Econometric unreality and Taiwan-PRC trade
Taiwan News | 2010-06-22
Econometric unreality and Taiwan-PRC trade
A new econometric forecast by two United States - based economists of the benefits that could accrue to Taiwan in the wake of the signing of the proposed "Cross-Strait Economic Cooperation Framework Agreement" ironically highlights the lack of utility of such findings in persuading Taiwan’s people to accept the touted pact.
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."
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.
The robustness of the forecast by Rosen and Wu can only be effectively examined with their full work is published, but the most fundamental problem with their analysis as presented lies in the validity of its basic assumptions for Taiwan’s polity.
Indeed, given the degree of the anticipated boost to GDP growth touted by President Ma Ying-jeou’s Kuomintang administration and supported by the Rosen and Wang forecast, the question that requires most explanation is why Taiwan society should remain so deeply divided and hesitant to accept this cornucopia.
The reason lies in how Taiwan citizens, as well as outside analysts, view the PRC and define their own "welfare" or "well-being."
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.
Growth is not ’welfare’
The "actually existing realities" include the facts that the PRC is an authoritarian state, that its economy is dominated by state-owned and party - influenced enterprises and subject to extensive intervention by central and local governments and has innumerable institutional "non-tariff barriers" with poor legal and policy transparency.
Moreover, the very nature of the PRC’s export trade is rendered "abnormal" by the existence of institutionalized "social dumping" through authoritarian restrictions on trade union organizing, consumer protection and environmental activism and state protection for producers of substandard or even unsafe goods.
Besides being characterized by a high degree of social and economic uncertainty, the PRC government also has transparent political designs to annex Taiwan and continues to increase deployment of missiles and other offensive forces targeted at Taiwan.
All these factors combined indicate that it is not Taiwan but the PRC which is the source of the "abnormality" in the cross-strait relationship and bring into question the validity of the assumptions which underlie sanguine forecasts painted for Taiwan’s post ECFA future.
Moreover, the identification of higher economic growth with "welfare" implicit in the Rosen and Wang article and the CIER/MOEA study is of questionable validity.
Rosen and Wang themselves indicate that ECFA does not constitute a "routine" or "purely economic" pact when they state that "ECFA will be an ambitious accord that fundamentally changes the game between Taiwan and China" and note that "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."
Indeed, these realities indicate that a facile identity of higher rates of economic growth with higher "freedom of action" or autonomy" or well-being is open to question.
In sum, the most inconvenient barrier to the ECFA lies in the fact that many if not most Taiwan citizens do not define their welfare in purely economic terms, but evidently have a high degree of attachment to our hard-won political democracy, relative social equity and right of self-determination, as reflected in the consistent finding that most citizens believe the ECFA should be subject to a ratifying referendum.
