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Political Changes in Taiwan
under Ma Ying jeou
Partisan conflict, policy choices, external
constraints and security challenges
Edited y Jean Pierre Cabestan and
Jacques deLisle
I
Routl edge
Taylor Franc Group
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DON
ND
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First published 2014
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Political changes in Taiwan under Ma Ying-Jeou : partisanconflict.
policy choices, external constraints and security challenges I edited by
Jean-Pierre Cabestan and Jacques de Lisle.
pages cm. - Routledge research on Taiwan series; 12)
Includes bibliograph ical references and index.
I . Taiwan - Politics and government - 2000- 2 Taiwan - Foreign
relations - 21st century. 3. Taiwan - International status.
4. Ma, Yingjiu.
I
Cabestan, Jean-Pierre. fl deLisle, Jacques
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4 ECFA s empty promise and
hollow threat
Douglas B Fuller
Introduction
The major economic policy proposal for
Ma s
first term was the Economic
Cooperation Framework Agreement (ECFA). For Ma s second term, implemen
tation and possible deepening of ECF A and possible additional trade agreements
within the region are
on
the agenda as the major economic policies for the
remainder
of
his time
in
office. In parallel with the economic policy which Ma
has pursued, his first term witnessed growing concern and unease within Taiwan
over economic inequality, although these concerns were already present under
his predecessor, Chen Shuibian. ECFA as the center-piece
of
Ma s
economic
policy has in part been intended to address these concerns through the idea
of
boosting growth through increased trade. In effect,
Ma s
political sales pitch for
ECF A has been trade gains without losers.
The
DPP has countered by question
ing the overall gains and highlight ing potential losses to affected groups. Within
this political context and given
Taiwan s
lack of a strong tradition
of
economic
liberal ism, ECFA s negotiations and implementation have led to modest amounts
of liberalization, and future liberalization under the second term will also be
modest. Thus, as a promise to promote growth and reduce inequality, ECF A will
likely disappoint. At the same time, as a threat to dislocate large segments
of
the
workforce and radically integrate Taiwan s economy with China s, ECFA will
also likely prove far less scary than its opponents rhetoric would have it
Assessing
ECFA s
impact
on
Taiwan s economy
is
constrained
by
several
factors: (I) ECFA
is
a framework agreement that envisions ongoing rounds of
liberalization. (2) The first round
of
liberalization has been in effect for only a
short period. (3) Disentangling ECFA from ongoing changes and tunnoil in
international markets is a difficult task. Nevertheless, this chapter will address
ECFA as the central economic policy of
Ma s
first and,
so
far, his second term.
Before dealing with difficult analytical problems of the impact of trade liber
a
li
zation, one must emphasize the point t
hat
ECF A is an ongoing and far from
complete process. ECFA stipulates that Taiwan and China will negotiate fo ur
major agreements: merchandise trade, investment protection, service trade, and
trade dispute settlement. Although an early harvest list
of
goods in prelude to a
merchandise trade agreement to be completed
by
2014 was agreed upon (CENS,
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86 D.B.
Fuller
March 2, 2012),' significant expansion of this list was stalled as attention
switched to pursuing liberalization in services where attempted passage of the
trade-in-services agreement in Taiwan's legislature ignited dramatic protests in
the spring
of
2014.
In
addition to the wider political contestation surrounding
ECFA, one
of
the structural reasons the merchandise trade agreement may prove
difficult
is
that it will cover the 5000 items not covered in the early harvest list.
An investment protection accord was reached in early 2013, but its implementa-
tion and impact still lie ahead. Much the same is true of most of the 20 follow-on
agreements that have been reached under ECF A.
The chapter will proceed as follows. The first section will review the facts of
Taiwan's trade with China, manufacturing base and the trend of increasing
inequality as measured
by
the Gini coefficient. The second section will examine
the debate in Taiwan around ECFA and the implementation
of
ECFA. The
claims within this debate will be considered in light
of
the
fac
ts presented
in
the
first section and the actual implementation of ECFA thus far. The conclusion
will argue that neither the solutions to Taiwan's problems of economic inequality
nor the blame for them are to be found in ECFA. Instead, if it seeks to address
the problems of inequality, Taiwan should reconsider its social policies to
address the challenges of being a mature economy.
1 Basic facts
of
Taiw
an s
tr
ade, manufac
turin
g employme
nt
and incr
eas
ing inequality
Taiwan s robust trade surpluses wit
lt
Mainland China
Taiwan enjoyed robust trade surpluses with China for over a decade prior to the
signing of
EC
FA (see Figure 4.1 and Table 4.1). Taiwan's surpluses with
Ch
ina
have become so large that over the past decade they are routinely larger than
(and often more than double)
Ta
iwan's overa
ll
quite robust trade surplus. This
140 . -
Imports
120 · Exports
1
00
'
:
80
Q5
60
>
40
20
··
· ·
Total trad e
Figure 4.1
Ta i
wan s
imports, exports and total trade with PRC mainland.
ECFA s empty promise and hollow
thr
eat
8
Table 4.1 Taiwan s
trade surpluses with Mainland China and the world
Year
1987
1991
199
2
1997
1998
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
MAC estimates o f
Taiwan s trade surplus
with Mainland China
937.6
7,200.3
9,800.5
18,539.9
15
,727.0
19
704.4
23,560.2
27,274.8
32,138.1
36,177.8
38,549.3
46
,230.9
42,586.5
37,587
.2
48,880.0
Source:
Mainland Affairs
Counc
il.
Note
Trade Un i
ts
:Millions ofUSS
Taiwan s trade
surplus
18,695.3
13 ,420.6
9,769.7
9,214.8
7,365.6
18,343.7
22,071.6
22,590.4
13,612.8
15,817.3
2 1,319.1
27,425.4
15,180.9
29,304.1
23,364.
Taiwan s trade surplus with
Mainland China as a percentage
ofTaiwan s global trade surplus
5.02
53.65
10032
201.20
213.52
107.42
106.74
120.74
236.09
228.72
180.82
168.57
280.53
128.27
209
.
21
expanding ratio
of
Taiwan's trade surplus with China over Taiwan's trade
surplus with the world does not actually indicate that Taiwan would run a large
trade deficit were it not for
China s
consumption of
Ta
iwanese goods because
many of Taiwan's exports are directly (e.g., components such semiconductors
and displays)
or
indirectly (e.g., machinery) used in
China s
own exports.
In
other words, Taiwan's growing exports to China in part simply reflect the move
ment of export processing in certain industries, particularly electronics, to China
rather than inherent Chinese demand for
Ta
iwanese goods.
f
such export
processing activities were to move out of China, Taiwan s exports would shift
towards the new export platforms and away from China. Such a scenario looks
more and more likely with the labor scarcity (mingonghuang) evident in China's
major regions
of
export processing and
ev
idence from economists that China has
reached the Lewisian turning point where the supplies
of
rural labor coming into
industry disappear.
Preliminary trade figures for 20 11 suggest that cross-Strait trade slowed sub
stantially in the final
quarter of
the year
as
the Chinese economy cooled down.
However, the early harvest list may have had a positive effect on Taiwan's
exports to China during 2011 because items on the early harvest list increased at
a faster pace during the first
11
months
of
2011 than exports to
Ch
ina overall
(11.32% and 8.66%, respectively) and USS 18 billion out of US l 14 billion
worth
of
exports (CENS January 2, 2012).
The
early harvest list is skewed heavily
in
Taiwan's favor: 557 items from
Taiwan were included in the early harvest list as compared to 267 for China.
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88
D
Fuller
Most of the items have faced declining t
ar
iffs from the start
of
the early
h a r v ~ s
period in January 2011 rather than immediate tariff-free. access t? the other sig
natory s market: 69.7 percent
of
China s early harvest h
st .<
86 items)
b e g ~ n
be shipped duty-free to Taiwan in 2012. No agncultural items are
.on
Chma s
early harvest exports to
Ta
iwan. In contrast, 526 items began to be shipped duty
free from Taiwan to China in 2012.
The main imports from China to
Ta
iwan have been quite consistent o.ver the
past decade. Since 2005, the following eight categories have been c o ~ s 1 s t e
among the top ten imported categories
of
goods:
m i n ~ r
fuels . automouve
pa_ris
organic chemicals, iron and steel, plastics,
o p t 1 ~ a l e q u 1 ~ m e n t e c t n ~ a
machinery and equipment, and machinery and mechanic.al
~ n c e s .
Th: maJor
Taiwanese exports to China have also been quite consistent.
Smee
200::> these
nine categories of goods have been among the top ten export categones: elec
trical machinery and equipment, optical equipment,
p l ~ s t l c s
machmery and
mechanical appliances, organic chemicals, copper and amcles e o ~ iron
steel, mineral fuels, and man-made fibers. The trade c r o s ~ the Strait consists
largely
of
intra-sector
al
trade, but this
n o ~ n o n
is qune. common across
internationa l t rade in contradiction to the pred1c t1ons of classical trade theory.
Furthermore, the goods traded are heavily weighted towards mterrned1atem dus
trial goods. Again, this is not very surprising given that Taiwan and China are
both manufacturing powerhouses.
Myth o
ndustrial hollowing out
Despite the maj
or
downturn
in
2008 to 2009 due
t h ~
global financial
cr
isis,
there is little evidence of industrial hollowing out m Taiwan. Indeed, the abso
lute number
of
people employed
in
manufacturing has grown over the past
decade with minor dips during the two recessions
of
200
I
to 2002 and 2008 to
2009 (Figure 4.2). From a longer term perspective, since manufac.tunng employ
ment peaked at 2.8 million workers in 1987,
it
had been
on
a gentle declme
through 2002 at a trough of 2.572 million workers. Smee 2002, employment has
gradually risen, and surpassed 2.8 million workers
in
2007, 2008,
20 10
and 20 11
3000
2500
2000
1500
1000
500
..
J
'
.
'
.
:f
}.
.._ o o .. • ; ...
II ;
0
2001 2002 2003 2004 2005
2006 2007
2008 2009 2010 201 1
• Total • Foreign o Domestic
Figure 4 2
Manufacturing workers (in thousands) in Taiwan, 2001- 2011.
ECFA s
empty promise and hollow threat
89
when it reached an all-time high of 2.949 million workers. In terms of domestic
manufacturing workers, the 2.8 mi
ll
ion employed in manufacturing
in
1987 has
not yet been surpassed given the significant numbers
of
foreign manufacturing
workers employed since the early 1990s, but the number of domestic manufac
turing workers reached 2.7 mi
ll
ion in 2008 and, after the down-tum in empl
oy
ment in 2009, bounced back to 2.73 million domestic manufacturing workers
in
2011.
Does manufacturing still play the critical, driving role
in
Taiwan s growth that
it
has
in
the past? The evidence in
Fi
gure 4.3 actually suggests that manufactur
ing s contribution
to
growth Jagged far behind the contribution of services in
Taiwan
's
supposed heyday
of
manufacturing in the 1980s and continued
to
do
so
in the 1990s. In the relatively slow growth of the first decade of the twenty-first
centu1y, manufacturing s contribution drew basica
ll
y even with services. This
data suggests not only that Taiwan s manufacturing remains an important driver
of its economy, but also that attributions of he slow-down in growth over the past
decade to the govenunen t s neglect
of
manufacturing and/or manufacturing
oriented industrial policy (e.g., Chu
20
I
l)
are probably misplaced.
Inequality in Taiwan: Gini coefficient over time
Economic inequality has been a pressing concern in
Ta
iwan over the past
decade. There are some legitimate causes for concern. First, Taiwan
's
inequality
of
household income as measured by the Gini coefficien
t
a measure in which a
hi
gher score signifies greater inequality and a score
of I
means absolute
inequality, has increased. Since the low point of 0.277 in 1980, the
Gi
ni coeffi
cient has increased and over the past decade has averaged over 0.34. However,
it
must be noted that ha
lf of
the rise
of
inequality had occurred by the early 1990s
when trade with China was in i
ts
infancy. Thus, cross-Strait trade and economic
integration with China alone cannot account for this dynamic. Second, in com
parison with other advanced economies, Taiwan now ranks higher than the
Q.
Cl
8
6
4
2
0
n .
Agriculture
...o Manufacturing
services
- 2 .. . . .. . .. . .. . . . . .. . . . . . . . . . . r r r r .---,.--,. .-,,-,--,--,--,-..,.-..,.-..,.-..,.--j
1982 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
2006
2008 2010
Year
Figure 4 3
Gro wth contributions( GDP) by sector.
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90 D 8. Fuller
Organization of Economic Cooperation and Development (OECD) average in
Gi
ni
terms (i.e. Taiwan has greater inequality
than the
OECD average).
3
The
Gini coefficient
for
Taiwan
has
risen faster
than the
OECD average (0.4% per
annum) over the period 1985 to 2008
at
0.5 percent per annum, the same as for
the US.
Thus, it is not surpris
ing
that Taiwan's current international ranking
stands in sharp contrast with Taiwan's relatively robust economic equality in the
early
1980s
. Taiwan's earlier equality wou
ld
have placed it comfortably
in the
top
third of OECD countries
in terms
of equality (low Gini coefficients),
4
a
group which typically consists mainly
of
social democratic European countries.
Taiwan is not alone among the wealthy East Asian economies
to
see th
is
marked
decline in equality. Japan has sunk
to the
bottom third
of
OECD economies (see
Figure 4.4)
in
terms
of
economic equality.
Given the political rhetoric
and pol
icy debates
in
Taiwan, it is important
to
note that
GD
P growth has not preserved equality. Wh ile the two recessions of
2001
and 2009 show Taiwan's growth to
be
somewhat choppy
in re
cent years
(see F
igu re
4.5), one must also acknowledge that Taiwan
has
maintained impres
sive rates of growth for a wealthy economy. From
1991
to 2000, GDP growth
was
6.3
percent and per capi
ta GNP
growth was 5
3 perc
ent (Chu
20
l 1 . From
2001 to 2010, GDP growth averaged 4.2 percent (DGBAS). And yet these
impressive rates of growth
did
not prevent a rise in inequality. Going further
b
ack to the
1980s when inequality started
to in
crease, the grow
th
rates were even
more impressive, with GDP growth averaging 7.6 percent and per capita GNP
growth averaging 6.8 percent (Chu 2011).
James
K Ga lb
raith and
the
University
of
Texas Inequality
Pr
oject have
famously discarded
the
use of
Gin
i coefficients in favor of the Theil index when
making comparisons across groups, regions and
cou
ntri
es.
This chapter uses
the
Gini coefficient because of the available data over time for Taiwan on this
measure. There are, however, additional metrics pointing to rising trends
in
inequality
in
Taiwan. For example,
in
2010 wages
and
salaries hit
an
a
ll
-time
low as
a portion of Taiwan's GDP (China Post, January 9, 2012).
50
40
30
20
1
Figure 4.4 Household Gini across counrries, 2008.
ECF s empty promise
and
hollow threat 91
???
-- -
???
0.35
12
034
10
0.33
8
0.32
6
0.31
4
0.30
2
:
0
0
- 2
1989 199
1 1993 1995 1997 1999 2001 2003 2005 2007 2009
Figure / 5 Gini coefficient and GDP growth
in Ta
iwan, 1989-2009.
ECFA ideas an implementation
The partisan
debate
o
O>
o
c
o
o
Cl.
E
CF:A has
been
front and cen
ter of the Ma administration's economic policy.
Takmg advantage of
the
fact
t_hat
the_ Chinese leadership was much more willing
engage with a KMT admm1strauon than with a DPP one on a number of
issues, Ma's administrati
on
conceived ECFA
as
both a strategy for growth
t ? r o u g ~
deeper economic
ries to
China and a route
to
engaging
in
further t
rade
hberahzauon beyond Ch na-, The DPP has been much more circumspect
in
its
embrace of trade
11berahzauon
across
th
e Strait due
to
the concern that ever
greater
r e l ~ a n c e on
China's market would heighten Taiwan's economic and
in
tum,
secunty vulnerabilities. '
. The debate
betwe_en Ma and
DPP chairperson and soon-to
-b
e presidential can
didate Tsai Ing-wen
in
April
20 I
0 highlighted the partisan divide
and
critical
ideas
about ECF
Ns
a d v ~ n t ~ g e s an? disadvantages . Tsai fanned
the fears
of unemploy
ment_ due to
hber
ah
_
al On whi
le at the same time suggesting that
the
advantages
of
opening up the Chinese market were limited, since both Taiwan
and
China were
WTO signatories. Mu emphasiz
ed
thut
the
trade agreement
with
China
was
needed
because other countries
had
or were going soon
to
have trade agreements with
Chma, and ECFA was a stepping stone for further trade agreements for Taiwan
beyond
one
with ~ h i n a Having recently visited a sma
ll
machinery
firm,
Ma
repeatedly emphasized the advantages for Taiwan's machinery industry. It would
not
do much for Taiwan's
very
large information technology (IT) sector,
due to
the
zero tanffs
on
such
o o ~ s
under the WTO's Information Technology Agree
ment (ITA) to which
both
Taiwan and China are signatories.
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92 D.8. Fuller
At
the
same time, there was a protectionist thread that ran through the debate,
particularly with regard
to
agriculture. Ma
was
careful
to
point ou t that his
administration had protected Taiwan's agriculture and even went so far as
to
argue that what liberalization had occurred in allowing Chinese agriculrural
imports had been done under the Ch
en
administration. Interestingly, Ma actually
conceded in the debates that the liberalization due to
WTO
accession was bigger
than that attributable to ECFA. Although Tsai did not pick up on this point, it
offered a basis
for
arguing that the small ambitions
of
ECFA for liberalization
also
li
mit the economic benefits
of
the agreement.
After ECF A was approved by the Legislative
Yuan
, the DPP refashioned its
policies somewhat
in
the run-up
to
presidential election
in
January 2012. During
the campaign, however, the DPP still wou ld not ru le out a referendum
on
ECFA if
t
took power. The
OPP
also argued
for
dealing with
ECF
A as part
of
rhe WTO.
OPP candidate Tsai emphasized engaging in free trade agreeme
nts
(FTAs) wi th
other countries in the wake of EC FA although she basically ignored the causal link
between
ECF
A and Taiwan's opportunities
to
enter future FT
As
. Jn the DPP's
most
com
prehensive poli
cy
statement of recent years, the Ten-Year Policy Plat
form adopted
in
20 11,
5
the cross-Strait component
of
this platform does acknow
ledge that Taiwan's economy
and
security require engagement with
the
world
and
that cross-Strait trade is a part of that engagement.
The
platform, however, lays the
blame
for
Taiwa n's inequality squarely at the feet
of
China, and sees China's
industrial
and
technological upgrading as occurring at the expense
and
often on
the
backs of Taiwanese firms. The document calls
on
the government to he lp weak
sectors
of
the economy as well as groups
of
people adversely affected by cross
Strait trade. n terms of policies, it calls for pursuit ofFTAs with an arr
ay
of coun
tries and trade associations (USA, Japan, India and ASEAN
.
It calls fo r ECF A
to
be scrutinized and reviewed democratically with the possibility of changing some
of
its contents. The OPP platform emphasizes that the ECFA process and its con
co
mi
tant repons need
to
be undertaken
in
compliance
wi th
the
WTO
framewo
rk.
It calls generally for fair trade across
the
Taiwan
Stra
it, bur it specifically calls
fo
r
access
of
Taiwanese goods to
Ch
inese
mar
kets while protect
in
g Taiwan's weak
industries
and
individuals against
dumpi
ng and other assumed nefarious practices
by Ch ina. t calls for strict scrutiny
of
incoming investment from China
in
terms
of
iden
tifying and vetting the sources behind corporate investments
in
order to make
certain that investments are in economically
useful
activities (presumably a way of
distinguishing desirable types of foreign di rect investment (FOi) from undesirable
ones while eschewing portfolio investment entirely). The platform calls
up
on the
government to
pr
event
Taiwa
n s industries from mov ing entirely to China, and to
encourage research and development, operational headquarters and manufac
tu
r
in
g
bases to rem ain in
Taiwan.
The platform further calls
fo
r a
firewall
between th e
Taiwanese banks operating in China
and
Taiwan's financial system, and for organ
izing Chin ese tourism to Taiwan in a
way
that helps ordinary Taiwanese. The plat-
form also warns that C
hin
ese talents shou ld not be allowed to displace
the
local
workforce. Fina
ll
y, the document stresses that the economic sovereignty of both
sides
of h
e Taiwan Strait needs
to be
protected.
ECFA
s empry promise andhollow threat 93
Similarities.
b e ~ e e n
the _DPP and the KMT on
EC FA
abound, despite the
sometim.es a c n m o n ~ o u s partisan debate. Both sides view ECFA
as
a first step to
e n g ~ g e FTAs with other countries beyond China. The implicit assumption
b ~ h m d
this stress on FTAs is that FTAs will boost Taiwan
s
growth. Ironically,
g1ve.n the stress on FTAs, Taiwan's two major parties share doubts about the
ments
. f r ~
trade across the whole
of
Taiwan's economy. For both, the implicit
~ u m p t t o n is that FTAs can be achieved that will secure market access for
Ta1':an s exports while still protecting cenain sectors within Taiwan from
for
eign
c o m p ~ t
t i o n This view is not the classical liberal stance that the gains
from. trade will be greater than
any
losses so that
noth
ing needs to be done to
1 f y
free trade .Nor is it the more sophisticated stance of contemporary liber
alism .where
pu
bltc
po li
cy mechanisms can help compensate losers
from
free
trade m a manner that still results in the gains from trade offsetting
the
losses
trade and the cost
of
policy offsets . Rather, bo th
th
e K.MT and
DPP
stress
contmued protectionism as at least part
of th
e solution
to
the
po
tential losses
to
some s e ~ t o r s that would come with trade liberalization. Given the Jong his tory of
very active ~ ~ d often qune successful state intervention
in
the economy,
it
is
hardly surpnsmg that hberal solutions
hold
far less ideological sway in Taiwan
than they do m much of the OECD, particularly the Anglophone or
li
beral
market economies.
6
Although the
OPP
accuses the KMT
of
sac
rifi
cing Taiwan's
societal and certam sectoral interests for
the
sake of ECFA, continuities across
th
e OPP and K.MT administrations suggest that Taiwanese governme
nt
s ofwhat
e ~ e r hue.have pursued a policy that mixes neo-mercanrilisl protectionist po licies
wi th
~ o h c t e s
of economic liberalization. Put simply, KMT practice
and
OPP
rhetonc are actually quite closely aligned on this issue.
The partisan differe
nces
over ECF A concern
the
perceiv
ed
benefits and costs
of openness China. The KMT is inclined to see ECFA-fueled growth as a
means
to
solving
th
e problem
of
Taiwan's relatively high economic
in
equali
ty
(at least, relatively high compared to the I980s
7
.
Ma
has
argued that ECFA
: ~ u l d
.help
th
.e very working-class groups the OPP claims bear the brunt
of th
e
nsmg mequabty and would be adversely affec
ted
by ECFA. He
has
emphasized
h o ~ ~ ~ e r s and fishermen, among others, would benefit
from
ECFA (e.g.
Ta1pe1
Times 11 The.KMT also. argues that the wave of
FTAs
'rippling
throug.h
th
e
As1a
-
Pac1fic
will leave Taiwan economica
ll
y isolated and disadvan
taged tf they do not join, and a precondition
to
joining
is
winning China's acqu
i-
e s c e ~ c e t.o such trade agreements via
EC FA
. Of course, the problem wi
th
this
po:
on
ts that it underli
nes
the fact that ECFA may do no
more
t
han
allow
Taiwan
lo
reach again an equal playing field with its competitors. If ECF A opens
the .door lo other FT As for Taiwan, it me re ly preserves market access
on
near
equ.1va lent terms
tha
t Korea and other competitors wi ll soon enjoy due to the
rapid spread
of
tariff-cutting FTAs. This argument undercuts t
he
claim that
ECF A promises major gains in market access for Taiwanese
firm
s.
The
OPP
has
stressed the expected costs of ECFA, particularly in term s of research and devel
opment, and
of
manufacturing moving offshore. The OPP has been skepti
cal
about the prospects that ECFA will help to address economic inequality,
and
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8/18/2019 ECFA's Empty Promise and Hollow Threat
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94 D
B
Fuller
down-plays ECFA benefits more generally. Even for areas w ~ t h considerable
upside for Taiwan's economy, such as the liberalization
of
Chinese tounsm to
Taiwan, the DPP's policy platform seeks to sow doubt that the benefits
of
such
tourism will accrue
to
the "average" Taiwanese citizen. . .
The complex reality
of
Taiwan's economy has not been very kmd to the clauns
of either the
DPP
or the KMT. The large amount of integration with Chma
achieved prior to ECFA has not led to industrial hollow.ing out.as the DPP has sug
gested. Nor h
as
it done much
to
lower the levels
of
mequaltty
as
the KMT
h.as
hoped.
As
for
the movement
of
research
and developme?.t
(R&D)
o ~ ~ h o r e
t
here
are some Taiwanese firms that have emphasized a twm towers strategy in
which they place substantial R D resources n
China
(Fuller 2008), even t h ~
largest and most successful
of
the finns embraci?g
this
strate.gy, such as
Ho
n Hat/
Foxconn's array of companies,
sti
ll keep a maJonty
of
their
R D
at home - a
pattern of behavior reflected n U.S. Patent and Trademark
Offi
ce data on the loca-
tion of utility
pa
tent inventors.
8
.
We
do
not yet have data on the effects of
ECFA
as i:s
i ~ p l e m e n 1 o n
has barely begun.
e
rhaps the DPP or KMT positions wi
ll
be usttfied by ~ t u r e
developments. Sti
ll
, there are good reasons to believe tha: the unplementatton
of
ECF
A
is
un likely to validate the fears
of
the DPP or the high hopes of the KMT.
Implementation
o EC
F
The implementation
of
ECFA, as
it
has proceeded thus ar, offers preliminary
answers to two questions that bear on the partisan debate m Taiwan .over ~ C F A
Will ECFA lead to Taiwan opening up its domestic economy to Chinese invest
ment in such a way that provides China with a dangerous amo.unt of
e v e r a g e
over Taiwan? Will ECFA lead
to
substantially higher levels of integranon with
China than has
al
ready occurred over the past decade? The preliminary evidence
suggests a resounding no
to
the firs t question and a qualified
to
the s e c o ~ d
These questions beg an additional question of whether there :-v1ll be enough hb
eralization
to
realize the ECFA 's
fu
ll potential for promoting growth (which
may, or may not, reach the level promised by the Ma a d m i n i ~ t r a t i o n and .others).
The prospects for such liberalization depend both
on
internal Taiwanese
dynamics and external factors. . . . . . . .
The Ma administration has adopted a relattvely tough pos1uon ~ 1 s - a - v 1 s h ~ a
during ECFA negotiations. The early harvest lists were heavily s ~ e w e d
t
Taiwan's favor. The demands of the Ma administration on automobiles. trade
have been heavily one-sided. Taiwan has asked for tariff-free imports
in
~ h e
Mainland of 100,000 Taiwanese-assembled automobiles
retu'.11 ~ o r ~ l l o w m g
1
o
000 Chinese assembled automobiles into Tai
wan.
Desp le all ind1cat1ons that
t h ~ Chinese have generally pursued ECFA for political motivations rather than
economic benefits, this Taiwanese offer (thus
far)
has been rebuffed. As
f o ~
agn
culture, only products that Taiwan does not produce are even u n d ~ r considera
tion for lowered tariffs by Taiwan, while tariff-free access to the Chinese market
is or will soon
be
provided
for
some Taiwanese agricultural products.
9
ECFA s
em
pty promise and
hollow threat
95
Although there would be a legitimate securi ty concern if Chinese firms, par
ticularly those that are state-owned, were allowed
to
invest freely in Taiwan,
Taiwan has tightly restricted Ch inese investment. Chinese firms cannot own con
trolling shares of Taiwanese firms, and they are still barred
from
investing in
strategic manufacturing and service industries. The maximum liberalization
envisioned is 97 percent of all manufacturing sectors and 50 percent of all
service sectors (CENS, April 2, 2012). In
the
near future,
90
percent
of
manufac
turing sectors are to be opened up to Chinese investment, up
from
42 percent
currently (CENS, February 3, 2012). However, the ow nership
is
capped at 10
percent
in
existing finns and 50 percent
in
joint ventures. Wholly Chinese-owned
finns are not allowed. Over the three years during which Chinese investment has
been allowed into Taiwan, through February of 2012 only US$160 million has
been invested (CENS, March 29, 2012).
These measures indicate that Taiwan
is
not opening up to Chinese invest
ments in a way that could provide China with worrisome levels of contr
ol
within
Taiwan' s domestic economy. Scenarios
of
inflows and then, at a moment's
notice, outflows of "hot" equity investments can be discounted because such
portfo lio investments will not
be
allowed. As for direct investments, Chinese
firms will not be able to exercise control over the Taiwanese ventures
in
which
they invest. Minist
ry
of Economic Affairs' (MoEA) Investment Commission
will still vet any such investments. ECFA may possibly lead
to
a dangerous level
of
economic dependence on China, but
it
will not
do
so through a Trojan horse
of
Chinese investments in Taiwan.
In
tenns of integration with China, there are inwa
rd
and outward co nsidera
tions. Along with
its
history
of
export promotion, Taiwan historically tried to
protect the domestic market, albeit increasingly narrower portions
of
it over
time.
Taiwan has continued to use non-tariff barriers that violate the letter and the spirit
of WTO law and the additional Government Procurement Agreement, to which
Taiwan is a signatory, across various sectors since its WTO accession in 2002.
The relevant product areas run the range, from pharmaceuticals and agriculture
to
construction engineering (e.g. Brookings Northeast Asia Commentary,
20
1
2).
With continued security concerns about and investment controls on Chinese
investment, and with certain sectors, such
as
agricu lture, completely
off
limits,
the
liberalization
of
Taiwan's domestic market (inward integration) clearly
has
limits.
Outward liberalization (i.e., opening up
the
Chinese marketplace) shows
greater promise, probably due
to
the fact that the Chinese government seems
to
be motivated by political rather than economic goals. Hence, China has been
willing to allow unilateral openness to more early harvest products from Taiwan
and to begin to allow greater regulatory space for Taiwanese financial finns to
operate
in
China (a
ma
rket that generally remains quite closed, despite China's
commitment
to
open
the
market
by
2006). The Taiwanese Association of
the
Machinery Industry has pressed for further action on reducing tariffs on a wider
range of Taiwanese machinery, and the government has supported that agenda
by
emphasizing the promise which
ECF
A holds for this important Taiwanese
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8/18/2019 ECFA's Empty Promise and Hollow Threat
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96
D.B. Fuller
industry. However, almost half of Taiwan's exports to China have been IT ~ ~ o
ucts
which already enter tariff-free to China under the WTO's T
A.
In add111on,
IT
r ~ m i n s
Taiwan's most successful industry. Thus, the lift
from
opening
up
China's markets may be more limited than boosters
of
ECFA have imagined,
given how open China
is to
IT products already.
With this complex set of factors raising doubts about the prospects for actual,
effective liberal ization, there is
reason
to suspect that ECFA-related liberaliza
tio
n
may
not provide the scale
of
a boost
for
Taiwan that the KMT and others have
claimed. What further complicates th is issue
is
the continued liberalization
of
the
East
Asian and Pacific region through other trade agreements. Korea has signed
FT
As with the European Union (EU), the
US
and Associationof South-East Asian
Nations (ASEAN), and started negotiations with
China
in May 2010. There is also
discussion - albeit fairly preliminary -
of
a pos sible trilateral China, Japan and
Korea free trade agreement. And
of
course there is the Trans-Pacific Partnership
(TPP) now being vigorously promoted by the Obama administration.
10
Boosters of
ECFA have claimed tha t it
will
give Taiwan greater access to China s market, but
they have also argued tha t Taiwan needs ECFAjust to maintain a.ccess with
such peer competitors as Korea. The importance
of
he latter scenano s growing
owing to the plethora of trade agreements being signed in Taiwan's neighborhood.
Thus, ECFA and presumably subsequent trade agreements with other economies
that ECFA will make politically possible
will
be valuable simply because they
bring Taiwan back onto equal footing with its competitors in export markets . At
the moment, Taiwan has slightly better access than Korea to China's market, and
Korea has somewhat better access
to
American and European markets. With the
new trade agreements on the horizon, Taiwan and Korea
wi
ll basically be on equal
footing again, especially vis-a-vis China's marketplace. Thus, ECFA
will
likely
not offer Taiwan any medium-term advantage over its competitors in terms
of
better market access to China. Nevertheless, without ECFA, Taiwan s relative
access would likely deteriorate compared to its competitors.
11
One could argue, as Rosen and Wang (2010) have done, that ECFA, together
with the additional free trade agreements,
will
bri
ng
significant gains in enhanced
economic efficiency due to spreading liberalization. They argue that Taiwan s
economy would have net growth above the trend line
of
5.3 percent with ECFA
and 5.7 percent with ECFA, plus joining wider Asian trade regimes such as
ASEAN +China. (Both estimates assume a trend line with Taiwan rejecting
ECF
A.
However, Rosen and Wang explicitly recognize that a substantial portion
of
these gains come from Taiwan removing its trade barriers, many
of
which
Rosen and Wang (2010: 2) note
are
not compliant with the WTO. Given
Taiwan's negotiating stance with China during the
ECFA
process and its I I-year
track record under the WTO, it seems highly unlikely that Taiwan
will
pursue
the type
of
thorough liberalization of its domestic economy that Rosen and
Wang envision. Taiwan simply does not do creative destruction across the whole
of its economy. Therefore, Taiwan is unlikely to enjoy the type of economic
boost from ECFA or ECFA-plus predicted by those ECFA proponents who
assume that ECFA means deep liberalization.
ECFA s empty promise nd hollow threat 97
onclusion
f ECFA or other
types
of
FT As are unlikely
to
relieve the problems
of
inequality, what alternative solutions are there? Some call
for
a return
of
Taiwan's developmental state (Chu 2011), but it is not clear either that state
intervention has been so thoroughly abandoned or that a return to developmen
tal
state policies would be highly effective given the maturity of Taiwan's economy.
The state is still highly active in promoting investment in R D and industry, and
the Council
for
Economic Planni
ng
and Development's (CEPD) Four-Year
Development
Plan
(2009-2012) has encouraged further geographic spread
of
technology-intensive industries through policies
to
set
up
science-based parks in
Changhua Erlin, Yunlin and Tongluo. Taiwan's government is still arguably
effective at providing subsidies and tax breaks for activities with high potential
for
positive spill-overs such as R D (as Kenneth Arrow first advocated
50
years
ago) and
indu
strial investment. The problem is that Taiwan's past developmental
successes mean that Taiwan is now sitting on or close
to
the international tech
nology frontier in many sectors, so there are few obvious sectors
to
promote that
will provide a major boost to Taiwan 's growth. Given this structural fac t, it is
unsurprising that Taiwan has seen some substantial bets go wrong, such as its
biotechnology policies (Wong 2011). Taiwan's state policies
are
still important
and helpful - the support
for
industrial investment has arguably been a key facto r
keeping Taiwan's manufacturing employment surprisingly buoyant - but they
have not maintained Taiwan's economic inequality
at
the low levels of the glory
days of Taiwa n's economic miracle.
Evidence from other advanced economies suggests that large social expendi
tures and arrangements
for
social corporatist structures thro
ug
hout the economy
can be effective in keeping inequality at the levels Taiwan witnessed in the late
1970s and early 1980s (Hall and Soskice 200 I).
As
mentioned earlier in this
chapter, the countries that cluster together as the most equal (according to their
Gini
coefficients)
are
social democratic states in Europe. Taiwan, compared
to
those states, has very low levels of social expenditures - averaging around to 6
percent of GDP in the latter half
of
the last decade. This level
of
expenditure is
half of that of even the U.S., which has a very weak welfare state
in
comparison
to other OECD economies. Since the enactment
of
a national pension in 2007,
there
has
not been a major political push
in
Taiwan to build a more generous and
comprehensive welfare state.
To end on a pessimistic note, strnctural factors do not point to Taiwan build
ing a much more generous welfare state any time soon. Unforrunately
for
Taiwan, a key poli tical basis
of
the high level
of
social expenditures in European
social democratic states appears
to be an
electoral system
of
proportional repres
entation (Iversen and Soskice 2006). Taiwan's level of proportional representa
tion is quite weak. Another factor supporting higher welfare spending in
European social democratic countries is strong representation
of
worker inter
ests. Taiwan does no t have strong and well organized labor unions taking part in
economic decision-making that
cha
racterizes the coordinated market economies
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8/18/2019 ECFA's Empty Promise and Hollow Threat
10/10
98 D.B. Fuller
of Hall and
Soskice's varieties
of
capitalism theory, the very
economies
that
exhibit
high
levels
of socio-economic
equality. Class cleavages that might
motivate a
rum
to
more
soc
ial democratic
policies in
Taiwanese
politics also
remain
quite weak. Thus,
from a variety
of
angles, political and social features
are likely to constrain attempts to return to the equality o a Taiwanese economic
miracle
.
Notes
A more positive spin on
1he
length of the negotiations was made by President Ma
when he said in April 2012 1ha1 he expected the negotiations 10 be completed within
two years (Taipei Times, July 4, 2012).
2 The export figures cited by CENS for 2011 are based on China's trade statistics and
appear to
be
much higher than Taiwan's own figures for exports to China.
3 The data used to rank Taiwan in comparison with the OECD countries is supposedly
2008 data, but the Gini coefficient used for Taiwan is 0.304, which is much lower
than the official government figures from Taiwan. f hose were used, Taiwan would
rank in the bouom third in terms
of
equality.
4 II should be noted that the average Gini for the OECD has also moved over the inter
vening decades so that although Taiwan would be in the top th ird for equality accord
ing to the 2008 Gini figures, i t may not be when using the figu res for OECD members
in the 1980s. Even social democratic countries like Sweden have seen their Gini coef
ficients rise somewhat since then. However, Sweden's Gini coefficient today is still
lower than Taiwan's was
al
its most equal and serves to demonstrate that many social
democratic countries have successfully constructed limits to the rise of inequality in
their countries.
5 The Taiwan Affairs Office of the State Council of the PRC wasted no Lime in
denouncing this platfonn as unacceptable ( OPP Leader's Policy Guidelines Unac
ceptable, Xinhua, August 24, 2011).
6 Liberal market economies (LMEs) as defined by Hall and Soskice (2001) are essen
tially those economies that use market mechanisms to structure most of their eco
nomic activities. In Hall and Soskice's classification (2001: 20), the LMEs are in fact
the Anglophone OECD economies: the U.S., U.K., Canada, Australia, Ireland and
ew Zealand.
7 Gold ( 1986: 5) states
1ha1
Taiwan's Gini coefficient was 0.558 in 1953.
8 Hon Hai and affilia1ed companies had the lead inventor for their US PTO utility
patents in China for only 22.8 percent of pa1en1S from 2003 to 2007. The lead inven
tors were almos1 always located in Taiwan. The only large active patenting Taiwanese
firm (
act
ive palenti
ng
defined as firms with
at leas1
one lead patent from China per
annum by 1he USPTO) with anything close to this amount
of
activity was Asia
Optical, with 20.45 percent.
During the first 11 months of201 1, Taiwan's agriculrural exports to China soared 135
percent (CENS, February I, 2012).
10 TPP was originally a free trade agreement between New Zealand, Australia, Brunei,
Chile and Singapore signed in 2005.
11 These concerns may themselves be overstated because regional FTAs in Asia tend to
be relatively hollow (i.e. they offer lillle effec ve rrade liberalization among FTA
members) (Dent 20 I0) and the secto
rs
of greatest concern for Taiwan, such as
machine tools, confront increasingly competitive Chinese firms (Brandt and Thun
2010).
ECFA s empty promise nd hollow threat 99
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