Tuesday, June 29, 2010

ECFA: Economic Interests and a Race Against Time

ECFA: Economic Interests and a Race Against Time
United Daily News editorial (Taipei, Taiwan, ROC)
A Translation
June 29, 2010

Today in Chongqing, Taipei and Beijing signed a Cross-Straits Economic Cooperation Framework Agreement (ECFA). This is undoubtedly the most important step the two sides have taken to promote economic and trade relations since normalization, and constitutes a landmark event. ECFA is rooted in economics and trade. It helps cross-Strait economic interaction take a certain path. It helps Taiwan integrate itself into the regional economy. But the benefits ECFA provides will not appear magically merely because the agreement has been signed. Taiwan is running a race against itself, against the world, and against time. We do not have a moment to waste.

ECFA includes an early harvest list of 539 goods and 11 services. The mainland will allow these to be implemented first. The window of opportunity will be opened further in the mid to long term, and allow other governments to sign free trade agreements (FTAs) with Taipei. This will enable Taiwan to integrate itself into the regional economy and avoid marginalization. From a larger perspective, ECFA will kickstart Taipei's accession to the WTO, begun nine years ago. The importance of this large-scale economic reform cannot be overstated.

Before the benefits of the early harvest list materialize, many things can happen. The immediate benefits of the early harvest list are time-sensitive and fleeting. Our chances of signing FTAs with other governments has been improved. But whether any FTAs will actually be signed is not entirely up to us, and remains far from certain. Can Taiwan survive the pain of economic reforms? That will depend on the determination and ability of those in power. These three factors, interacting with each other, will enable Taiwan's economic metamorphosis.

Take the early harvest list. This is a special arrangement that allows the two sides to enjoy the benefits of liberalization even before negotiations over trade liberalization have begun. This allows industries on the early harvest list to enter the mainland market in advance, and be more competitive. This is why the government is promoting ECFA so vigorously. What the government is not saying however, is that these early harvest items are time sensitive. These goods and services must be liberalized within six months after ECFA goes into effect. This means that the sooner the two sides complete their negotiations, the sooner they will liberalize, and the shorter the early harvest period. The two sides however did not clearly define the length of the consultation phase. Therefore the consultation phase has a beginning, but no end. This makes the definition of the early harvest phase uncertain. Businesses naturally want the early harvest phase to last as long as possible. But that is neither consistent with Beijing's interests nor with international norms. It could also encourage corporate complacency. The best response is to take advantage of the early harvest provisions as soon as possible, and establish a competitive position in the mainland market.

Now take FTAs. ECFA is a essentially the phased implementation of an FTA, but it is not an FTA as such. Politically, a high degree of mistrust lingers between Taipei and Beijing. Economically however, the two sides have a special relationship, and a high degree of economic interdependence. This makes ECFA very different from normal international trade agreements. For example, the early harvest list accounts for fully 16.5% of all trade. This far exceeds normal FTA standards, and makes ECFA very different from other FTAs. The explicit timetables for the start of negotiations are all special cases. But these special cases may become the model other governments use when signing FTAs with Taipei and Beijing. They may provoke challenges from the opposition. They may become obstacles when Taipei attempts to sign agreements with foreign governments. The government must anticipate such problems.

Also, Taipei hopes that through ECFA, and Beijing, it can participate in the process of world-wide regional integration. This is increasingly likely, given improved cross-Strait relations, but it remains a unilateral expectation. Taipei must offer incentives sufficient to induce foreign governments to sign FTAs. This is a practical matter that the government must consider during the post-ECFA era. Now that the two sides have signed ECFA, this may accelerate the pace at which the South Korean and other governments sign FTAs with Beijing. This will affect Taipei's interests vis a vis ECFA. The world continues to turn. Taipei must not assume that just because it has signed ECFA, it can sit back and rake in all manner of benefits. If so, it has signed ECFA in vain.

As Japanese strategist Kenichi Ohmae astutely noted, ECFA is a multivitamin formula tailored for Taiwan. Vitamins can help one stay fit. But they cannot ensure one's survival. Therefore, in order to maintain our competitive advantage and economic development, it is not enough merely to take a multivitamin. One must also have a strategy for keeping fit. The key is whether the government can use the leverage provided by ECFA to promote economic reform. That is why President Ma intends to announce a post-ECFA global economic strategy. We for one, are eager to hear what he has to say.

2010.06.29 03:13 am








No comments: