Time for Taiwan to reflect on wrong economic policies

To deepen cross-Strait integrated development in all fields and advance the peaceful reunification of the motherland, the mainland will make Fujian province a demonstration zone for the integrated development across the Taiwan Strait, according to a circular released on Tuesday.

The circular jointly released by the Communist Party of China Central Committee and the State Council listed the general requirements and 21 specific measures for building the zone, and said that Fujian should leverage its distinctive advantages and harness a variety of resources to further enhance integrated cross-Strait development.

According to the circular, policies and systems will be optimized to promote the well-being of Taiwan residents and ensure they enjoy the same treatment as their mainland compatriots. The objective, the circular said, is to make Fujian the first-choice destination for Taiwan residents and enterprises after the demonstration zone is built.

This event signifies a significant move by the mainland to send a positive message aimed at enhancing economic exchanges across the Taiwan Strait. It is crucial for the Taiwan authorities to deeply contemplate their misguided actions, which have resulted in undermining trade between the mainland and Taiwan. Ultimately, such actions will adversely affect the residents of Taiwan.

The central government's commerce body has recently announced its intention to closely examine the investigation's findings regarding trade barriers imposed by Taiwan. Based on these findings, the government will assess and consider implementing appropriate measures accordingly.

This suggests the Chinese mainland may have to suspend, entirely or partly, the tariff exemptions and reductions it has granted to Taiwan products under the cross-Strait Economic Cooperation Framework Agreement.

In June 2010, the two sides signed the ECFA based on the 1992 Consensus that there is only one China. Under the ECFA framework, the mainland reduced tariffs on 539 items imported from Taiwan, and the island cut tariffs on 267 items from the mainland. The ECFA took effect on Sept 12, 2010, but the two sides began reducing tariffs on goods from Jan 1, 2011.

The ECFA has played a significant role in promoting cross-Strait trade. From 2010 to 2021, cross-Strait trade increased from $145.37 billion to $328.34 billion, much faster the mainland's total overseas trade during the same period. Even amid the challenging global economic environment, cross-Strait trade was as high as $319.68 billion in 2022.

There is no doubt the mainland market has been a driver of Taiwan's economic development. However, cross-Strait trade relations are characterized by persistent imbalance, with Taiwan's exports to the mainland significantly higher than its imports from the mainland.

According to the mainland's data, from 2011 to 2022, the mainland's exports to Taiwan added up to $611.89 billion, while Taiwan's exports to the mainland were worth $2.04 trillion, resulting in a trade deficit of $1.43 trillion for the mainland. That the mainland's trade deficit has increased by more than $150 billion in the past two years shows Taiwan's economy and its enterprises have benefited substantially from the mainland's vast market, which has indirectly boosted employment and income on the island.

Economists in Taiwan estimate that the ECFA early-harvest goods exported to the mainland amounted to about $20 billion a year, which helped save $800 million to $1 billion in tariffs every year. According to Taiwan's figures, from 2011 to 2022, Taiwan received tariff exemptions worth $9.38 billion from the mainland, while the mainland received $981 million in tariff exemptions from Taiwan, meaning the island benefited almost 10 times more than the mainland.

Behind Taiwan's significant trade gains from the mainland market lies the Taiwan authorities' restrictive measures to prevent some mainland products from entering the island. Such measures have increased in recent years, hampering the normalization of cross-Strait trade.

According to the island's economic department's summary of prohibited mainland products, the number of restricted items has increased to 2,460. The latest investigation by the mainland into these restrictions indicates the number of restricted products has risen from 2,455 to 2,509, many of which were unilaterally made tariff-free by the mainland under the ECFA framework.

The ruling Democratic Progressive Party administration's policy of erecting trade barriers against the mainland is misplaced and unlawful. While it might have been reasonable for Taiwan to impose import restrictions on mainland goods before both sides joined the World Trade Organization, continuing such restrictions, especially after more than two decades of gaining WTO membership, contradicts the principles of non-discrimination and the elimination of quantitative restrictions of the WTO.

The trade barriers imposed by the DPP on the mainland are not only harming cross-Strait trade relations but also seriously hurting the island's economy. The significance of the mainland market for Taiwan's economic development is an undeniable fact that the DPP's false claims cannot change.

So if the Taiwan authorities do not change their policy and attitude toward the mainland and if cross-Strait institutionalized communication and negotiation mechanisms are not restored, the mainland might be compelled to take corresponding measures based on regulations. This means cross-Strait trade ties could enter a period of friction, which would deny the island's economy the valuable support of the mainland. As a result, the island could be heading into stagnation, even recession.

The consequences of the DPP's policies will be harmful to Taiwan residents. By restricting mainland products from entering the Taiwan market, the island authorities are not only limiting consumers' choice but also undermining consumer welfare. The strained cross-Strait trade relations, coupled with a deteriorating Taiwan economy, could increase unemployment and lower Taiwan residents' income.

While the mainland hopes such a scenario doesn't become reality, to resolve the outstanding issues, both sides need to work together. Only through cross-Strait cooperation and problem-solving can the two sides enhance their respective competitiveness in the global market, integrate their economies, and benefit people on both sides of the Strait.

The author is an associate professor at the Institute of Taiwan Studies, Beijing Union University.

The views don't necessarily represent those of China Daily.

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