Sunday, July 3, 2011

Willful Blindness in the ECFA Debate

Willful Blindness in the ECFA Debate
China Times editorial (Taipei, Taiwan, ROC)
A Translation
July 4, 2011

Taipei and Beijing signed ECFA, the cross-strait economic cooperation framework agreement, a full year ago. ECFA is recognized as the most important cross-Strait economic and trade agreement ever reached. Yet the opposition DPP insists that "ECFA is a myth that has been shattered." The ruling KMT on the other hand, underscores the fact that ECFA is an agreement that has showered benefits upon Taiwan. As we can see, not just politics is Blue and Green on Taiwan. Even economic effectiveness must be viewed through Blue or Green filters. When debating politics, both sides may claim they are in the right. But economic is rooted in objective data and analysis. It is not subject to arbitrary interpretation.

The Democratic Progressive Party and some academics have criticized ECFA. They have blamed it for widening the gap between the wealthy and the poor, for falling salary levels, for reduced foreign direct investment, and for a 61% drop in the growth rate of first quarter exports to the Chinese mainland. DPP spokesman Chen Chi-mai says that numbers do not lie, and that ECFA is a myth that has been shattered. Some of these criticisms appear persuasive, as if backed by the numbers. But closer understanding and professional analysis reveal a problem not with the numbers, but with the way they have been interpreted.

Consider so-called wage level regression. What are they talking about? The DPP claims that salaries have "returned to where they were 12 years ago." But the DPP knows perfectly well that eight of the past 12 years were under DPP rule. Did a financial crisis erupt during those years? The DPP claims that ECFA has had a negative impact. If so, it should compare this year to last year, i.e., before ECFA and after ECFA. It should not drag in irrelevancies about the state of the economy over a decade ago. In April, according to the DGBAS Employee Earnings Survey, the average salary increased 1.2% over the same period a year ago. This year, between January and April, the average salary increased 4.08% over the same period last year. Frankly, how the DPP arrived at its conclusions about "salary level regression," based on the survey and numbers cited, is a mystery.

Consider the widening gap between rich and poor. The DPP cites national statistics for low-income households. It compares the first quarter to the second quarter. But the increased number of low-income households in recent years is mainly attributable to a more inclusive definition of "low-income households," as well as adjustments to minimum cost of living standards. The numbers for the domestic gap between rich and poor are announced in August each year, Income is classified according to five levels. The numbers are not published until August of the next year. The DPP used changing standards for low-income households as its basis for comparison. The result was hardly convincing.

Besides, ECFA was not officially signed unitl June 29, 2010. The early harvest list took effect on January 1. Was ECFA truly so "infinitely powerful?" Did it really cause such a huge surge in low income household on Taiwan in only three months? The growing gap between rich and poor is a serious matter than must be addressed. But it is part of a decade long trend. To misuse data in order to claim that "ECFA had a negative effect," is irrational in the extreme.

The DPP claims that the growth rate for exports to the Chinese mainland during the first quarter of this year was much lower than during the same period last year. This is a textbook example of how to misuse data. During the fourth quarter of 2008, the financial tsunami struck. Nations the world over found themselves in an economic slump. Exports plummeted. During the first quarter of the following year, the financial tsunami bottomed out. First quarter exports from Taiwan to foreign nations fell 30%. Exports from Taiwan to the Mainland region and Hong Kong fared even worse, falling 40%. But during the first quarter of 2010, exports from Taiwan to the Mainland region and Hong Kong lept 75.6%. Some academics have pointed to exports from Taiwan to the Mainland region and Hong Kong this year. They say it grew only 14%, far less than last year. They say "this proves ECFA has been ineffective." They are guilty of either honest ignorance or delibate deception. Actually, products on the early harvest list exported to the Mainland region grew far faster than exports overall. Whether ECFA has been effective can be verified at a glance.

ECFA is actually an FTA (free trade agreement) reached between the two economies. FTAs have different impacts on different industries. But the overall benefit to the economies of signatories is indisputable. Otherwise, why have governments the world over signed 270 FTAs of all sorts over the past decade? The Republic of China did not have to sign FTAs with South Korea, Europe, or the United States. But we felt pressure and anxiety from within. Therefore we signed. If ECFA truly offered no benefits, why does the DPP constantly argue that the ruling KMT must aggressively negotiate and sign FTAs with Europe, the US, and other nations? Therefore, the overall effectiveness of ECFA has been proven. The DPP has used faulty numbers and arguments to poormouth ECFA. Why? Because the DPP's approach merely reveals its lack of financial expertise, and its deep seated ideological bias.

On the other hand, certain domestic industries and workers have indeed been hurt by ECFA. Under the circumstances, the government should provide counseling and compensation. ECFA calls for bilateral market opening and tariff reduction. Non-competitive industries will inevitably suffer. The two sides signed ECFA. Because Beijing made concessions, the full impact on industry and labor on Taiwan remains unclear. But sooner or later that impact will be felt. The government must focus on these potential victims. The debate over whether ECFA is effective and beneficial, must become a more constructive one.

2011-07-04 中國時報









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