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ECFA bringing only
limited benefits
By Tung Chen-yuan 童振源
Over the past five years, the cross-strait political “achievement” President Ma
Ying-jeou (馬英九) has been the most proud of has been the cross-strait Economic
Cooperation Framework Agreement (ECFA). However, the ECFA is merely a framework
agreement and even though the agreement has been in effect for more than
two-and-a-half years, its benefits have so far been limited to the items opened
up for trade on the “early harvest” list.
In terms of export competitiveness, in 2011, Taiwanese exports to China
increased 8 percent, while the export of items opened up to trade on the ECFA’s
early harvest list fared only slightly better at 9.9 percent. Last year,
Taiwanese exports to China grew 5.8 percent overall, while the export of items
on the early harvest list increased a mere 2.3 percent. From January to February
this year, overall exports to China increased 39.9 percent, but the export of
items on the early harvest list merely rose 19.2 percent. It is becoming clear
by looking at the export statistics for the past two years that the ECFA has not
had much effect.
Second, Ma expected that the ECFA would help attract more foreign investment to
Taiwan. However, over the past five years, foreign investment in Taiwan has
remained low. In 2007, Taiwan attracted US$13.6 billion in foreign investment,
but in 2008, this dropped to US$6.7 billion, and after 2009, it was less than
US$4.5 billion. Last year, foreign investment was only US$4.2 billion, a
decrease of 4.5 percent compared with the year before.
From 2008 to 2011, Taiwan only managed to attract 0.2 percent of global foreign
investment, putting Taiwan last among the four Asian Tigers and even lower than
Thailand, Indonesia and Vietnam. In 2011, foreign investment in Taiwan was,
shockingly, the second-lowest in the world.
Let us take a closer look at international capital flows, including both direct
and securities investment. In the 1990s, the net outflow of funds from averaged
US$1.98 billion per year. It was US$13.23 billion during former president Chen
Shui-bian’s (陳水扁) eight years in office and rose to US$35.29 billion for the
five years that the Ma administration has been in office, 2.6 times more than
under Chen’s administration.
Especially worthy of notice is Taiwan’s net outflow of funds in 2011, which
reached an unprecedented US$50.4 billion, and rose further to US$52.3 billion
last year.
Third, the ECFA has not helped increase domestic investment. In the 1990s, the
domestic investment rate was 28 percent, during Chen’s eight years in office it
was 23.7 percent, and after Ma’s five years in office it has dropped to 17.2
percent. The Directorate-General of Budget, Accounting and Statistics estimates
that domestic investment would drop to an all-time low of 16.2 percent this year
and could be further adjusted downward.
Fourth, the ECFA is in some ways beneficial to Taiwan’s negotiation of economic
integration agreements with other nations, although it cannot fundamentally
solve Taiwan’s international isolation.
Taiwan is about to complete economic partnership negotiations with Singapore and
New Zealand, but these two countries only account for 3.6 percent of Taiwan’s
total trade volume and offer limited benefits to the economy. On the other hand,
South Korea has already signed free-trade agreements with nine economies,
including the US, the EU, the ASEAN countries and India, and it is negotiating
free-trade agreements with China and Japan, which will place a lot of
competitive pressure on Taiwan.
Countries in the Asia-Pacific region have been actively taking part in
negotiations for the Regional Comprehensive Economic Partnership (RCEP) or the
Trans-Pacific Partnership (TPP), with only Taiwan being excluded from these
talks. This further highlights Taiwan’s international isolation. Countries
involved in the RCEP negotiations include the 10 ASEAN countries, China, Japan,
South Korea, India, Australia and New Zealand and the negotiations are expected
to be finished in 2015. When that happens, it will form the world’s largest free
trade zone.
Furthermore, the US is in charge of the TPP negotiations and it hopes the TPP
can become a high-quality free-trade agreement, with 12 countries in the
Asia-Pacific region currently involved in negotiations. Last year, Ma proposed
joining the TPP within eight years, but we have yet to see any substantial plans
or progress.
In conclusion, the ECFA is just a framework agreement which to date has had
relatively limited effects. How effective it will be depends on the results of
the negotiations on another four areas of trade that will be conducted in
future: agreements on the trade in goods, the trade in services, investment and
dispute resolution.
The Ma administration should take a closer look at the nation’s strategies for
global economic integration, integrate the interests and advantages of our
domestic industries as soon as possible, come up with various strategies for
transformation and corresponding policies. This is the only way to handle the
tough challenges Taiwan faces in terms of regional economic integration.
Tung Chen-yuan is a distinguished professor in the Graduate Institute of
Development Studies at National Chengchi University.
Translated by Drew Cameron
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