Sunday, May 23, 2010

Taiwan debates trade pact

Weighing the costs in Asian trade talks

International Herald Tribune, May 12, 2010

In a dimly lighted factory off a dusty road in southern Taiwan, Liao Li-hsin, 29, smacks a leather sandal into shape.

He pulls a shoe from a pile, snugly inserts a bright yellow plastic fake foot, and gives the leather straps a few thwacks with a hammer. Then he tosses the sandal on a pile and repeats.

Mr. Liao is one of tens of thousands of workers making shoes in Taiwan, mostly for consumers on the island.

As negotiations move ahead on a Taiwan-China trade deal that could lower tariffs on handmade shoes and hundreds of other products from the mainland, fears are mounting that the island’s traditional industries — like shoemaking — may suffer, even as high-tech, financial services and other sectors gain from freer access to the giant market across the strait.

The government, however, contends that the benefits would far outweigh the costs, and Taiwan’s president, Ma Ying-jeou, hopes to use the agreement to fully normalize economic relations with Beijing while expanding the island’s access to other markets.

“We can handle diplomatic isolation,” Mr. Ma said last month, “but economic isolation is fatal.”

The Economic Cooperation Framework Agreement, the Ma administration says, would be a prelude to similar deals with Malaysia, Singapore and, eventually, Japan or the United States. “Once E.C.F.A. is signed, we want to sign other free trade agreements and try to use mainland China to link with international markets,” a trade official involved in the negotiations, Hsu Chun-fang, said.

In recent years, Taiwan has watched as rivals like South Korea have signed free-trade deals throughout Asia, becoming more competitive in industries like machinery making and pushing their per capita gross domestic product ahead of the island’s.

Taiwan has been hampered in negotiating similar agreements because Beijing views the island as a part of China and objects to other countries’ signing formal treaties that could strengthen Taiwan’s claims to independence. The island has trade deals only with five Latin American countries, which buy a tiny slice of its exports.

The economies of Taiwan and China are already connected. Taiwan has invested $150 billion in China since the early 1990s, according to a Taiwan government estimate. About 40 percent of Taiwan’s exports already go to China, where they face average tariffs of 9 percent. Half of those exports are semifinished goods that are shipped to factories for assembly and other value-added services and then re-exported, according to Mr. Ma.

Yet many of the details remain vague, and that has fueled economic as well as political worries.

The pro-independence opposition says the deal would make Taiwan’s economy too dependent on China and would help conglomerates at the expense of small companies. It is gearing up for protests and is likely to employ stalling tactics in the legislature, where it holds 33 of 113 seats.

The opposition Democratic Progressive Party says the agreement would worsen income inequality and would not create jobs. It says the negotiations lack transparency and that the deal is politically dangerous given China’s goal of unification with Taiwan.

“China is always ambitious when dealing with Taiwan,” said Hsieh Huai-hui, deputy director of international affairs for the opposition party. “So we wonder if sovereignty has been the price for China opening its market for Taiwan.”

Mr. Ma’s government has sought to allay fears by insisting that the deal would not allow mainland workers into Taiwan or remove restrictions on mainland agricultural imports — at least at first. As for shoes, the government says they are not on the list of sectors to see the first tariff cuts.

The government says it will establish a 10-year fund of 95 billion Taiwan dollars ($3 billion) to help traditional businesses compete. Officials have identified 17 industries, including shoemaking, as particularly vulnerable. A special “Made in Taiwan” consumer label has been developed to promote high-quality products made locally.

The government has promoted a study that it sponsored that found that cross-strait trade liberalization could create 260,000 jobs and add 1.65 to 1.72 percent to Taiwan’s G.D.P., depending on the scope of changes.

Economists and research groups affiliated with the opposition dispute that forecast.

In a report on the trade agreement, the Standard Chartered bank did not estimate how the deal would affect the island’s G.D.P. but said it would “boost Taiwan’s long-term growth potential.”

The government said most new jobs would be in sectors like machinery, where exports could increase. Most of Taiwan’s machine products are produced for export, and China buys about 30 percent, followed by Southeast Asia at 15 to 20 percent, according to Wang Cheng-chin, president of the Taiwan Association of Machinery Industry.

But Taiwan’s machinery faces tariffs of about 10 percent in China and 3 to 5 percent in Southeast Asia. South Korea, in contrast, has a trade deal with the 10 members of the Association of Southeast Asian Nations and now exports machines there tariff-free, Mr. Wang said. South Korea and China are studying a trade deal.

The framework agreement would help Taiwan’s machine makers compete, especially with South Korea, though Mr. Wang emphasized that companies needed more than the trade deal. “First, we need good relations with mainland China,” he said. “Then, after signing E.C.F.A., we can talk with Southeast Asia, the E.U. and other countries.”

Petrochemical companies and automakers like Yulon Motor, which has partnerships with Chinese carmakers, could also benefit.

In the financial sector, recent agreements have paved the way for cross-strait mergers and acquisitions. But Taiwan banks want the framework agreement to give them preferential access that could, for example, shorten the waiting time for doing retail business in renminbi on the mainland.

Ms. Hsu, the trade negotiator, said talks had so far focused on issues like rules of origin, dispute settlement and “safeguard” tariffs that could, under some conditions, be slapped on Chinese imports if they were found to be damaging local industries. The list of sectors to see the first tariff cuts was likely to be “very limited,” she said, without giving details.

Past cross-strait agreements have become law after 30 days without legislative debate or a vote. But Ms. Hsu that said because the framework agreement was so wide-ranging and involved tariff cuts, more legislative involvement was required by the Constitution, though the exact process remained to be negotiated.

Though the opposition does not have the votes to block a deal, lawmakers could stall it with filibustering tactics. Taiwan’s legislative speaker often tries to broker compromises on crucial bills out of respect for the minority. One opposition party has proposed a referendum on the agreement; that application is under review.

To drum up public support, the government has begun a media campaign that includes rap videos and advertising. Mr. Ma and the opposition leader, Tsai Ying-wen, tangled over the agreement in a widely watched television debate last month.

Ms. Tsai accused Mr. Ma of recklessly pushing through a deal, saying he was creating a “false sense of urgency” when careful study was needed. The biggest difference between the ruling and opposition parties, she said, was that “we want to face China together with the world,” while Mr. Ma’s party “wants to go through China to deal with the world.”

But most commentators declared Mr. Ma the winner with his upbeat, folksy pitch to the cameras.

Accusing Ms. Tsai of lacking faith in Taiwan companies’ ability to adapt and compete, he asked, “Are we going to choose self-confidence, or are we going to choose fear?”

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