals that could strengthen cross-strait commercial relations, and to win converts to its point of view it has very frequently used inflammatory language to scare Taiwan society.
But the truth is that Taiwan has benefited from its closer trading relationship with the mainland. Indeed, the reduction in cross-strait tensions is something that has been widely praised by the international community. The fact is, none of the detrimental effects the DPP has prophesied has actually materialized.
During the Great Recession, the mainland, with its large financial resources, sent numerous procurement delegations to Taiwan, which helped businesses on the island and its economy recover more quickly.
And after Taiwan opened its doors to mainland tourists, Chinese travelers arrived on the island in droves. These tourists, which have now exceeded 1 million, have helped not only hotels and popular tourist spots, but also the island’s night markets and indeed its entire service industry.
After the signing of the ECFA, with even closer trade relations between the two sides, Taiwan will profit even more. As the advantages of the ECFA gradually come to be more widely felt, the DPP will have a hard time living up to its claim that it will fight a “10-year war of resistance” against the ECFA.
In the post-ECFA era, the greatest challenge facing the DPP is articulating a new and persuasive cross-strait policy that can actually benefit the people of Taiwan. (HZW)
(This commentary originally appeared in the China Times June 25.)
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