Taiwan: Using tragedy for benefit

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The killing of Taiwanese fisherman Hung Shih-Cheng by the Philippine Coast Guard was clearly a tragedy. Nevertheless, the speedy announcement of sanctions and the equally rapid deployment of Taiwan naval warships to the site of the incident was an overreaction bordering on intimidation and saber rattling. All of which was done before any investigation had been completed. Moreover, it was an attempt by President Ma Ying-jeou to boost his low national popular support in order to deal with the crucial challenges confronting Taiwan. Regionally, Ma’s playing of the incident sought to build support in Southern Taiwan where his Nationalist Party (Kuo Min Tang) has historically been weak and where the deceased hailed from.

Taiwan’s economy has become too dependent on the mainland market. The signing of the Economic Cooperation Framework Agreement (ECFA) in 2010 saw exports to China (and Hong Kong) absorb 29% of all Taiwan exports for the year. In 2012, 40% of Taiwan exports went to China. For the year, Taiwan enjoyed a $95 billion surplus in cross strait trade. However, overall annual GDP growth predictions for 2013 have been less impressive, being reduced to 2.4% from 3.09%. The China market remains important to Taiwan, but it’s beginning to lose profitability. Chinese officials are imposing higher labor standards calling for higher wages to be paid, and just as Western companies are concerned about protecting intellectual property, so is Taiwan. Hence, companies are beginning to move back to Taiwan.

Ma is a disappointment to China. China feels that Taiwan owes it for the early harvest benefits they gave Taiwan in connection to ECFA. As a result, Taiwan business prospects in China will not likely improve unless Ma makes a significant political concession. Such a concession might well be the signing of a peace treaty formally ending hostilities between China and Taiwan. All of which is a non-starter for Ma since Republic of China’s sovereignty would not be recognized. The former head of the State Council Office of Taiwan Affairs, Wang Yi, let it be known that without a political concession the current state of cross-strait relations is unsustainable.

Adhering to a policy premised on “yi shang wei zheng” or to use business for politics, China is skillfully playing greedy “Taishang” or big Taiwan business interests to reap benefits while at the same time hurting Taiwan’s long term interests and economic independence. A prime example is Tsai-Eng-meng, Chairman of WantWant Holdings, a food processing company with large holdings in China and who uses his large media holdings in Taiwan to promote Chinese interests. Furthermore, Ma’s political base is big business and his universally acknowledged weak leadership limits his ability to control business’s alliances in China. To make matters worse, he is hard pressed to rein in key political opponent and China leaning Lien Chan.

Being overly dependent on its China investments and cheap labor, Taiwan is just at the beginning stages of developing high-tech, high value added products for export. Moreover, Taiwan’s education system still turns out graduates better suited for assembling low cost low tech products for export. Taiwan is only beginning to address its need for creativity. Even though the government has appropriated large sums to stir new industries demanding creativity, results have yet to be achieved.

To reduce its excessive reliance on the China market and economic isolation, Taiwan needs to effect more free trade agreements (FTAs) like its premier competitor South Korea has done. Taiwan’s lack of dejure recognition by most countries, Chinese interference, and domestic protectionism hinder such. Yes, Taiwan will probably have a FTA with Singapore and likely with New Zealand. However, many countries are concerned that their economic relations with China will be impaired if they sign a FTA with Taiwan, so they back off.
Taiwan would like a comprehensive trade agreement with the US. After years of delay due to differences on American beef imports to Taiwan, talks between the US and Taiwan are beginning to get underway on a Trade and Investment Framework Agreement. Taiwan has also shown interest in joining the Trans Pacific Partnership. However, Taiwan economic protectionism runs high, and with his political approval rate running as low as 13-14%, Ma lacks the clout to counter it.

At a recent speaking engagement in Taipei, former American Institute in Taiwan de facto ambassador William Stanton said the growing frequency of high level Taiwan military officers being recruited by China’s Ministry of State Security to provide Taiwan defense secrets to China is of great concern to the US and causes it to question Taiwan’s trustworthiness. The best example is General Lo Hsien-che, head of Communications and Electronic Information at Army Command Headquarters. Lo had access to a US-Taiwan special project called “Po Sheng” that concerned communications between the US and Taiwan militaries. Eight other prominent espionage cases have also surfaced in recent years.

Stanton said the increasing number of spy cases might be caused by a morale problem in the military caused by inadequate defense spending. Indeed, its two functional submarines should be in a museum, and its F-5 aircraft are clearly unsafe to fly and should be scrapped. Ma talks like he wants a more powerful military, but he has failed to boost the defense budget from 2.2 percent of GDP in 2011 to 3% (it was 3.8% in2004), despite US urging. Transitioning the military to a volunteer force is being poorly executed and encountering budget problems. Consequently, some analysts and commentators have begun to question how reliable of a security partner Taiwan is in the US pivot to Asia.

The duty of a government is to protect its citizens; yet at the same time it has to be done in a responsible manner fitting for a democracy—not a simple opportunistic rush to judgment. This is especially important in Taiwan’s case as it seeks to build better relations with its neighbors to limit its political isolation in and to prove it is a responsible East Asian player.

William E. Sharp, Jr. is author of ‘Random Views of Asia from the Mid-Pacific’ (Savant 2011) and is a faculty member of the Hawaii Pacific University.

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