PRC-ROK FTA in Effect: Where Is Tsai Ing-wen's Alternative Path?

PRC-ROK FTA in Effect: Where Is Tsai Ing-wen's Alternative Path?

United Daily News Editorial (Taipei, Taiwan, ROC)

A Translation

January 2, 2016

Executive Summary:

Economics is not a political game. When winter comes, those unprepared will be devastated. The PRC-ROK FTA has gone into effect in the icy cold of winter. Will the MTA continue to be falsely stigmatized, and come to naught? People should give the matter serious thought. They should think hard whether Tsai Ing-wen's “alternative path” leads to a mirage.

Full Text Below:

Time flies. Mainland China's FTAs with South Korea and Australia have gone into effect. Taiwan, meanwhile, remains mired in political grievances, oblivious to the impending economic winter. No matter how bad the economic news, there is nary a ripple.

Australia's trade structure is very different from Taiwan's. It can be left out of the discussion. But trade between the Mainland and South Korea is highly similar to trade between the Mainland and Taiwan. The PRC-ROK FTA, now in effect, is certain to cause an effect on cross-Strait trade, owing to export substitution. That goes without saying. Now that the FTA goes into effect, approximately 1650 trade items exported to the Mainland from Korea will immediately enjoy tariff free status. This far exceeds the 539 trade items on the ECFA early harvest list that enjoy tariff free status.

South Korea can expect approximately US$20 billion worth of tariff-free exports to the Mainland this year. By contrast, with regard to the MTA, possibly because the STA led to massive protests, instilling lingering fear on the Mainland, or because the Mainland felt the need to look after its own industries, it refused to budge on petrochemicals, flat panels, automobiles, and machine tools. These are four major industries on Taiwan. Despite 12 rounds of negotiations, little progress was made. Since elections are approaching, once the political foundation is gone, the MTA faces an uncertain future.

One small consolation is that just before the PRC-ROK FTA went into effect, the WTO made its greatest leap in nearly two decades. Dozens of participating countries reached an Information Technology Agreement (ITA) and expanded the tariff reduction list. Taiwan's chief exports, ICT products, have benefited. Last year, the 201 items on the "ITA2 List" had an export value of US$90 billion. The lion's share was liquid crystal displays. Unfortunately, Taiwan's flat panel industry, which is fighting for its life, was not included. The MTA is its sole lifeline.

ICT products are pillars of Taiwan's foreign trade. But the ITA and ITA2 eliminate only 30% of trade barriers. Barriers standing in the way of the petrochemical, textile, and machinery industries also need to be eliminated. Bilateral negotiations must result in trade agreements and regional economic integration. For Taiwan, this is the only way out.

If Taiwan wishes to engage in global trade, it cannot bypass the Mainland. Put more aptly, the Mainland is the key to Taiwan's integration into the world economy. Mainland China is currently on the rise. The undeniable reality is that without the STA and MTA, Taiwan cannot take part in regional integration or sign trade agreements.

A long corridor lies ahead of Taiwan. The corridor includes one set of doors after another, every one of them closed. Taiwan must first open the door to Mainland China. Only then can it open the doors to the RCEP, TPP, and other regional free trade organizations. This is the only path available. The first door it must open is the STA and MTA. The key required to open every one of the doors is the 1992 Consensus.

Taiwan is in deep trouble. Last year, young people ignorant about the global power structure and the realities of trade launched a student movement. People on Taiwan lost all reason. They simplistically equated the key to world trade with "backroom operations." In fact, the STA is nothing more than a trade agreement. Yet, it was depicted as a “Trojan Horse.” Anti-STA rumors spread far and wide. For example, one rumor alleged that passage of the STA would lead to mass immigration from the Mainland. Such nonsense persists even today. Wang Jin-pyng recently stumped for a KMT legislative candidate. While standing on the podium, he told voters "The STA really is a backroom operation"; seemingly he wanted to render the final verdict on the lie.

Is Wang Jin-pyng really unaware that the KMT's dire straits and Tsai Ing-wen's invincible status, are the result of hatred and fear camouflaged as charges of "backroom operations"? Tsai Ing-wen is hardly going to tell the truth. She tried to create waves by proposing an “alternative path.” She tells voters: Join the TPP and all our problems will be solved. We can join the TPP without recognizing the 1992 Consensus.

The TPP has been hailed as an “economic NATO” led by the US to contain Mainland China. Tsai Ing-wen assumes all that is required to join “Team America," is a nod from the Team Captain. Many US officials have advanced this argument, which, if not an outright lie, is an obvious misunderstanding. First of all, the United States is not the absolute ruler of the TPP. Taiwan hopes to become member in the second round. To do so, it must obtain the consent of all 12 first-round members. But the largest trading partner of several first round members is Mainland China. If the Mainland says no, are they really prepared to offend the Mainland by allowing Taiwan to join? Secondly, 40% of Taiwan's exports are to Mainland China. Can it really cling to the TPP and relinquish 40% of its market?

Economics is not a political game. When winter comes, those unprepared will be devastated. The PRC-ROK FTA has gone into effect in the icy cold of winter. Will the MTA continue to be falsely stigmatized, and come to naught? People should give the matter serious thought. They should think hard whether Tsai Ing-wen's “alternative path” leads to a mirage.

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