Two Sides to Taiwan’s Economic Choice With China

This week, Wall Street Journal released an article titled: Taiwan Leaves Itself Behind . In it, the author outlines Taiwan’s losing its edge by not signing a free service and trade agreement with China. The article condemns Taiwan for letting the opportunity of the Cross Strait Service and Trade Agreement (CSSTA) slip away due to the Sunflower Movement. However, I believe that the CSSTA cannot and should not be evaluated solely on economical profits.

Many would see opening up free trade with China as a selling one’s soul, but others see it as a necessity to enter trades with more powerful countries

To clear some information up about CSSTA, there has been agreements signed between Taiwan and China in the past decade to improve the economical relations between the two, such as the Economic Cooperation Framework Agreement (ECFA), which was signed in 2010 to reduce tariffs for commercial goods between Taiwan and China. Currently (without CSSTA) there are many businesses on both sides of Taiwan Strait: China’s huge investments in SinoPac Bank (永豐銀行) in Taiwan and Taiwan’s multiple franchises such as CoCo Fresh Tea sprouting all over China.  As of now, the current policies allow investors to go across the strait, but not flooding either market.

Another main concern the Taiwanese population has is the possible mass influx of Chinese workers into the small island of Taiwan. Some believe the agreement allows simple workers, such as hair stylists, to immigrate to Taiwan by simply writing a check. There are proper provisions to qualify a immigration from China to Taiwan including such things as education degree, annual salary, and sponsored investor. Details are in the trade agreeement.

To sum up the economical side, on paper, CSSTA will mostly likely benefit Taiwan greatly economically. However, there is another aspect of CSSTA. It is the social and political impact. When talking about any issue, there are multiple sides to it and should not be discussed in one mass but dissected bit by bit.

Since 1945, Taiwan and China has had a delicate relationship. Still left over Chiang Kai-Shek and Chairman Mao’s standoff during the Chinese Civil War, the Chinese Government has treated Taiwan with much animosity. Threatening the island with missiles, China does not allow Taiwan to refer to itself as an independent country. Coercing any countries with diplomatic relations with Taiwan, China forces countries to not recognize Taiwan as an independent country. Such acts cannot be ignored. As a simple metaphor, an individual would not treat a bully the same as it would a friend.

If CSSTA is to be signed, the Taiwanese government must recognize the possibility of China having large investments in companies that could control Taiwan’s freedom. China is internationally known for their Great Firewall of China and propaganda. If Chinese government officials are able to hold a majority stakehold onto media and publication companies, the fears of a Media Monster could become reality.

Sign reads “I am Hong Kongnese. Taiwan, please step on our carcass and move on to a brighter road”

Some people say a lot of this is speculation, but during recent protests against CSSTA, many citizens of Hong Kong residing in Taiwan have come out to support the protest. The reasoning behind this, as many say, is “Today’s Hong Kong could be tomorrow’s Taiwan.” China’s White Paper policy’s encroachment on the freedom of the citizens of Hong Kong should be a warning to the Taiwanese public.

All is said and done, the decision for the CSSTA is not all bad or all good, it is dependent on which aspect Taiwan’s public holds priority: economic growth or social political freedom. This is to be decided by the democratic Taiwanese government.

I repeat: the democratic Taiwanese government

The importance of the Sunflower Movement revolves around the phrase “democratic Taiwanese government”. Government officials elected democratically by the people are the representation of the population’s majority. It is not simply the fault of the government officials who anger their constituents, it is the fault of the voters themselves. Finding the right representation is to have a voice in deciding the country’s future. No matter what light you see the Sunflower Movement in, it teaches the Taiwan public one thing: the power belongs to the people. Exercise it.

 

Check out Michael J. Cole’s reponse to the article on TheDiplomat.com.

 

For those that have problems viewing the WSJ article, see below:

Taken from http://online.wsj.com/articles/taiwan-leaves-itself-behind-1407171366 (as of 8/11/2014)

Taiwan Leaves Itself Behind

Ratifying a pact with China is the first step to diversified trade.

Taiwan’s leaders have warned for years that economic isolation will damage the nation’s competitiveness. Now their worst fears may be coming true, and the consequences of resisting freer trade and economic reform are becoming clear.

Later this year China and South Korea plan to finalize a free-trade agreement that will give most South Korean products zero-tariff entry into the mainland. That’s a problem for Taiwan because both countries count China as their largest trading partner, and their exporters compete head-to-head. Between 50% and 80% of Taiwan’s exports—from petrochemicals to steel, textiles to machinery—overlap with South Korea’s.

If the deal goes through as expected, roughly 2% to 5% of all of Taiwan’s exports to China could be replaced by South Korean products, according to the Ministry of Economic Affairs. Businesses with thin profit margins such as makers of flat panels and machinery are at risk of being priced out of the mainland market.

Meanwhile, Taiwan’s latest trade pact with China signed last year sits in limbo after the student-led “sunflower movement” stymied its ratification by the legislature this spring. Protesters stoked anxieties that Taiwan is in danger of being swallowed up by China as its businesses become increasingly dependent on the mainland.

Trucks transport containers at the port in Kaohsiung, Taiwan. Bloomberg News

It’s certainly true that the two economies are deeply intertwined; 80% of Taiwan’s foreign investment and 40% of its exports go to the mainland. However, placing obstacles in the way of trade and investment won’t solve the problem.

Since China is an integral part of global supply chains, Taiwan only hurts itself if it preserves barriers to cross-Strait trade. Beijing has also signalled it will lobby against Taiwan’s participation in multilateral pacts such as the Trans-Pacific Partnership if Taipei doesn’t first liberalize with China. So the road to less reliance on China paradoxically runs through Beijing.

Taiwan has made some progress on bilateral trade. But pacts with Singapore and New Zealand over the past year, while welcome, govern less than $30 billion in annual two-way exchange. A South Korea-China FTA threatens up to $49 billion of Taiwan’s exports, according to the Ministry of Economic Affairs.

Ratifying the cross-Strait services pact now in limbo would pave the way for a goods trade agreement. It would also show that Taipei has the ability to ratify and implement trade accords it has signed.

In the meantime, Taipei has started to liberalize the domestic economy in line with reforms required by TPP. That deal currently involves 12 nations and 40% of the world’s output. Neither Taiwan nor South Korea currently participates in the negotiations, but both have expressed interest in joining.

Here, too, Seoul has the advantage, having already signed a free-trade agreement with the U.S. with an eye on many of the stringent TPP requirements. If Taiwan rewrites outdated regulations and rolls back restrictions on investment, it can promote domestic competitiveness and signal that Taipei is serious about joining the TPP.

But first Taiwan’s lawmakers have a chance to use a special legislative session this week to pass a bill promised to protesters to monitor cross-Strait treaties, and then ratify the cross-Strait services trade pact. As trade barriers among Taiwan’s neighbors fall, failing to do so will further isolate the island.

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