Saturday, December 19, 2009

Don't mistake my Blue Swayed Schmooze: Embracing China's Formosa Annexation Talks

Lots of analysis out ahead of the visit of PRC Consigliere Chen Yunlin to our fair city of Taichung to negotiate on behalf of the Five Families CCP leadership in Beijing with the Chiang Pin-kun here representing the Corleone Family in Las Vegas the KMT. In WSJ yesterday there was a long piece on the upcoming talks:
The rapid improvement in relations with China since Taiwanese President Ma Ying-jeou took office in May last year is making ever more remote the prospect of conflict across the Taiwan Strait, following decades of tension between the U.S., Taiwan's most important international friend, and China, which claims the democratically governed island as part of its territory.

"Taiwan-China tension is the greatest security concern in East Asia," said Dan Rosen, a visiting fellow of the Washington-based Peterson Institute for International Economics. "ECFA would reduce risks."

Leaders on both sides have staked personal prestige and their legacies on the outcome. For Mr. Ma, who has seen his popularity fall steeply in recent months, it is a chance to end Taiwan's worsening economic isolation and open up new growth areas for the country's technology industry. Taiwan's companies make many of the world's personal computers and related products, and the country is a key link in the global high-tech value chain.
It's the usual claims -- Ma reduces tension (except that it is merely interrupted as long as Ma accomodates, and displaced to other areas around China's borders. Taiwan is never discussed in the context of China's other border issues), Taiwan needs ECFA to overcome its economic isolation, etc. The worst problem with this viewpoint, prevalent in every article is its omissions. Consider this excerpt from the WSJ piece:

But the Chinese leadership has put pressure on Taiwan, signing a series of free-trade deals with its Asian neighbors, including one with most of Taiwan's major competitors in Southeast Asia. When the pacts take effect next year, Taiwan's exports to China will become much more expensive. China has forbidden its regional partners from making similar deals with Taiwan.

"Without the agreement with China, it means game over for Taiwan," said Lin Chien-fu, an economist at the National Taiwan University. "We can only make a breakthrough with other countries when our relationship with China is improved."

Imagine how this would look had the article presented a key piece of information: China has consistently refused to promise that Taiwan can have FTAs with other nations. Its real goal, argue some analysts, is to force Taiwan firms to relocate to China to take advantage of China's FTAs. It has long been said that the US will offer an FTA to Taiwan if it signs one with China first. Will the US test China by actually doing that?

AP does a good job presenting who thinks what:

Taiwan's powerful business community strongly favors Ma's approach, seeing it as necessary to prevent the island's economic marginalization amid growing trade ties between Beijing and neighboring Asian countries.

Washington also supports it enthusiastically. Despite shifting its China recognition from Taipei to Beijing in 1979, it remains Taiwan's most important foreign partner and fears being drawn into the armed conflict that Beijing threatens would follow any opposition move to formalize Taiwan's de facto independence. It sees Ma's policies as strongly reducing that possibility.

The DPP, however, believes the president's China-friendly push sets the stage for an eventual Chinese takeover of the island — a charge Ma vehemently denies.

The DPP says Ma's trade deal — formally known as the Economic Cooperation Framework Agreement or ECFA — will flood the island with cheap Chinese products, prompting massive job losses.

"We are holding protests partly because studies have shown Taiwan's unemployment rate will shoot up after the signing of the ECFA," party spokesman Tsai Chi-chang said.

As recently as five months ago, most of the Taiwanese public accepted Ma's argument that closer economic ties with China would aid Taiwanese prosperity — even allowing for the global economic downturn.

The CNA piece in Taiwan News also lists some of the complaints:

Woo Rhung-jieh, a professor in National Taiwan University's Department of Agricultural Economics, said that based on trade theory, Taiwan's workers will suffer the most if the trade pact is signed because trade liberalization usually leads to a narrowing in price and wage differences between the trade partners.

Taiwan wage rates would therefore fall if a deal with China were signed, Woo contended.

Lee Chung-hang, executive director of the Pingtung Agricultural Development Association, contended that farmers already believe that Taiwan's agricultural sector would suffer a blow if the ECFA is signed.

He accused the government of not clearly explaining to farmers what the trade deal's impact would be, at what level "stop-loss" points would be set, and the direction of future agricultural policies.

Defending the potential deal, Chang Su-san, head of the Council of Agriculture's International Affairs Department, reiterated the government's pledge that the 830 agricultural products that cannot be imported from China at present would continue to be barred under the ECFA.


Wang Liang, director-general of the Ministry of Finance's Department of Customs Administration, said that after the ECFA is signed, the government could introduce anti-dumping or other defensive measures to protect products made in Taiwan.

Again, the CNA says ECFA will counter "marginalization" -- though how tying Taiwan to a single country is not a form of marginalization, no one ever says. AFP has a long article on Ma's thinking on this issue, one long repetition of the claim that ECFA will save Taiwan from marginalization. Again, no report notes the massive hole in this claim: that China has made no promises that Taiwan will be able to have an independent economic life through FTAs with other nations. That would be counter to China's goals of hollowing out the island's economy and its democracy.

In the Taipei Times today a commentator attempts to address this point, arguing that the US would break the blockade if China attempted to prevent Taiwan from signing free trade agreements with other nations. But the US might not, if China signaled it did not want that -- or it might take no position publicly and simply drag out negotiations -- which for the current TIFA agreement have been on-again, off-again, since, like, the late Ming period in any case. Those individuals believing that Taiwan can rely on the US to save it over Chinese objections should ponder the whole arms purchase mess over the last five or six years, and ask how proactive the US was in getting a solution to the problem, and in getting Taiwan's defenses upgraded. Again, those wont to argue that the US would take the lead should ponder its demands for the last couple of decades that any air route agreement between Taiwan and China include access for outside airlines, and its steadfast silence on that point when the airline route deals were actually inked.

Several polls from the pro-Green side have indicated that the public is both ignorant of, and deeply split on, ECFA. Taipei Times noted:
A recent poll conducted by the party said 87.6 percent of the 956 respondents did not know what would be discussed at the meeting between Straits Exchange Foundation (SEF) Chairman Chiang Pin-kung (江丙坤) and Beijing’s Association for Relations Across the Taiwan Strait (ARATS) Chairman Chen Yunlin (陳雲林).

This will be the fourth round of cross-strait negotiations since the Ma administration came to power last May. The two sides are scheduled to discuss and sign four agreements on fishing industry cooperation, quality checks for agricultural products, cross-strait cooperation in inspection and certification and avoiding double taxation. Issues concerning the government’s proposed economic cooperation framework agreement (ECFA) with Beijing will also be discussed.

The DPP poll showed that less than 30 percent of respondents believe signing the trade pact would benefit Taiwan.
Not just the pro-Green side. Polls from pro-Blue sources also show the same split, with slight majorities in favor of ECFA, negotiations, etc.

One thing all who would do business with China must ponder is its propensity to torment its partners. Witness the fact that there are several foreigners in Chinese jails for doing business in China...
A holder of nine patents in the US, Hu is just the kind of emigre Beijing has been eager to lure back to bolster an economy growing rapidly but short of talented managers and innovators. He has done research at the Massachusetts Institute of Technology, as well as for multinationals in the US and Japan.

Yet, Hu’s predicament shows how powerful vested interests marshal law enforcement agencies to pressure foreign business executives, especially those like Hu, who were once Chinese citizens but now hold foreign passports.

Hu’s detention comes amid other similar prosecutions of China-born foreign nationals. In recent months, Australian national Stern Hu (胡士泰) — an executive with the global mining giant Rio Tinto — was detained on state secrets charges that were later reduced to infringing trade secrets.

Another China-born, naturalized American, geologist Xue Feng (薛峰), disappeared into custody two years ago and has been put on trial for passing on state secrets — for arranging the purchase of a detailed commercial database on the Chinese oil and gas industry.
...and that all these individuals are Chinese in origin. What will happen with the Taiwanese? You know, those "Chinese" living on Taiwan....
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Raj said...

Its real goal, argue some analysts, is to force Taiwan firms to relocate to China to take advantage of China's FTAs.

What's to stop them doing that now? Surely they can do that without the ECFA.

Gerd said...

Even more severe is the case of Austrian national Wo Weihan, who was executed on unproven charges!

Michael Turton said...

Nothing stops them, Raj. But what if the expected FTAs never materialize?

Don said...

WSJ: "China has forbidden its regional partners from making similar deals with Taiwan." This is the crux. China blackmails sovereign countries not to enter into FTAs with an important trade partner. By extension it blackmails that partner, Taiwan, to beg for the only substantive regional FTA-thingy left open to it: CEPA/ CECA/ ECFA/ WHATEVER-THE-FA.

Now, assuming we have a competent administration playing a long game and acting in good faith on behalf of ordinary Taiwanese, then our canny ECFA negotiators, recognizing that there is no choice but to humour China, will ensure the text states that the Taiwan-China agreement only comes into effect on the conclusion of FTAs between Taiwan and its other regional trade partners.

On the other hand, if our government is a half-arsed crowd of economically illiterate jokers under the spell of a would-be Quisling...

Raj said...

But what if the expected FTAs never materialize?

Then it will be do different from if there was no ECFA but the Taiwanese companies still moved.

You seem to be arguing the ECFA will/may be bad because Taiwanese companies will move to China to take advantage of Chinese FTAs. But as I asked, in that case how will things be different if Taiwan refuses to agree the ECFA?

Tommy said...

It will make that migration even more appealing. The process will speed up. Why should the Ma admin have to go to so much effort to sign such a pact? If what you say would happen anyways in the long term, wouldn't it make more sense for the Ma admin to expend the same effort working on improving trade relations with other countries? There is a lot that can be done besides signing FTAs to improve the business climate between Taiwan and non-China trading partners. Ma Inc seems almost uninterested.

It is an unhealthy pact created by an administration with an unhealthy fixation on China.

Anonymous said...

Raj your logic is faulty. ECFA encourages companies to move to China. That's the issue. It's not that they can't already.

There are quite a few industries where it's actually not clear whether it's a good idea to move to China or to stay and invest in Taiwan. But if China and hold enough of a carrot out to break up industry clusters in Taiwan, then Taiwan doesn't even have a chance to compete. Everyone talks about this on this big macro-theoretical level and forgets that most Taiwanese companies are doing business with lots of other Taiwanese companies and it requires the existence of these other companies or else they can't function. This breakup of clusters is the real danger that is threatening Taiwan's economy.