Wednesday, October 28, 2009

Viewing ECFA from the Macro Level, in terms of Economics

Viewing ECFA from the Macro Level, in terms of Economics
China Times editorial (Taipei, Taiwan, ROC)
A Translation
October 28, 2009

The Council of Labor Affairs has announced the signing of the Cross-Strait Economic Cooperation Framework Agreement, or ECFA. The job market impact report and the Mainland Commerce Department's assessments revealed Mainland earning figures larger than Taiwan's. All sorts of doubts and opposition to ECFA emerged. But ECFA must be viewed from the macro level, in terms of economics.
Government and industry desperately hope that ECFA can be signed. The main reason is that next year "ASEAN plus One," i.e., ASEAN plus Mainland China, touted as the world's largest free trade zone, will take effect. Tariffs within the zone will be for the most part reduced to zero. Taiwan will be left in the cold. Products exported to this region, including petrochemicals, machinery, textiles, and electronics, will all face higher tariffs.

Amidst fierce global competition, profits from exports are generally in the single-digit range. Other countries will impose tariffs ranging from 5% to 10%. In the short term, we will lose our competitiveness, and profits will decline. In the long term, many manufacturers will be unable to cope. They will have no choice but to pull up their roots in Taiwan and set up factories in the region in order to enjoy zero tariffs. Domestic investment and employment opportunities will be reduced. Mainland China signed ECFA in order to avoid being marginalized, to avoid higher tariffs on its exports. It had no other choice.

Some may ask, why don't other countries in the region sign FTAs, i.e., Free Trade Agreements? Why are they able to prevent themselves from being shut out? The international reality is that at this stage Taipei is unable to successfully sign FTAs with other countries in Southeast Asia. No matter how many FTAs Taipei signs with Latin American allies, that will not help it from being shut out of the East Asia Free Trade Area. Instead, countries in the region are keeping an eye on Beijing and Taipei. If the two sides sign ECFA, they may be willing to sign FTAs with Taipei. From the macro level, Taipei no longer has any option but to sign ECFA, as soon as possible.

As for opponents of ECFA, according to Mainland China Ministry of Commerce estimates, once the two sides sign ECFA, Mainland China's gross domestic product (GDP) will increase by 27 billion U.S. dollars, more than Taiwan's GDP increase of 6.9 billion U.S. dollars. Those opposed to signing claim that "The advantages are not enjoyed by Taiwan alone," or even that "Taiwan will lose more than it gains." Their allegations are absurd. Clearly the ROC benefits from the agreement. Without such an agreement, the ROC's GDP will decline, and unemployment will rise. Besides, when we look at the numbers, we must consider the relative sizes of the two economies. Based on these criteria, ECFA will increase the ROC's GDP 1.72%, and the PRC's 0.63%. Taiwan will benefit more than the Mainland.

Also, from another point of view, both sides will benefit from ECFA. ECFA is not an act of charity by the Mainland towards Taiwan. Rather, it is a normal, mutually profitable economic agreement. Opponents are unwilling to address the economic issues. Instead, they blindly fuss over the political issues, leaving Taiwan's economy mired in a crisis.

The Council of Labor Affairs and the Ministry of Economic Affairs have different assessments of the impact of ECFA on the job market. Some industries oppose ECFA because it may have a negative impact on them. They fail to see the forest for the trees. Different economic models use different parameters in their estimates. Of course their estimates differ. Besides, these are merely estimates. Economies make organic adjustments. No one can accurately forecast the final results with 100% accuracy. And because individual industries in other countries have different comparative advantages, some industries will benefit while others suffer. What matters is whether the overall economic benefits are worth it. The government's responsibility is to provide policy support for industry and labor, including relief for unemployed workers and guidance for manufacturers engaged in industrial upgrading. Opponents oppose signing because of potential harm to certain industries. But in the end, when more industries have been harmed, the overall economy will be harmed even more.

Domestically, we are engaged in a war of words over whether to sign ECFA. Meanwhile our main competitor South Korea has been signing agreements all over the globe. In October South Korea signed an FTA with one of the largest economies in the European Union. Within three years, 99% of the EU's exports to South Korea will have zero tariffs or reduced tariffs. Bilateral trade will increase an estimated 32 billion euros. Before this, in August, South Korea signed an FTA with India, the third largest economy in Asia, one roughly equivalent to the "Closer Economic Partnership Arrangement" or CEPA. Two years ago, South Korea signed an FTA with the United States. Currently the two countries are awaiting approval from their legislatures. Even earlier, South Korea signed an FTA with Singapore and the Association of Southeast Asian Nations, or ASEAN. This allowed South Korea's exports to the region to grow at a double-digit rate.

Take a look at others. Think about oneself. How much capital and time does Taiwan have to squander?

中時電子報 新聞
中國時報  2009.10.28










No comments: