ECFA: Multivitamin Formula for Taiwan's Economy
China Times editorial (Taipei, Taiwan, ROC)
June 23, 2010
Negotiations over the cross-strait economic cooperation framework agreement (ECFA) have begun. The contents of the "early harvest" list have gradually emerged. As one can imagine, some items were not included. Or else they were included, but the items were not manufactured by that many companies. This led to much dissatisfaction. Take the petrochemical industry. Wang Wen-yuan, CEO of the industry leading Formosa Plastics Group said "It's so sad, I'm almost in tears." Don't even mention "Boss Lai," whom President Ma Ying-jeou cited during the Two Yings Debate. If his company fails to benefit from ECFA, he won't be sad. He'll commit suicide by smashing his head into a wall.
During the Two Yings Debate, the most impressive aspect of President Ma's performance was his reference to living, breathing industry heads. When President Ma visited Boss Lai's factory in Taichung, Lai told him that if machine tool exports are good, our workers' jobs will be secure. If exports are poor, our workers' will be negatively impacted. DPP Chairman Tsai Ing-wen asserted that not signing ECFA would lead to a less than 1% difference in tariffs. President Ma made a point of refuting her. He said Boss Lai told him the difference in tariffs for the machine tool industry would be a whopping 8%! Invoking Boss Lai allowed the president to gain quite a few debating points. But because he was the only concrete example cited during the entire debate, Boss Lai in effect became the star of the Two Yings Debate. It was widely assumed that Boss Lai's machine tools would be included on the ECFA early harvest list, and become one of the major players.
To everyones' surprise automotive, petrochemical, and machine tools did not appear on the early harvest list during the third round of cross-strait negotiations as expected. The automotive parts section did not include "assembled vehicles." The industry is disappointed. But at this stage measures relating to liberalization are extremely complex. They include quota allocations, the coordination of regulations, the determination of local content rates. None of these can be determined in such a short period of time. Take the North American Free Trade Area (NAFTA), for example. Parts and assemblies must include 62.5% local content before they may be sold. Taiwan clearly cannot achieve this standard. The scale and capacity of the mainland's automobile production far exceeds that of Taiwan. Full liberalization would leave Taiwan companies unable to compete. For Taiwan the WTO model of quota management and gradual opening is actually more favorable and less stressful. Therefore industry heads can probably accept the removal of the automotive industry from the first phase list. Can Taiwan's automotive industry achieve international competitiveness? Can it emerge from its limited and weak situation in Taiwan's market? ECFA provides an important opportunity. We can proceed slowly, but not too slowly.
One week remains between now and the siging of ECFA, scheduled for the end of June. Both sides are preparing for begin the fourth round of consultations. In response to industry disappointment, Premier Wu Den-yih explained. The petrochemical industry originally proposed 111 items. Agreements have already been reached on 94 of them. Items not included constitute a small part of the whole. Over a dozen machine tool items are already included on the early harvest list. According to senior party and government sources, our side has already proposed a 38 item early harvest list. Among them, eight machine tool industry items and one petrochemical industry item may be included. Petrochemicals and machine tools are Taiwan's strengths. Of course the mainland will object. The best thing to do is to wait for the final outcome.
In any bilateral economic and trade negotiations, each side always fights for its own interests and attempts to minimize any potential losses or negative impacts. For industry heads, these are commercial interests that must be fought for. For the Republic of China government, they include undeniable political as well as economic interests. This is especially true during election season, when ECFA has become a political football. The DPP, the Taiwan Solidarity Union and "nativist" pressure groups are preparing an anti-ECFA protest march this weekend. If the early harvest list is not as favorable as expected, "nativist" pressure groups will feel even more justified in their opposition. Former supporters may wonder, if the government failed to obtain the best terms possible, what was it all for?
Famed management guru Kenichi Ohmae spoke at the presidential palace last month. He said ECFA is a multivitamin formula that can strengthen Taiwan's economy. Even Japan is concerned. ECFA and FTAs allow businesses on Taiwan to compete on a level playing field. Next year is critical, and will decide whether businesses on Taiwan can ascend to the world stage. The matter is urgent and requires immediate action. Originally Ohmae did not think consultations between Taiwan and the mainland would come to much. But mainland China has demonstrated considerable patience. Therefore ECFA offers many incentives for Taiwan. Taiwan can become a hub for Greater China. Even if it does not become an airline hub, it can become a business hub. According to Ohmae Taiwan need not worry about excessive reliance on the mainland. All Asian countries are in the same boat. One could even say that Taiwan is using its advantages to take the lead.
Taiwan's advantages are geographical, economic, and to some extent political. In the face of strong international competition and irreversible cross-Strait developments, one must seize the moment. One must seek a satisfactory result for a majority of the people. If the results are not as expected, then one of the greatest achievements of the Ma administration may instead become one of its worst liabilities, and negatively impact the year end five cities mayoral elections. The negotiating team must remain vigilant and put out its best effort.