- Investigation 332-438: U.S.-Taiwan FTA: Likely Economic Impact of a Free Trade Agreement (FTA) Between the United States and Taiwan
U.S.-China Economic and Security Review Commission:
Cross-Strait Economic and Political Issues
(Washington, D.C., June 5, 2014)
Written testimony by Rupert Hammond-Chambers
Taiwan: Cross-Strait Economic & Political Issues
The global financial crisis of 2008 and subsequent recession hit Taiwan’s economy hard, and it has struggled since to fully recover. Taiwan faces relatively low unemployment, but wage growth is flat, upward mobility is difficult, and sky-high property prices keep young adults living at home. Taiwan’s citizens are confronting many of the same social challenges that their counterparts in Europe and the U.S. are also dealing with. In Taiwan, however, the recession and subsequent weak global rebound has also been coupled with a continued growth in the overall trade imbalance with and economic reliance on China.
It has now been six years since Ma Ying-jeou was elected President of Taiwan. Upon taking office, President Ma was committed to addressing that trade imbalance in Taiwan’s relationship with China. He made some dramatic moves in his first two years; normalizing cross-Strait flights, opening up tourism, and launching the Economic Cooperation Framework Agreement (ECFA) with China in 2010.
Throughout this process, President Ma has sought to institutionalize a degree of stability in cross-Strait relations by normalizing commercial and cultural relations, doing so in a way that future governments of Taiwan would find difficult – and even undesirable – to roll back. He has sought to engage with China in order to reduce tensions, buy Taiwan an open-ended period of time in its cross-Strait dealings, and to attempt to provide the citizens of Taiwan with commercial opportunities in China. For China, on the other hand, the objective of this policy course is unification – to draw Taiwan into the full embrace of the PRC – an outcome rejected by greater than 80% of the people of Taiwan.
The Ma government and its Beijing interlocutors have made progress on cultural relations, and yet the main driver over the past several years has been a series of commercial agreements designed to normalize and liberalize cross-Strait trade and commerce. These agreements originally met little resistance in Taiwan due to the way they were structured, which weighted their economic benefits toward Taiwan.
Taiwan’s most recent agreement with China – the Cross-Strait Service Trade Agreement (CSSTA) – was signed in the summer of 2013. The CSSTA is a fully comprehensive agreement designed to liberalize the service sector, agreeing to open 80 sectors in China and 64 in Taiwan to competition from across the Taiwan Strait. The service sectors covered by the agreement include banking, telecommunications, construction, healthcare, tourism, transportation, finance, and entertainment. The agreement again appears structured to favor the Taiwan side, and yet the feeling in Taiwan is that without a clear trade-transition package in place, the agreement will hurt smaller industries – such as travel, transportation, and printing – in Taiwan.
The signing of the CSSTA appeared to catalyze the deep angst in Taiwan, particularly among the young, over their future commercial and political fortunes – both of which seem inexorably intertwined with China’s insatiable territorial ambitions. In the spring of 2014, this angst galvanized into what is known as the “Sunflower Movement,” and resulted in a 3-week occupation of the legislature and a mass-protest with over a hundred thousand Taiwan citizens demonstrating against the agreement. This display was more organic than simple political opportunism, as some have argued. The genesis of the pushback on the CSSTA – and of the broader concern over the trajectory of the cross-Strait relationship – is the seeming absence of any policies that keep Taiwan’s non-China relationships, particularly the U.S. and Japan, equally as well positioned as commercial partners for Taiwan.
While President Ma has sought to institutionalize cross-Strait stability, those policies now run the risk of instead creating ongoing instability if Taiwan remains unable to similarly engage with its other major trading partners. If the concerns raised by large constituencies on the island are marginalized and/or ignored, that instability could radicalize Taiwan politics and will leave civil unrest and political violence as options for the two major political parties.
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