Rosen and Wang on ECFA

Taiwan News has a nifty editorial on an Economic Forecast coming out from the Peterson Institute:

In a preliminary paper published by the Petersen Institute of International Economics newsletter in its June 2010 issue, U.S. economists Dan Rosen and Wang Zhi summarized the findings of their soon to be released book-long analysis of the ECFA, which will be entitled "The Implications of China-Taiwan Economic Liberalization."

Rosen, the principal of the New York-based Rhodium Group research firm and a long-time specialist in the PRC economy, and Wang, an senior economist at the U.S. International Trade Commission, argue that "our economic projections of the effects of a China-Taiwan economic liberalization agreement point to the significant benefits of cross-Strait economic reform, especially for Taiwan."

Since Rosen works for a large investment research firm, and writes for WSJ and CSIS, and both economists are PRC specialists, it is fairly obvious what conclusion the analysis will have: roll out the runways, the Planes Loaded with Cargo are a'comin!:

Based "on an economic model similar to the Global Trade Analysis Project (GTAP) platform," Rosen and Wang maintain that an ECFA along the lines of the agreement between the PRC and the Association of Southeast Asian Nations would increase Taiwan's gross domestic product by a net 5.3 percent by 2020.

Since Taiwan already has "normal trade relations with the rest of Asia," Rosen and Wang maintain that Taiwan will gain most of the growth dividend through liberalization through correction of "abnormalities" in the form of "unilateral barriers to imports, investment, and visitors from China" that they say are "welfare - diminishing" for both household consumers and enterprises.

The Rosen and Wang forecast is clearly more optimistic than the maximum net effect of a positive 2.55 percent increase in GDP by 2020 offered by the Chung-Hua Institute for Economic Research and the Ministry of Economic Affairs in a feasibility study issued last July and would seem to constitute an even stronger argument for the ECFA.

Wow! Things are even better than the pro-KMT think tanks imagine! My bullshit sensor is signaling a five-alarm fire (the related policy brief is here). Note that brief says the 5.3% figure is a vapor figure derived by adding the calculated gain and the expected loss if Taiwan doesn't sign ECFA. In other words the gain from ECFA is 4.5%, the loss is 0.8%, at least according to their construction.

Taiwan News attacks this by arguing that the real problem is the narrow idea that welfare consists of economic growth...

Surely there would be little opposition in achieving deeper integration with the PRC through the ECFA if China was a friendly democratic nation with a normal market economy, but this is not how the PRC is perceived by a majority of the Taiwan people, including many whom have spent years working or investing or travelling in China.

Taiwan News may be right as far as they go, but the real issue is that Rosen et al's "analysis" simply plays out its innate ideological assumptions about what constitutes welfare (cheap goods, not jobs) which anyone who has watched the American worker get decimated by the financial industry + foreign imports over the last three decades will be intimately familiar with. We may well get a "net" 5.3% boost to GDP growth, though such claims are highly problematic -- in fact if the yuan rises, demand for Taiwan goods might increase substantially in China. But you can be certain that the analysis doesn't include...

1. ...any discussion of the sad fact that gains are going largely to big financial firms, large manufacturers, and organized crime, and thus while GDP may grow, income inequality will worsen. Will ordinary people see anything from ECFA? Doubtful.

2. ...any attempt to measure the economic and social effects of smuggling of everything from food to auto parts, which has been disastrous for nations signing FTAs with China. For example, the fact that I have to worry about inferior, poisonous Chinese food items in the local market is a cost I pay, aside from their direct deleterious effects. A cost that Wang and Rosen want everyone to pay, but why should they give a shit? They don't live here, and if it isn't in the model, it doesn't exist.

3. ...any attempt to measure the effects of diseases, crime, human trafficking, illegal Chinese labor, and similar.

4. ...any attempt to model the effects of China's nationalist business practices on Taiwan's firms.

5. ...etc Any intelligent reader will be able to think of many costs the GTAP model doesn't cover, such as losing control of one's destiny or democracy. Or the way that the KMT is using China markets -- like tourism and students -- to carry out status quo policies that reinforce its grip on the local level. What is the cost of that?

My favorite part of the brief is this...

For its part, China is frank in stating that it supports an ECFA undertaking because it believes this will maximize the prospect for eventual political integration across the Taiwan Strait.

I read that first sentence and gave them kudos for their clear statement of what ECFA is for, something that Establishment types are generally very reluctant to mention. But then this next sentence....

But officials in Beijing argue that this belief is rooted not in the idea that ECFA would enhance their ability to coerce Taiwan but in the view that it would maximize mutual prosperity and Taiwan’s perception of common interest, thereby establishing the goodwill necessary to facilitate political rapprochement in the future.

Taking Beijing at its word? That's just....delusional. No other word for it. ECFA is all about coercion via economic integration and subsequent assimilation.

Nope, Rosen and Wang just another of the many examples of using statistics to provide a veneer of legitimacy for bad policy. Sad.
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