Chapter III Findings: Taiwan
III.3. Taiwanese steps toward integration
The rate at which Taiwan takes steps towards integration with China varies depending on the orientation of the political powers that be. Under the pro-mainland Nationalist Party (Kuomintang, KMT) the rate has been much higher. The Democratic People’s Party (DPP) leadership typically places restrictions on integration, but we can still see that even they have allowed integration to continue forward—albeit at slower rates. This suggests that there is an undercurrent somewhere in Taiwanese society to integrate the economy with the mainland in some way. It is most likely due to the profit margins associated with shifting manufacturing bases to the mainland than to any social desire to be reunited. Though it can be argued that Taiwan has increased its amount of trade with China largely out of necessity evidence has shown that China has become more important for Taiwan to export to than to import from.
Globally Taiwan has seen its share of trade with traditional partners shrink as its trade shares with China have increased. We can see this in figures with Taiwan’s former greatest trade partner, the United States. Total trade with the United States in 2000 amounted to US$64.9 billion, with Taiwanese exports amounting to US$40.5 billion. US-Taiwan trade made up roughly 41 per cent of all of Taiwan’s total global trade for that year.By 2013 trade had shrunk to 21 per cent of total global trade at US$63.46 billion, with 11 per cent of that amount being exports to the US. 9596 While overall trade with the United States, we do see that Taiwan’s trade priorities had certainly shifted. Trade with China, including Hong Kong, in 2000 amounted to
94 PhD research conducted on Taiwanese industrial cluster growth.
95 See United States Census Bureau, “Trade in Goods with Taiwan.”
96 Wilson, pp. 5-6.
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US$18.5 billion. In 2013 this trade had grown to US$165 billion, with US$121 billion in exports and US$44 billion in imports.97
Integration policy has shifted in its pace over time. As China’s market has grown and its ability to edge out Taiwan from global economic networks has increased. At the same time integration trends have sped up. In 1996, under the administration of Taiwanese-born KMT President Lee Teng-hui (KMT, 1988-2000), Taiwan adopted a “no haste, be patient” stance towards China. By 2001, under President Chen Taiwan adopted a “proactive liberalization”
policy toward China, which aimed at improving official trade relations and increasing trade.
Chen’s liberalization had the effect of shrinking Taiwan’s native industry.98 Chen’s 2001 “Active Opening, Effective Management” plan was revoked in 2006, and replaced with “Active Management, Effective Opening” which aimed to place restrictions on cross-strait trade.
Embroiled in personal scandals, Chen’s reversal of policy was meant to rally the DPP base, and halted large companies such as Taiwan’s semiconductor manufacturers from investing in China, allowing the SMEs to continue moving across the strait between 2006 and 2008.99 President Ma’s loosening of restrictions for economic growth has not helped keep Taiwanese business in Taiwan nor make it more globally competitive. Taiwan has become “locked” more and more with China. Even before the ECFA, the core-periphery effect was at work having a negative impact on Taiwan’s liberalization attempts.100 President Ma Ying-jeou (KMT, 2008-2016) established the three links with China, enabling direct trade, direct transport, and direct communication with the PRC.101 His ratifying of ECFA has been the largest trade liberation action toward cross-strait integration, yet it sought to encourage Taiwanese business to reconsider remaining in Taiwan.
ECFA in Taiwan and its effectiveness
The Economic Cooperation Framework Agreement and its subsequent developments have been the most influential and controversial integration step in recent years for the Taiwanese. The 2013 signing of the Trade Services Agreement, a cross-strait service industry facilitation document, prompted student protests and the eventual student occupation of the
97 Wilson, p. 5.
98 Tsai, p. 69.
99 Lecture given by Syaru Shirley Lin, “Taiwan’s China Dilemma: contested identities and multiple interests in Taiwan’s Cross-Strait Economic Policy,” National Chengchi University, Taipei, Taiwan, 6 June 2016.
100 Huang, 2010, p. 87.
101 Gunter Schubert, “Facing the dragon and riding the tiger: assessing the mainland Taishang as an ‘impact factor’ in cross-Strait relations,”
2016, p. 91.
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Taiwanese legislature. The adoption of ECFA in June 2010 has had a major impact on Taiwanese politics and the interpretation of economic advantages.
Taiwanese economic actors have decided that the market forces are in China. To them, ECFA is an official sanction for their continued cross-strait behavior, and the government has allowed the further facilitation of free flow of investments. ECFA will not bring back the business and jobs that Taiwan has already lost to China. Even with the ECFA, border effects still exist in the form of domestic Chinese firms capturing the market first. To address this the Chinese have permitted “early harvest” clauses for Taiwanese firms, further incentivizing firms to relocate to the mainland.102
Despite the economic incentives and concessions to Taiwanese business, the ECFA is regarded skeptically by the Taiwanese. One survey found that 47.4 per cent of Taiwanese respondents believed that just the Trade Services Agreement would “bring more harm than good to the local service industry.”103
Owing to the controversy surrounding the ECFA is that it was passed only by KMT legislators.104 For the pro-reunification KMT, ECFA is a tool for access to China and reconciliation with the mainland. The KMT sees cross-strait relations as being incredibly important to its platform, as reconciliation creates global access to China’s trade partners and prosperity. Integration with ASEAN’s markets, for example, could be established through China’s FTA with ASEAN. The bottom line is that the KMT sought to avoid marginalization by China by going through China instead of relying on its bilateral links. Arguments for the ECFA appear pragmatic given the realities. Wu states that “on July 2, 2010, Deputy Minister of Foreign Affairs Shen Lyu-hsun explained that Taiwan does not want to become the second North Korea and ECFA can prevent Taiwan from being marginalized.”105 Ma Ying-jeou considered the ECFA as a means to reduce barriers on imports that had forced firms to move to China106 while the KMT blamed the Chen Administration for Taiwan’s sluggish economy, and sought to revitalize it.107
Taiwan’s government, under the KMT control, declared that ECFA would “help people do business and increase Taiwan’s competitiveness.” It is important to note that the ECFA was
102 Tsai, pp. 66, 71-72.
103 Consulate General of Switzerland Guangzhou.
104 Tsai, p. 63.
105 Wu, pp. 59-60.
106 Tsai, p. 71.
107 Rong-I Wu, “ECFA and Taiwan-China Trade Relations,” 2010, p. 101.
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only passed by KMT legislators.108 The ECFA has ended more than 60 years of cross-strait competition. At the same time other scholars argue that by signing the ECFA President Ma has made Taiwan more dependent upon China without a reciprocal level of dependency of China on Taiwan (Sutter 2011).109
For the pro-independence DPP, the ECFA is a troubling agreement that signals the loss of Taiwanese economic independence. The argument mainly centers around China’s ability to pull business out of Taiwan. ECFA’s reductions of barriers and Taiwan’s lack of restrictions toward investment in China will increase Taiwanese economic migration. China has many advantages due to its role as the core of activity within Krugman’s core-periphery theory, creating a hollowing out of Taiwan.110 Due to the advantages seen in establishing all production activities in one location, Taiwanese firms will be encouraged to invest in only one location: the PRC.