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Analysis: A proposed Taiwan-China trade deal would mean cheaper stuff for consumers, but might also wipe out low-end local industries.
The principle of comparative advantage — the theoretical bedrock of globalization — will unerringly show overall gains to the economy through such trade. Open bilateral trade plays to each country's respective strengths, the theory goes.
So it is with ECFA, where the winners are expected to be Taiwan's capital-intensive industries such as machinery, and China's labor-intensive industries, such as handmade leather shoes.
"China has a huge market and Taiwan has a relatively strong industrial base," said Taipei-based Standard Chartered economist Tony Phoo. "So more cross-strait trade and investment flows will be positive for both China and Taiwan's economy."
Researchers at Taiwan's Chunghua Institution for Economic Research prepared a study for the government showing that cross-strait trade liberalization could add 1.65 percent to 1.72 percent to Taiwan's GDP, create a net of 260,000 jobs and lure nearly $9 billion in new foreign direct investment in the seven years after the deal is inked.
Of course, such economic models say nothing about how such goodies are distributed within a country. Taiwan's opposition echoes a frequently made argument that, more often than not, the gains will go mostly to large corporations, padding top executives' salaries and shareholders' dividend checks. A small number of highly skilled workers benefits, too.
The vast majority of workers, by contrast, don't usually notice much change after a trade deal — except cheaper imported consumer goods on store shelves, and the possibility of being pink-slipped if they're unfortunate enough to work in an uncompetitive industry.
Even some investment bankers caution that the benefits of ECFA, if it's signed, may not be immediate. Negotiations are reportedly bogged down over what to include in a so-called "early harvest" list of industries to see the first tariff cuts. China and Taiwan are still gunning for a late-June deadline.
But that means ECFA could well end up being mostly technical agreements — on "rules of origin," dispute settlement and the like — with harder tariff reduction talks scheduled for later on most items.
"In the longterm it should be very beneficial, it will remove a lot of obstacles," said Tay Her Lim, of investment bank CLSA, about the deal.
"But like any fundamental change, it will take time, and ECFA is just the first step," said Lim. "ECFA is just a small little piece of the puzzle."