The Ma-Tsai Debate on ECFA =UPDATED=

Yesterday was the big debate between President and KMT Chairman Ma Ying-jeou and DPP Chairman Tsai Ing-wen. As a friend of mine put it, Ma appears to have "won on points" inasmuch as anyone could be said to have won. The Taipei Times has a complete transcript (Part I) in the works. Its report is here. Taiwan News report and vids are here.

Two key points to take away here. First, a televised debate on a major issue of national policy is an important step forward for the nation's democracy. Due credit should be given to Ma for accepting an open and public debate on key political issues. Second, the fact that Ma agreed to a debate shows, better than any argument or poll, that the KMT Administration believes that public support for ECFA is low and needs shoring up, whatever poll numbers may say. Ma, who has struggled to keep ECFA away from democratic oversight, made a major concession in even having the debate.

It is ironic to contrast the President's claim that Taiwan needs ECFA and that Taiwan will be isolated "like North Korea" if ECFA is not signed, with the economic reality that the economy is doing well without it, as the Taipei Times reported today.

Shih said the IMF expected Taiwan to achieve GDP growth of 6.5 percent this year, and the Council for Economic Planning and Development (CEPD) has forecast the economy to grow by at least 5 percent.

If those forecasts prove correct, Taiwan’s economic growth will outpace that of the other Asian Tigers — Hong Kong, South Korea and Singapore — Shih added.

The arguments about isolation are simply emotional appeals to the visceral fear of being weeded out instilled in every Taiwanese by the educational system. The reality is that Taiwan's economy is performing well with the links it already has, and there is no reason to assume that shipping more industry off to China will help it perform better.

Monsieur Rick, what kind of man is Captain Renault?
Oh, he's just like any other man, only more so.
No, I mean, is he trustworthy? Is his word --

Reuters reported:

Markets would welcome the deal to slash tariffs as the strongest link between export-reliant Taiwan and world economic powerhouse China, boosting $109 billion in annual two-way trade, after recent trade talks following six decades of hostilities.

There are two assumptions, widespread in all the reports, that are never subject to scrutiny in the international media. The first is that ECFA will "reduce tariffs." The actual tariff on Taiwan's exports to China, according to a Taiwan Thinktank member piece, is 0.58%. The tariff benefits, at best, look to be a delusion (my post). Perhaps the 0.58% figure is wrong, but needless to say, there will be no investigation of the actual tariff effects in the international media, partly because the Ma government has refused to discuss them. Businessweek hosts the AP report on the debate.

The second assumption is that -- assuming tariffs are magically slashed -- that China will uphold its end of the agreement. This assumption is not borne out by any reality. The Straits Times noted a while back:

Thailand, in particular, had a bitter experience. In 2005, tariffs for 200 items of vegetables and fruits were abolished. Thailand expected to export tropical fruit to China and import winter fruit from it at zero tariff. But what happened was that Thai farmers of garlic, longan and other fruit and vegetables were decimated by cheap Chinese imports. Worse, Chinese officials reportedly either refused to lower tariffs on Thai imports or left the Thai produce to rot in warehouses.

It has been noted that the swath of destruction caused by the Thai "early harvest" agreement was a factor in the unrest now gripping Thailand. Continuing with the Straits Times piece....

.....It is no wonder that Indonesia has asked for a two-year delay in tariff reductions for 228 items.

The trade and foreign direct investment (FDI) figures are not encouraging either. Since 2004, tariffs between the two sides have been coming down, and Asean's trade deficit with China has widened. From 2000 to 2008, China-Asean trade grew sixfold to US$198 billion (S$280 billion). But Asean's trade deficit also widened five times to US$21.6 billion. Asean's cumulative FDI in China was US$52 billion in 2008. By comparison, China's FDI in Asean was just US$2.8 billion.

In other words, nations that enter into reduce tariff agreements with China find themselves in increased trade deficits with China and low FDI from China. Nor is thus just an experience of underdeveloped countries; it is even more urgent for developed nations. Anyone who has been following the news out of China has seen many pieces like this one about US business or this one about European, hosting complaints from foreign businesses about the lack of good faith in China's dealings with foreign businesses. For example (from the latter):

The European Chamber says foreign companies are "excluded outright" from China's service sector, and uses Amadeus, a Spanish travel-booking company, as an example. More than seven years since China signed up to the WTO, it has still not granted Amadeus, a computer travel reservation system, the right to issue tickets and reservations to the growing Chinese market.

Meanwhile, China's host of technical regulations and certification procedures "blatantly discriminate" against foreign companies, said Dr Wuttke. The report cites an unnamed company that was the market leader in providing encryption services to Chinese banking, telecoms and public transport firms until the government "suddenly" required a new certification from the Office of Security Commercial Code Administration (OSCCA). "Not one foreign company or foreign-invested Chinese company has to date received OSCCA certification," the report points out.

To add to that, consider once again Google vs Beijing (or Rio Tinto), a case that clearly shows that no matter how hard you work to cooperate with China, you'll be screwed, partly to steal your tech, and partly to favor local businesses you're competing with. China's mercantilist approach means that the assumption that it will uphold its end of bargains is iffy, at best. Yet there will be no benefits from ECFA unless China is committed to upholding its side of the deal. Needless to say, the assumption that China will uphold its side is never explored in the international media.

A second aspect of the willingness of China to uphold bargains is smuggling, an item never mentioned in international media reporting on China's economic behavior (except for smuggling of endangered species, for eating, just a spiffy and morally correct way to orientalize the Chinese). But smuggling has devastated economies around China. Back to the Straits Times:

Already, smuggling of cheap Chinese shoes into Viet Nam has done damage to the shoe industry there. In Indonesia, cheap imports of clothes, toys and electronic goods, often through smuggling, have hurt local manufacturers of such products.

Anyone who buys in Taiwan's markets already has to consider the problem of smuggling in their daily lives -- do we risk eating China's inferior, poisonous products now easily found in morning markets around the island? When you invite Chinese goods in you invite their smuggled goods in as well -- unregulated and destructive. The CNA, for example, hosted a piece on smuggled day lilies, part of a larger and growing problem of smugglers using third parties to bring in illegal goods into Taiwan -- agricultural goods are already being regularly smuggled into Taiwan even without ECFA. Ma has even proposed special assembly zones where Chinese goods are brought in for processing in Taiwan and then shipped out for sale overseas. The gods alone know how big a boost they will give to smuggling in Taiwan.

The DPP really needs to hit the international comparisons harder; they are a direct antidote to Ma's China Cargo Cult claims that taking down barriers will be good for local economies, and bring in the daily experience of Taiwanese in local markets dealing with, for example, the problem of smuggled seafood. I'll leave the reader with a quote from Philippine legislator Warden Bello's excellent commentary on this topic:

It is owing to massive smuggling that few analysts take seriously official trade figures with China released by the Chinese Embassy in Manila that show the Philippines enjoying a positive trade balance.

REF: Commonwealth Magazine hosted an excellent piece that explores some of these economic problems more deeply.

UPDATE: Polls out from UDN, China Times, TVBS.
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Daily Links

• More vids of yesterday's landslide on Highway 3 from Apple and from UDN
  
• The Examiner with an important piece on the police raids on pro-democracy radio stations in Taichung.
  
• The new Spice War: China, Japan, and rare metals. China has a commanding position in rare metals.
• A piece on US-Japan relationship: note how the treatment of Hatayama Harris deplores is like the treatment meted out to Chen Shui-bian by the Establishment media. This piece discusses ASEAN and the US.
• Pomfret with excellent piece in WaPo on China's propaganda moves in the US.
  

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