Taiwan's Economy Cannot Withstand the Impact of ASEAN Plus One
China Times Daily editorial (Taipei, Taiwan, ROC)
February 26, 2009
Businesses, think tanks, and political parties have all presented their positions on whether Taipei should sign a Comprehensive Economic Cooperation Agreement (CECA) with Beijing. In order to understand why both industries and the government feel such an urgent need to promote CECA, we must begin by looking at global economic trends.
In 2001, the mainland and Taiwan became part of the World Trade Organization (WTO). We initially assumed that under the WTO's multilateral agreements, our foreign trade would enjoy considerable protection. But negotiations over the Doha Agreements have remained stalled. Instead, regional economic interests have come to the fore. Two to three hundred governments have signed regional economic agreements with each other. The one that affects the Republic of China most is the East Asian Free Trade Zone, better known as ASEAN Plus One (ASEAN Plus Beijing) to be signed in January next year, or possibly ASEAN Plus Three (ASEAN plus Beijing, Tokyo, and Seoul).
Once the East Asia Free Trade Zone becomes official, most products traded within the region will be tariff free. Economies within the region will of course benefit. But those outside may be severely harmed. Taiwan's economy will bear the brunt of the impact. Most Taiwan companies' exports go to the mainland. Together with Hong Kong, the mainland accounts for nearly 40% of our exports. ASEAN accounts for over 10%. Once Taiwan is excluded from the East Asian Free Trade Area, over half of Taiwan's exports will be affected. If ASEAN Plus Three becomes a reality, exports to Japan and Korea, amounting to 10%, will bring the affected total to 60%.
This is a low margin era. Most businesses enjoy only single digit profit margins. Our competitors will pay no tariffs, while we are subjected to tariffs of 10% on textiles and 6.5% on petrochemical products. For manufacturers the danger is not thinner margins or fewer orders, the danger is having to close up shop after being eliminated from the market.
In the middle and long term, in order to maintain their profits and to survive, businesses will be forced to uproot themselves and relocate. They will be forced to invest and set up factories inside the East Asia Free Trade Zone. Investment and employment opportunities on Taiwan will sharply decline.
Can our economy withstand such an impact? The East Asian Free Trade Zone will soon be established. Economists' estimates of its impact on our economy may vary. But all agree that economic growth is declining while unemployment is rising. Regardless, the negative impact is not something the public wants to see. Nor is it something our constitutionally weakened economy can sustain. Once the negative impact is felt, those harmed will not be limited to industry. The economy as a whole and everyone in it will suffer.
Put simply, signing CECA is of the utmost urgency. The reason is not to strengthen economic and trade relations with the mainland, but to alleviate the negative impact of the East Asia Free Trade Zone on our economy. It is easy for politicians to demagogue the issue. But if the opposition DPP and TSU want to oppose CECA, they must offer us a viable alternative. They must tell us how to alleviate the destructive impact of the East Asia Free Trade Zone on our economy.
Let's get back to basics, to people's fundamental interests and to the public welfare. Comparative advantage and bilateral trade can create greater economic benefits. Some people want to open Taiwan up to more mainland products. This will severely impact Taiwan, and is clearly contrary to the principle of comparative advantage. A previous wave of raw material price increases triggered inflation. Before that the world enjoyed low-inflation economic growth. They could buy cheaper goods. They benefitted from newcomers joining the ranks of global production, including the mainland,
Now let's look at the changes in Taiwan's industrial base over the past twenty years. Companies producing labor-intensive, low value-added goods, were weeded out or relocated. The resources were made available to high-end, high value-added products, making possible today's Silicon Island. Globalization is subjecting Taiwan's businesses to global purchasing pressure and peer competition. Refuse to make use of the mainland's resources and markets, and one will find it difficult to survive in the global market. Industry trends over the past few years bears this out.
In short, the most pressing challenge for our economy is coping with ASEAN Plus One once it is initiated in January. The export competitiveness of our businesses has fallen sharply. Our economy faces marginalization. CECA is the most realistic solution. Opposition parties are worried about sovereignty and terminology. This is understandable. But solutions can be found during negotiations. To stubbornly dig in one's heels, while failing to alleviate the economic pressures caused by ASEAN Plus One is flagrantly irresponsible. We hope the ruling party will address internal differences and concerns. We hope it will make every effort to resolve and accommodate differences. It should also use the political opposition as the "bad cop," in order to fight for better terms.