ECFA not panacea for free trade agreements.

WSJ has a nifty piece on ECFA today, pointing out that ECFA has not improved Taiwan's situation with regard to the free trade agreements proliferating around Asia. Back in 2009 I wrote:

The KMT Administration's position is the classic "shock doctrine" position:

1. Hurry! The rest of Asia, including China, is forming a free trade region!
2. We'll be locked out of this if we don't get on board now!
3. Our economy is in the tank! We must do something now!
4. Claims that opponents' objections are "ideological"

Fast forward to 2011 and this important rationale for the KMT Administration's ECFA signing has turned out to be a dud so far. As the WSJ piece notes:

Although Taiwan signed a landmark trade agreement with China last year, many experts say the island's trade negotiations with key markets such as the European Union and Japan have been bogged down by Chinese opposition and political differences. This has led Taiwan's export-dependent economy to become increasingly cut off from the network of trade agreements that have proliferated over the past decade, giving Taiwan's regional rivals a competitive advantage that could harm the island's long-term growth prospects, they argue.

In particular, an agreement that will eliminate most tariffs between South Korea and the European Union that is set to take effect July 1 will likely harm Taiwan, as its exports to the EU in industries such as plastics, auto parts and machinery will continue to be subjected to tariffs ranging from 16% to 55%, the Taiwan External Trade Council warned Wednesday.

"Taiwan's major competitor is South Korea; almost 70% of Taiwan exports to Europe overlap with South Korea. This will bring tremendous pressure on Taiwan's businesses," said Chen-yuan Tung, professor at National Chengchi University's Graduate Institute of Development Studies. If Korea's trade agreement with the U.S.—which was originally crafted in April 2007 but has yet to gain approval—passes, the pressure will be even higher, he added.

As WSJ notes, many analysts said at the time that signing ECFA would enable FTAs with other nations, especially the US, Japan, and the EU. So far only Singapore has shown interest.

Another issue that we were told ECFA would help with was foreign investment. Here are the percentage changes in approved cases of foreign direct investment for 2008, 2009, and 2010: -46.4%, -41.8%, -20.6%(DGBAS). Granted, we took a beating from the world financial crisis but in the first quarter of 2011 it fell another 34%. Clearly an ugly pattern is forming. No doubt China, a much better place for investment at the moment, is attracting much of the capital that might have been invested in Taiwan, true both of foreign capital and capital that Taiwanese themselves have parked overseas.

Tung Chen-yuan (童振源) has had a couple of commentaries in the Taipei Times recently on Taiwan's economy. I have omitted some of Tung's piece where the numbers are decontextualized and lack concrete meaning. However, some of it is quite good. In his most recent one, he remarks:

It is worth noting that almost a year after the ECFA was signed, the early effects are far less impressive than expected.

First, Taiwan has only completed a joint study with Singapore into the signing of an FTA. It seems unlikely that such an agreement will be signed between the two countries in the near future, let alone with other Southeast Asian countries.

Even if Singapore and Taiwan were to sign an FTA, that would be of little significance to Taiwan’s economy as a whole, since trade between the two only makes up 3.6 percent of Taiwan’s foreign trade.

Tung also asserts:

Fifth, following the implementation of the ECFA, Taiwanese investment in China continued to grow rapidly. In 2008, Taiwanese businesspeople invested US$10.69 billion in China, an increase of 128 percent. In 2009, the figure was US$7.14 billion, 33 percent less than the year before because of the impact of the international financial crisis.

Last year, investment increased by US$12.23 billion, an 102 percent increase. In the first quarter this year, Taiwanese investment in China continued its rapid increase, growing by 65.4 percent, or US$3.71 billion, although Taiwanese foreign investment has declined by 4.8 percent.

Sixth, following the implementation of the ECFA, Taiwanese capital has continued to flow out of the country. During the three years of Ma’s presidency, a net average of US$20 billion of international capital has flowed out of Taiwan annually, much more than the US$13.2 billion that flowed out of Taiwan every year under the DPP administration.

Little investment is flowing in from China; moreover, speculative investment from Chinese in properties in the Taipei Basin has no effect on the island's standard of living.

As we come up to the elections in January it will be interesting to see whether and how the DPP makes use of ECFA's failures to live up to any of its constantly shifting rationales (the economy recovered fine without ECFA). It will also be interesting to see how much the Ma gov't will give away to Singapore if it can get the FTA in prior to the election.
_______________________ 
[Taiwan] Don't miss the comments below! And check out my blog and its sidebars for events, links to previous posts and picture posts, and scores of links to other Taiwan blogs and forums! Delenda est, baby.