Reportedly, the ‘early harvest’ provided by the ECFA strongly favours Taiwan. ECFA, as well as other benefits, reduces or eliminates tariffs on 589 Taiwan products plus 18 agricultural and fishery products and similarly for 267 Chinese items, mainly raw materials and unfinished products.
According to Washington’s Peterson Institute, the economic benefits for Taiwan are substantial, accounting for an increase of over 4.5 per cent in its 2020 GDP above the trend level. That analysis also notes that, under existing arrangements, Taiwan’s economy would be increasingly disadvantaged in an expanding Asian market by the regional economic integration underway through the expansion of preferential trade arrangements from which Taiwan would be excluded. With the ECFA’s closer trade links with China, a participant in such agreements, this disadvantage would be substantially diminished.
Ma now also sees the way open for Taiwan to participate in other regional ‘free’ trade arrangements. The Chinese have been cautiously encouraging and Taiwan has started talking with other regional countries
The economic consequences of the ECFA are important for the KMT government. While Taiwan’s GDP growth has picked up considerably in the first part of 2010, its GDP dropped in 2009 in real terms by some 2.5 per cent. Yet what short run benefits might emerge from the agreement is unclear. While the ECFA’s rules of origin provisions should not limit trade, unlike ASEAN’s experience, the expectation that the agreement will encourage inwards overseas investments, including Taiwanese enterprises on the mainland returning to Taiwan and restoring employment there, may not be met quickly.
The political implications, however, are substantially contested. Opposition to the ECFA takes two different forms. The first is opposition from those likely to be affected adversely. An agreement such as the ECFA inevitably has losers as well as winners. Obviously, greater competition from China could affect adversely some sectors of the economy – even if helping consumers; but agricultural producers, often seen as the supporters of the opposition DPP, are largely seen as beneficiaries of the treaty. Moreover, increased competition from the mainland seems likely to be limited, given the sustained protectionist policies pursued by Taiwan with respect to China.
The more fundamental basis of opposition to the ECFA comes from those who see Taiwan’s security and political freedom threatened by closer Taiwanese integration with the Chinese economy. The early focus of the opposition was a concern for transparency and democratic accountability; it pressed for a referendum before signing such an important treaty with China, A major public demonstration in support of that view was organised in the week before the signing of the treaty. The opposition is now trying to persuade politicians that there should be a legislative clause by clause examination of the agreement rather than simply a single vote on it as a whole. The government, which should have enough votes for its passage, argues that this is unnecessary: if the opposition wins the 2012 presidential election they could abrogate the treaty.
The major objection to the treaty is the fundamental issue of whether further economic integration with China will make Taiwan more vulnerable to mainland coercion in the future. It is apparent that China has provided a favourable outcome for Taiwan and for Ma and his administration. Its motives could be, as the opposition clearly thinks, China’s way of tying Taiwan into an integrated economy that will facilitate ultimate reunification of the two entities and in the interim to help Ma succeed in being re-elected in 2012; or perhaps, as some believe Ma may think – and maybe more sophisticated thinking on the mainland might hold – it establishes improved mutual confidence across the strait that will make Taiwanese more willing in the long run to contemplate closer political relations.
Whatever the motives, while the KMT sees this as a substantial electoral plus, it is hard not to see this as a high risk strategy for a seemingly electorally less than popular Ma with a support level currently of around 30 per cent.
Stuart Harris is Emeritus Professor in International Relations at the ANU and was formerly Secretary of Australia’s Department of Foreign Affairs and Trade.
The majority of Taiwanese are likely to weigh up the agreement with alternatives and see whether the agreement is in their interests.
As the shift of world economic weight towards Asia continues and China’s economic size becomes biger and biger and further integrated with regional economies, such agreement is likely to be more and more important for Taiwan.
A cooperative economic relationship will be better for both sides.
Good article.
One point where it might be less certain that Beijing will let – even Ma proceed- is the question of FTA’s with other partners, notably Asian.
Moves towards FTA-negotiations were undertaken by the previous DPP-administration with among others Singapore but with China’s pressure the negotiations never took off.
Ma would like to show that his engagement-policy with China can also enlarge Taiwan’s international space and presence. The deal on Tawainese WHA/WHO participation is so far the only testimony to that part of his policy has delivered results.
And the official Chinese reaction to Taiwanese FTA-negotations, which could provide MA with a tangible enlargement of its international space in full accordance with its WTO-member status, is negative according to the Chinese MFA spokesperson and the remarks delivered on the 2nd of June.
The remark sparked a critical Taiwanese reply: “We openly demand that the Mainland Chinese authorities not to block Taiwan from signing FTAs with its trading partners,” presidential spokesman Lo Chih-chiang said.
Lo emphasized that Taiwan and China were both members of the World Trade Organization and thus had the right to sign FTAs as they chose. Trade was Taiwan’s life, and FTAs were opportunities to develop the country’s trade and economy, he said.
It remains therefore to be seen if Beijing will allow Taiwan to pursue other FTA-agreements. Beijing is also eying 2012 cautiously and that Ma might be superseded by a DPP-candidate that could then reap the benefits from China’s conciliatory policy and then move towards a more pro-independence line once again.