Time to Confront Economic Reality
China Times Editorial (Taipei, Taiwan, ROC)
December 15, 2014
Executive Summary: Cross-strait economic relations involve both cooperation and competition. The Mainland and Taiwan both face problems of economic transformation and upgrading. Time waits for no man. The ruling and opposition parties must not delay. Something must be done to help society overcome difficulties. People need to understand that international trade is not something remote and far away, but has a direct bearing on our jobs and income.
Full Text Below:
ARATS chief Chen Deming is currently visiting Taiwan. He said that substantive negotiations on the PRC-ROK FTA were concluded last month, and that the agreement will take effect within two years. When it does, trade in goods between the two countries will be almost 90% tariff-free.The STA grants quasi-citizen treatment. Meanwhile, during its December 12th executive meeting, the State Council decided to establish three free trade zones in Guangdong, Tianjin, and Fujian. How should Taiwan respond to the impact of these major developments?
Chen Deming once served as Minister of Commerce. He was responsible for negotiating global bilateral and multilateral free trade agreements. He is now dealing with Taiwan-related affairs. He revealed that South Korea, Mainland China, and Australia were aggressively negotiating FTAs at a rate that surprised even the Mainland. By contrast, the STA has remained stalled all year. The MTA may follow in its footsteps. He expressed concern over the future of Taiwan. He stressed that over the next two years, the Mainland will take part in regional economic integration with the United States, South Korea, Australia, Singapore, and even Japan. The Mainland has decided to adopt an FTA web consistent with global standards. Taiwan must not miss out on this opportunity. He hoped that Taiwan would allow ECFA follow-up agreements to be completed as soon as possible and take effect before the PRC-ROK FTA, and avoid being marginalized by global integration. Everything he said was straight from the heart. The public should not assume that his words were mere hot air.
Taiwan and South Korean exports have a high degree of overlap. The Mainland is the largest export market for both. Seventy percent of their export products overlap. One side's products can easily be substituted with the other's. Taiwan and South Korea are clearly competitors in the Mainland market. Unfortunately, many in the Green Camp still think the PRC-ROK FTA has yet to take effect. Some items, such as flat panels and machine tools, have not been included in the tariff reduction program. Therefore many in the green camp assume that the government has exaggerated the impact of the PRC-ROK FTA on Taiwan. They say government agencies should not use the PRC-ROK FTA to intimidate the public on Taiwan.
This is self-deception. It is highly adverse to Taiwan's growth, elections, and politics. The nine in one elections are over. The counties and municipalities have already gone from blue to green. The 2016 legislative and presidential election is likely to lead to a change in the ruling party. The Green Camp really ought not disrupt cross-Strait economic and trade policies. The ruling and opposition parties should sit down and talk as soon as possible. They should seek countermeasures against the impact of the Mainland's economic liberalization and FTAs.
Shanghai established a free trade zone more than one year ago. It is a precedent that can be copied, and a practice that can be generalized. The Tianjin, Canton, and Fujian free trade zones will change the legal provisions based on local conditions as well as introduce new provisions. The free trade zones will lead to new patterns of competition. They will promote a new round of high-level liberalization that will help the Mainland grow.
Tianjin has adopted the Beijing Tianjin strategic initiative. The Tianjin Free Trade Zone includes a Binhai New Area. It has also compiled a check list of obstacles to free trade that it will eliminate. It will facilitate investment and financing, allowing financial leasing businesses to develop the Northeast Asian market. The Free Trade Zone in Guangdong is aimed primarily at Hong Kong, Zhuhai, and Macao. It will introduce Hong Kong's advanced financial technology in order to promote high finance. The Free Trade Zone will become a pool for offshore renminbi and accelerate RMB internationalization. Fuzhou, Xiamen, and Pingtan have announced a tripartite free trade zone. This will help the Haixi Economic Zone enjoy rapid growth. It may also strengthen cross-Strait economic and trade relations.
By contrast, now look at Taiwan. Our pwm FEPZ has been crippled by Green Camp obstructionism. This has hampered industrial upgrading and restructuring. Free trade zones are beneficial to the two sides' industrial upgrading. They are a mutually beneficial win-win proposition. But competition will have a magnetic effect. Ever since the establishment of a free trade zone in Shanghai, Taiwan companies have shown great interest. Currently 153 Taiwan companies have signed on. The magnetic effect of a future Fujian free trade zone may be even greater.
The STA and MTA must go through. Otherwise Taiwan's major trading partners will refuse to sign free trade agreements with us. Taiwan will then pay a heavy price in foreign trade. Faced with tariffs and trade barriers, our export industry has only two means of survival. Reduce costs, reduce profits to win contracts, or rely on the government to increase price competitiveness through currency devaluation. The former would clearly hurt exporters. business owners, and employees, all of whom will be knocked for a loop. If this proves untenable, companies will eventually have to close down. The latter approach is somewhat smarter. It shifts the problem from individual companies to the government. Forcing the entire nation to bear the burden. Depreciating the NTD however worsens the terms of trade, increases the cost of imports, and reduces the purchasing power of the NTD. It is highly detrimental to economic growth and social stability. When the above two roads prove impassable, as they have in the past, companies will vote with their feet. They will migrate abroad or to the Mainland. Those unable to relocate, i.e., workers, will be denied job opportunities. The impact on Taiwan's growth will be extremely negative.
Cross-strait economic relations involve both cooperation and competition. The Mainland and Taiwan both face problems of economic transformation and upgrading. Time waits for no man. The ruling and opposition parties must not delay. Something must be done to help society overcome difficulties. People need to understand that international trade is not something remote and far away, but has a direct bearing on our jobs and income.