Wednesday, December 23, 2009

Flowers and Thorns: Positive Implications of the Tax Agreement

Flowers and Thorns: Positive Implications of the Tax Agreement
United Daily News editorial (Taipei, Taiwan, ROC)
A Translation
December 23, 2009

The fourth Chiang/Chen Meeting concluded yesterday. The tax agreement previously signed was temporarily withdrawn. To quote Premier Wu Den-yih, optimists see the flowers, pessimists see the thorns. This is the first time a signed document has been withdrawn. Cross-Strait interaction involves thorns as well as flowers. Withdrawing the agreement means the signatories are in no hurry to pick the flowers, for fear of being pricked by the thorns. Both sides are being judicious. That has positive implications.
They may have had a day to let doubts settle. But many people are still confused about why the two sides called time out on the tax agreement. They are wondering what sort of problems arose.

Recent discussions addressed cooperation over agricultural inspections, quarantine procedures, labor affairs for the fishing industry, standards and measures, inspection certification, and cross-Strait tax agreements. They were all very specialized and technical in nature. The opposition DPP was unable to make any political hay out of them. That is why they deliberately turned their attention to ECFA. The two sides have spent years discussing the institutionalization of labor affairs for the fishing industry. Cross-Strait agricultural trade volume has expanded. Cooperation over quarantine and inspection procedures, the avoidance of double taxation, and certification standards require further agreements. These will dramatically change cross-Strait economic interaction. Once the pros and cons have been balanced, they will greatly increase Taiwan's efficiency vis a vis the outside world. This is something the opposition DPP should make every effort to monitor. It should make an effort to sharpen the focus of the debate, instead of hurling wild accusations.

Take the recent extension to the tax agreement for example. Taipei has signed 17 similar agreements with other nations. The main purpose was to avoid double taxation, to define taxation powers, and to reduce the tax burden on businesses and individuals who shuttle back and forth between Taiwan and the Mainland. It will help determine tax overhead, and promote mutual investments and development. This agreement applies only to direct investments. It will help businesses change their investment models. It will make cross-Strait investments more transparent. More importantly, it will induce multinational companies who wish to break into the Mainland market to use Taiwan as their operational base. It will be the key to restarting our plans for an Asia-Pacific operations center.

This agreement incorporates existing international rules. But it must also take into account the special historical ties between the two sides. Various forms of income tax directly affect the two governments' tax revenues, corporate tax planning, and any number of business activities. Therefore lop-sided tax provisions inconsistent with our interests must be avoided. If these issues are not made clear in advance, the government will find it difficult to bring them up later. They also highlight the difficulty of applying international statutes to cross-Strait economic and trade consultations. They involve disputes over sovereignty that the government may find difficult to talk about. Cross-Straits tax agreements are sensitive and complex. ECFA is even more so. With ECFA the uncertainties for both sides will be even greater. These are the thorns that bedevil cross-Strait relations. The fourth Chiang/Chen Meeting has inadvertently highlighted this fact, yet again.

That cross-Strait tax agreements have been halted during the final stages of negotiations may take us aback. It may lead to doubts about the pace of cross-Strait economic and trade normalization, It may even provoke concern that we have reached a critical impasse regarding sovereignty. But it also allows the public to see whether the Democratic Progressive Party is making an effort to oversee the government's policies, or merely shouting populist slogans. Is the DPP adopting a professional and rational approach to policy discourse? Is it promoting transparency in cross-Strait consultations in order to protect the public interest? The DPP has said nothing about the substance of the agreement. The Ma administration withdrew its support for the tax agreement on its own. This shows that the DPP prefers to whoop it up rather than act responsibly. It is derelict in its responsibility as an opposition party.

For the Ma Ying-jeou government, the extension of the cross-Strait tax agreement has been spun as a serendipitous result of the Chiang/Chen Meeting. It will be the focus of public attention. Two consultations have already taken place, in two locations. The participants' rank and numbers have accorded with formal reciprocity. The issues raised have accorded with substantive reciprocity. The withdrawal of the tax agreement has allowed the public to see cross-Strait negotiations very differently. Cross-Strait negotiations have turned out to be real negotiations, with the real possibility of failure. They have turned out to be more than pro forma rituals. The public now realizes that the government is in earnest about cross-Strait consultations, and that it has something to show for its efforts. The government knows that "all that glitters is not gold." The withdrawal of the tax agreement has inadvertently reminded the government that the institutionalization of cross-Strait consultations has advanced from the easy stage to the difficult stage. They have advanced from the mutually beneficial initial stage, to a quid pro quo, zero sum later stage. They may adversely affect the interests of certain groups. Some policies may provoke controversy. Public sensitivities are sure to increase. The way to defuse such sensitivities is to make policy debate more transparent. The government must have confidence in civil society.

The tax agreement has been withdrawn over terminology relating to sovereignty, or to technicalities. The Chiang/Chen Meeting has suffered a setback. But this setback will allow each side to better understand the others's position during future cross-Strait negotiations. It will allow them to pick the flowers without being pricked by the thorns.

2009.12.23 03:11 am









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