Taiwan's trade pact critics too
quick off their mark By Jens
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
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
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.
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
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.
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.
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
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.
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.
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
"As we need time to
examine the possible practical impacts, it is
still too early to judge the final outcomes," he
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
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
"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.
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,"
Jens Kastner is a
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