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Taiwan should abolish the ECFA

Taipei Times | 17 August 2022

Taiwan should abolish the ECFA

By Yen Huai-shing 顏慧欣

With China threatening waves of economic sanctions following US House of Representatives Speaker Nancy Pelosi’s visit to Taiwan, whether to continue with the Economic Cooperation Framework Agreement (ECFA) or abolish it has once more become the subject of debate. The pact has held Taiwan back for so long, it is perhaps time to exhibit some economic resilience and move on.

The original objective of signing the agreement more than a decade ago was to set out the framework for economic activity between Taiwan and China, and iron out protocols in four areas: trade in goods, trade in services, investment guarantees and conflict resolution.

To date, the only protocol that has been successfully negotiated is the one on investment guarantees, and that was implemented in 2013. There have been no consultations between the two parties since April 2016, making the agreement worth little more than the paper it is written on.

The value the ECFA brings to either side is essentially limited to the initial appetizers, the so-called “early harvest” list in trade in goods and services.

In trade in services, 16 local banks were able to take advantage of a preferential threshold to set up branches in China, and 20 or so businesses were granted qualified foreign institutional investor status, allowing them to participate in China’s stock exchanges.

For trade in goods, China provided an early harvest list of tariff exemptions for 521 industrial products, mainly in the fields of petrochemicals, machinery, textiles and transport, and tariff-free preferential terms for agricultural and fisheries products, including fruit, cut flowers and fisheries goods.

The list came into effect in January 2011, and in the initial stages the value of exports to China of goods on the list did increase, growing by 18 percent at the high point.

However, in the past few years, the economic benefit from the list has tailed off, and since 2016 the growth in cross-strait trade as a whole has consistently been higher than that of the products on the early harvest list, indicating that the list has ceased to be a driver of exports to China.

Comparing the value of exports on the early harvest list with Taiwan’s overall exports, it is evident that overall cross-strait and early harvest trade has a high degree of linkage with the global economy, and this trend has been apparent since 2014. When the global economy is doing well, cross-strait trade and early harvest list exports grow; when the global economy is not doing well, the slide in exports of ECFA early harvest products is more marked than that of global trade overall.

In 2019, before the COVID-19 pandemic hit, Taiwan’s global exports shrank 1.44 percent, while exports of products on the early harvest list plummeted 16.3 percent. In 2020, global exports were back in the black, growing by 4.9 percent, while early harvest list exports remained in the red, at minus-2.6 percent.

The takeaway from this is that the ECFA no longer functions as a framework in which it increases Taiwan’s trade with China and the world, and suggests that if the agreement were to be abolished, the biggest impact would be on individual businesses benefiting from preferential treatment for items on the early harvest list, and would not really hurt the overall economy or impede the development of the manufacturing sector.

There have been many examples of Beijing weaponizing trade and using economic sanctions to intimidate other countries. Irrespective of whether Beijing abolishes the ECFA to punish Taiwan, the nation can only expect the road ahead to get rockier as it faces economic intimidation from China. This highlights the need for Taiwan to maintain its economic security and bolster its economy and how, in the face of the threat of economic intimidation from China, it needs to diversify its export markets to reduce its reliance on a single market.

Likewise for imports, Taiwan needs to further diversify its suppliers to bolster its autonomy. These are problems that the nation needs to address — and a way to divest itself of the burden of the ECFA.

Yen Huai-shing is deputy director of the Chung-Hua Institution for Economic Research’s Economic Law Research Center.

Translated by Paul Cooper

 source: Taipei Times