The ROC Legislative Yuan will soon review the Cross-Strait Trade in Services Agreement, and a public hearing will be held beforehand. There has recently been much discussion by all sectors of society on the advantages and disadvantages that the agreement can afford, but some industries appear to be worried that the services accord does not consider their interests. From a strategic perspective, however, the accord is an important step for the nation to integrate with the global economy and deserves further clarification.
The Cross-Straits Economic Cooperation Framework Agreement (ECFA), implemented Sept. 12, 2010, is a framework accord, with several follow-up agreements necessary before it can be considered complete. These include the Cross-Strait Bilateral Investment Protection and Promotion Agreement signed in August 2012, the services accord signed in July this year, and the Cross-Strait Trade in Goods Agreement currently being negotiated. Approximately 40 percent of Taiwan’s exports go to mainland China, so a major reduction in cross-strait tariffs will greatly benefit Taiwan exporters.
Taiwan is a typical small, open economy dependent on global markets, so it needs to sign free trade agreements with other countries as well as mainland China. The pace of international economic integration and signing of FTAs has picked up speed and Taiwan must keep up.
To give a few recent examples of this quickening integration: In late May this year mainland China’s Li Keqiang traveled to the EU and announced the opening of bilateral FTA negotiations. A few days later he went to Switzerland to sign an FTA with that country. At the end of August, Hong Kong and mainland China signed the 10th supplement to their Closer Economic Partnership Arrangement, focusing on liberalization of sectors in which the CEPA lagged behind the cross-strait services accord.
At the start of September, South Korea announced it was entering its seventh round of FTA negotiations with mainland China. The two have already reached consensus for 90 percent of goods to be reduced to zero tariff, with an expectation that sometime between 2020 and 2030 all goods will be traded tariff-free. Also in September, the EU announced it had finalized its FTA with Singapore, the first FTA the EU has signed with an Association of Southeast Asian Nations member.
Aside from the signing of these bilateral FTAs, there are two regional economic agreements that are making rapid progress. Negotiations for the Regional Comprehensive Economic Partnership, initiated by the 10 members of ASEAN, are due to be completed by 2015, with entry for Hong Kong projected in 2017.
Talks for the U.S.-led Trans-Pacific Partnership currently involve 12 nations. A further seven countries, including Taiwan, have expressed an interest in joining. Following a big push by U.S. President Barack Obama, the 12 nations expect to conclude the first round of talks by the end of this year or early next year, the American Institute in Taiwan said in mid-September. Countries such as Taiwan and South Korea will have a chance to be included in the second round.
The economic integration of East Asian countries with the rest of the world means tariffs on trade between these countries will gradually fall to zero on many products. Foreign trade has always been a driver of Taiwan’s economic development. If the nation becomes marginalized, its manufacturing competitiveness will completely disappear. It is most unfortunate that the services accord is being held up in the Legislature, with no end to the delay in sight. Even worse, the cross-strait trade in goods agreement and a dispute settlement agreement have yet to be negotiated and will also have to be sent to the Legislature for approval. The question is: can the nation afford to wait much longer?
Some may ask why it is necessary to sign FTAs with mainland China first. The ROC Ministry of Economic Affairs’ present strategy is to establish multiple contacts and sign deals one by one. But other countries are watching Taiwan’s present negotiations with mainland China and to what extent the country is willing to open its market. Some people are worried about the impact on opening the domestic market to mainland Chinese investment in restaurants, beauty parlors and printing. What about other industries whose contribution to the economy is even greater, such as financial services, telecommunications and agriculture? If the nation is reluctant to open any of them, how can negotiations progress?
In the present climate of rapid global economic integration, Taiwan has no choice but active involvement. Government, private business and individuals must be psychologically prepared for liberalization and international competition. They must boost their competitiveness to face these challenges. (SDH)
(This commentary first appeared in the Economic Daily News Sept. 27, 2013.)