Taiwan’s trade pact critics too quick off their mark

ForAsiaTimes http://www.atimes.com/atimes/China_Business/MD05Cb01.html

TAIPEI – The China-Taiwan Economic Cooperation Framework Agreement (ECFA) has been in place for a little over six months, and fears that the pact would mean the end for much of the island’s economy have yet to materialize.

Taiwan’s economy expanded 10.82% last year and the outlook remains rosy for 2011, for which the ECFA, along with improved global demand for high-technology products, can claim some credit, while negative economic features attributed to the ECFA by its critics can be linked to more long-term factors.

What is regarded by some as the most significant cross-strait agreement since the Chinese civil war in 1949 is to others a recipe for Taiwan’s ruin. The island’s relatively Beijing-friendly

Kuomintang (KMT) government holds that a comprehensive framework regulating Taiwan’s economic relations with what was already its biggest trade partner and destination of 26.3% of its exports was long overdue and would boost the island’s economy.

This assessment gains credence given February’s exports to China expanded by 31.8% year-on-year to US$8.72 billion.

On the other side stands the opposition, most notably the Democratic Progressive Party (DPP). It has continually warned that the trade agreement will widen the gap between the haves and have-nots and the working poor in Taiwan, lead to an exodus of industries, and cause housing prices to soar due to large amounts of cash brought in by mainland investors.

The critics say southern Taiwan will be particularly badly hurt by the pact, as traditionally, labor-intensive industries are based there. Southern factories and workshops will find it tough to compete under ECFA conditions have to close shop, they warn.

Opposition-leaning media have raised the issue once more, citing a newly published study. The report on work conducted by the renowned National Sun Yat-sen University and commissioned by the cabinet’s Research, Development and Evaluation Commission.
According to the journalists, the study found exactly what the KMT government didn’t want to hear, namely that following the implementation of the ECFA, opponents’ concerns were proved true, and in particular the trade pact resulted in a negative impact on industries in the south.

But when Asia Times Online approached the author of the study for clarification, it turned out that the findings had been twisted to make the case against the trade agreement.

“Until now, the ECFA has had no negative impact whatsoever on the South,” Liao Da-chi, director of the Institute of Political Science at National Sun Yat Sen University and head of the study in question, said in an interview. “That there are fewer work opportunities due to migration of manufacturing industries is not more than a perception the south has.”

The ECFA, which came into effect on September 12, 2010, is widely perceived by economists to be structured to benefit Taiwan more than mainland China. A core part of the pact is the so-called “early harvest list”, a list of goods subject to tariff concessions.

The early harvest list stipulates that from January 1, 2011, 539 Taiwanese products and 267 mainland products could cross the Taiwan Strait with lower tariffs or even none. The mainland also opened markets in 11 potentially very lucrative service sectors for Taiwanese investors such as banking, securities, insurance, hospitals and accounting, while Taiwan agreed to offer wider access in seven areas, including banking and the movie industry.

Critics say that the ECFA resembles the Closer Economic Partnership Arrangement (CEPA) Hong Kong signed with Beijing in 2003, and that consequently, Taiwan is bound to suffer from the same economic downside affecting Hong Kong, namely an exodus of industries to mainland China – although by the time CEPA was signed much, arguably most, of Hong Kong’s industrial base had already migrated across the border. Hong Kong also has one of the largest wealth gaps among the world’s developed economies, and Taiwan will go in that direction, the doomsayers claim.

Li Chi-Keung, professor at Taipei’s Tamkang University Graduate Institute of China Studies, told Asia Times Online that the arguments put forward by critics of the Taiwan trade pact tenable, implying also that the ECFA is being used as a convenient scapegoat.

“The wealth gap in Taiwan has been widening since the late 1980s, when labor intensive industries, including ones located in southern Taiwan, moved to China’s Guangdong province. Since then, Taiwan’s unemployment rate has gone into a long-term upward trend,” said Li. “This is because capital can be easily moved to other countries but workers cannot. That is nothing to do with the ECFA.”

As of January, Taiwan’s jobless rate stood at a seasonally adjusted 4.71%, down from 5.08% in September when the ECFA came into effect.

Li also pointed out that as the trade pact became valid only six months ago, the claim that Taiwan’s economy is suffering due to the pact is somewhat premature.

“As we need time to examine the possible practical impacts, it is still too early to judge the final outcomes,” he said.

Li did, however, acknowledge that predictions by both the Hong Kong and Taipei governments’ that their respective trade agreements with Beijing would lure business back from mainland China have been wishful thinking.

“Because Taiwan and Hong Kong have no comparative advantage on low-end manufacturing any more, of course the trade pacts have not brought back those businesses from China as the governments of Taiwan and Hong Kong had hoped,” he said.

While fear of lost jobs have predominated in the south of Taiwan, soaring real-estate prices are spooking low and medium- income residents in the cities of the north, again with the ECFA seen as responsible.

Property prices in the capital, Taipei, advanced 12.2% last year to a record, and the average home price is likely to increase by 7% to 10% in 2011. Prices in the suburbs are expected to climb by 10% to 15%, with little let-up before at least the presidential election in 2012.

In Hong Kong, strong price gains have been attributed to mainland Chinese investors flooding the real-estate market, but this is not happening in Taiwan.

“So far, we did not see any mainland Chinese who really invest in Taiwan’s housing market because the government imposes many restrictions on mainland investors,” Professor Li said, pointing out, for example, that no residential rights are offered to mainland investors when they buy houses.

“Most of the housing buyers are local citizens and Taiwanese businessmen who come back from China,” Li said. He cited still low interest rates, globally growing inflationary pressures and the reduction of the highest rates of estate duty from 50% to 10% three years ago as reasons for strong demand and rising prices.

While the notion that a particular part of Taiwan is being economically devastated by closer cross-strait cooperation in general and the ECFA in particular can be rejected, it is less easy to deny that some regions are benefiting more than others from the ECFA and other mainland-related business

Beijing, for instance, intends under the mainland’s 12th five-year plan to spend more than $608 billion on several key industries and underdeveloped mainland inland regions.

“The five-year plan could particularly influence Taiwanese firms active in China but could also come to the benefit of the export-oriented mechanical industry located in central Taiwan as well as the information and communications technology industry in the north,” said Li.

 

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