20100120 The hole in the ECFA argument

The hole in the ECFA argument
　

By Honigmann Hong 洪財隆
Wednesday, Jan 20, 2010, Page 8

A trade official involved in talks on free-trade agreement told me recently that even he did not understand the point of an economic cooperation framework agreement (ECFA) with China. A survey featured in the news recently found that only around 20 percent of the public feel they understand the ECFA. I would suggest that even that figure is a little high.

It shouldn’t be like this. Regardless of one’s political leanings, a trade agreement should be reasonably understandable so long as the internal logic is coherent and it has a degree of consistency. This isn’t rocket science.

You would think that the most glaring of the internal inconsistencies within the ECFA would have been ironed out in the draft stages. Yet the ECFA proposal was modeled on the ASEAN-China Framework Agreement, an agreement that applies only to developing countries. The problem is that Taiwan is classified within the WTO as developed, not developing.

The sequence of events was as follows. ASEAN and China signed the Framework Agreement on Comprehensive Economic Cooperation in 2002, with an agreement on trade in goods taking effect in 2003 and then an agreement on trade in services in 2007. The ASEAN-China Free Trade Area (ACFTA) came into effect on Jan. 1 this year.

Back in 2004, when the “early harvest” program took effect, the products covered by this agreement were predominantly agricultural in nature. The drafters of the ECFA envision a similar sequence. The reason it won’t work for Taiwan, however, is that, as we have already seen, the ACFTA applied to the ASEAN member nations and China joining the WTO as developing countries. It was designed to give them more options when signing the preferential — excluding the most-favored nation clause — trade agreements with, for example, the ability to use enabling clauses concerning trade in goods. The agreement coming into effect in 2003 mentioned above was a case in point.

The regulations governing the enabling clause leave room for maneuver. For example, they do not require “significant liberalization” on “substantially all” trade between trading nations, as does Article 24 of the General Agreement on Tariffs and Trade (GATT). If this had not been the case, the early harvest program, which only covered a few products and which was already in place some years before the ACFTA came into effect this year, would not have had a legal basis.

The enabling clause allows the country to decide whether a certain product is to have tariff concessions applied or if it is to be tariff-free. This is useful as it allows both flexibility and the ability to protect certain industries if needed. This enabling clause has been the legal basis for the ACFTA up until this point — apparent from the fact that the countries involved have been able to stop or retard the liberalization of tariffs on many “sensitive products.”

The other side of this is that Taiwan was officially classified as a developed country when it joined the WTO, thus relinquishing its rights as a developing nation member. This means that it does not have the option of using an enabling clause when signing trade agreements with other countries. It is difficult to see the point of an ECFA modeled as it is on the ASEAN-China Framework Agreement, but without the ability to invoke the enabling clause.

Late last month, when officials were answering questions about the ECFA, it was presented as being signed in line with Article 24 (the section on trade in goods) of the General Agreement on Tariffs and Trade, with the free-trade area to be implemented gradually and not established with immediate effect. It is to be an “interim agreement” of phased liberalization.

We were told that once the ECFA is signed, Taiwan and China are expected to abolish the vast majority — which can be understood as 90 percent — of trade barriers within a reasonable period of time — say 10 years. For example, there would be no customs duty applied to trade in goods.

Article 24 of the GATT states that both contracting parties are expected to decide upon the full set of regulations and set a timetable for the establishment of the free-trade area at the time of signing the agreement, and that there should be something concrete in place when completing the negotiations or presenting the agreement terms to the WTO.

With the enabling clause in mind, this seems to be a far cry from the government’s references to the ECFA being “no more than a preliminary framework and objective” and “similar to a contents page of a book,” or their talk of “getting the main content down and pursuing further negotiations down the line.”

They have even mentioned signing other agreements at a later date. We are told that 300 to 500 products could become duty-free as part of an early harvest list, although this would exclude other WTO member states without a legal basis.

Incredibly, we are told that such details will be dealt with when the time comes. The term “early harvest” is in fact misleading — other FTAs become effective immediately.

I would suggest that advocates of the ECFA get things straight in their own minds before they confuse the public further.

Honigmann Hong is an assistant professor at the Institute of Strategic Studies at Tamkang University.