Pres. Ma urges signing of cross-strait trade deal

In remarks made to the American Chamber of Commerce (AmCham) in Taipei, President Ma Ying-jeou urged the signing of the tentatively named Economic Cooperation Framework Agreement (ECFA). His March 5th remarks stressed the importance of the agreement in lowering trade and investment barriers across the Taiwan Strait, which in turn would enable Taiwan to forge closer ties with other regional economies.

With an export-dependent economy that has suffered a decline of 8.36 percent GDP in just the last quarter, Taiwan needs all the competitive advantage that the ECFA would bring. Without such a deal, Taiwan is in danger of being excluded from the free trade agreement of the Association of Southeast Asian Nations Plus 1 (10 ASEAN members plus China) and that of ASEAN Plus 3 (10 members plus China, Japan and South Korea) when it comes into effect in 2010. Taiwan exclusion would leave it economically handicapped.

Formosa Plastics Corporation president Wang Wen-yuan said Taiwan’s exports of petrochemical products, including machines and chemical fiber, would suffer an immediate blow. As an example, China imposes a tariff of 6.5 percent on Taiwan’s petrochemical products while ASEAN members would enjoy tariff-free trade. This disadvantage would be exacerbated as Taiwan competes with countries manufacturing similar products and vying for the same markets. In such cases, China could impose a 6.5 percent tariff on imports of petrochemical products from Taiwan and a 6 percent tariff on imports from South Korea, with the latter tariff soon to be dropped, leaving Taiwanese companies greatly disadvantaged. According to Chiang Chih-cheng of the Chung-Hwa Institute for Economic Research in Taipei, being excluded from economic agreements in the region could cost the island 114,000 jobs and reduce GDP growth by 1 percent.

Currently, Hong Kong and China account for nearly 40 percent of Taiwan’s exports. ASEAN countries account for over 10 percent. Should Taiwan be excluded from the East Asian Free Trade Area, over half of Taiwan’s exports would be affected. When ASEAN Plus 3 becomes a reality, Taiwan’s exports to Japan and South Korea, accounting for 10 percent, would bring the affected total to 60 percent. The Taipei-based China Times newspaper notes that Taiwan’s economy cannot afford the impact of ASEAN Plus 1 and ASEAN Plus 3, suggesting the government needs to take immediate action to sign the ECFA.

Recently, six major industry and business associations, representing nearly all of Taiwan’s enterprises and manufacturers, called on the government to negotiate and sign the ECFA with China and Free Trade Agreements (FTAs) with other countries. Without an agreement, they said, Taiwanese companies will not be able to survive in their present form, and out of necessity would need to relocate to China or ASEAN states. This in turn would increase domestic unemployment, lessen foreign capital investment and damage Taiwan’s economy.

The importance of executing the EFCA is even more crucial now given the World Trade Organization’s (WTO) stalled efforts to tackle the tariff issue. When Taiwan was admitted into the WTO as a “Separate Territory of Taiwan, Penghu, Kinmen and Matsu” (or Chinese Taipei) in 2002, there was great hope that the original multilateral agreements would protect Taiwan’s foreign trade. This proved otherwise after several Doha Rounds failed to reach a compromise to lower international trade barriers. While many WTO member states have bilateral FTAs with each other and other developed nations, Taiwan was shut out of FTA talks with WTO states due to its lack of diplomatic ties.

The government expects the signing of the ECFA with China will eventually pave the way to free trade deals with other countries. At present, Taiwan only has FTAs with five Latin American diplomatic allies, which amounts to less than 1 percent of Taiwan’s total exports. China’s position on this subject will be crucial for future talks with the US, Japan, EU and ASEAN members in negotiating FTAs with Taiwan.

Although the island’s export industries are strongly in favor of hammering out an ECFA with China, there are those who urge more caution. Some are concerned with the name, scope and timeframe of the proposed ECFA with China. The opposition Democratic Progressive Party (DPP) and Taiwan Solidarity Union have both come out against the proposed agreement, fearing that Taiwan might sacrifice its sovereignty in favor of economic benefits, resulting in more dependence on China’s markets. DPP Chairwoman Tsai Ing-wen stressed that such a deal has important implications for the island’s sovereignty, the Liberty Times newspaper reported. The policy development should be transparent and public, under the scrutiny and supervision of legislators before being signed, and rushing into a deal would only lead to social division in Taiwan, she said.

During the eight years Taiwan was governed by the independent-minded DPP, relations across the strait deteriorated. President Ma of the ruling Kuomintang (KMT) campaigned to improve relations with China and carried out his pledge by resuming a series of high level talks once he took office last May. Since then, he has succeeded in opening up regular scheduled direct flights for passengers, cargo, and mail across the strait.

As the next cross-strait meeting takes place this June, President Ma will get a chance to further advance Taiwan’s ties with China. He has emphasized that the ECFA will not open Taiwan to mainland labor, nor expanded agricultural imports from across the strait. Already he is careful to emphasize that the ECFA is purely economic in nature and will not involve the sensitive issues of sovereignty, independence or unification with China as critics have alleged.