Taiwan’s Treaty Trouble

A year ago this month, Beijing and Taipei signed their latest trade deal, which is the most expansive to date. In theory, the Cross-Strait Agreement on Trade in Services, as the pact is called, breaks down investment and other barriers for businesses in a wide range of service industries, including banking, construction, healthcare, and telecommunications. The deal also seems to mark a breakthrough in the two countries’ relationship. Indeed, Taiwanese President Ma Ying-jeou has in recent years made a number of moves to increase economic ties to the mainland. In February, the two governments met officially for the first time since 1949. 

Yet these diplomatic overtures aside, many Taiwanese believe that the unequal terms of the cross-strait agreement make plain what Beijing is really up to: regional domination, in this case by exploiting Taiwan and manipulating its leaders. As such, there are few signs that the treaty will enter force anytime soon; much of the Taiwanese public staunchly opposes the deal, and a legislative impasse has prevented its ratification.

Taiwanese critics charge that Ma and his political party, the Kuomintang, negotiated the pact without any public input or legislative due process. In March, when Kuomintang legislators tried to rush the treaty through committee without debating its terms, several hundred students swarmed government offices, which they occupied for over three weeks. To prevent the protest from expanding into another government building, the government sent in riot police, injuring hundreds of demonstrators. A week later, nearly half a million Taiwanese marched on the presidential palace in Taipei to support what the students call the Sunflower Movement. The sit-in ended only when Wang Jin-pyng, the legislature’s speaker, promised to hold up approval of the trade deal until lawmakers were granted greater oversight over all Ma’s negotiations with China. Now, as the deadlock continues, opponents of the pact persist in advocating for new legislative and constitutional mechanisms to oversee agreements with China.

For economic reasons alone, it is not surprising that the Taiwanese public has demanded that its government freeze talks with China. The cross-strait agreement obligates Taiwan to permit direct Chinese investment in its service industries, at levels far beyond what it currently allows. That would seriously endanger the country’s economy, which is dominated by small- and medium-sized enterprises that are especially vulnerable to competition and acquisition from state-backed Chinese businesses. The displacement of Taiwan’s service industries would further burden Taiwan’s export-oriented economy, which has grown sluggish. Big manufacturers, including smartphone maker HTC and processed food producer Uni-President, have already migrated to China to take advantage of cheap labor. But many Taiwanese also have political concerns: China could use investments in Taiwan’s publishing industry as a propaganda platform, for example, and its security apparatus could infiltrate Taiwan’s telecommunications infrastructure.

The country’s major business associations, which are dominated by large enterprises closely connected to the Ma government, have either supported the trade deal or remained curiously silent. But these associations do not represent the interests of Taiwan’s small- and medium-sized businesses, which comprise 98 percent of the country’s businesses and employ 78 percent of its workers. In other words, those who would potentially be the most hurt by the deal were left out of the trade negotiations. To show support for the student demonstrators, the owners of these firms joined the march on the presidential palace in Taipei and donated food and other provisions to the student protesters.

The accord is also lopsided in terms of the limited concessions that Ma secured for Taiwan, which essentially add up to the limited liberalization of a few sectors of the Chinese economy in unattractive locales. For example, Taiwanese investors would be able to establish ecommerce ventures with Chinese partners in Fujian province. Yet China’s most important Internet companies, such as Alibaba, Sohu, and Taobao, operate not in Fujian but in Shanghai and Beijing, where most telecommunications business is conducted. Moreover, Chinese consumers would still not be able to shop on websites hosted in Taiwan, whereas Chinese companies would be able to reach Taiwanese consumers directly. The pact also left out basic protections -- such as an impartial arbiter to resolve disputes -- critical to ensuring that each country keeps its end of the bargain.

By and large, though, what Beijing has offered Taipei does not differ much from what it offers most foreign investors. China is notorious for selectively imposing restrictions on the operations and ownership structures of companies that foreigners invest in. This strategy helps party officials maintain authoritarian control and privilege favored Chinese businesses, particularly in the telecommunications, finance, and energy industries that China draws on to strengthen its national technology base and bolster its military and intelligence capabilities. So far, the approach has paid dividends: Chinese telecommunications equipment maker Hauwei, for example, has catapulted to global success as Google and Yahoo have been forced to scale down their operations on the mainland. 

Ma’s low approval ratings, which have dipped below ten percent in recent months, reflect Taiwanese dissatisfaction with his eagerness to trade with Beijing on Beijing’s terms. Many voters believe that he should instead be focusing on investing in education, infrastructure, and research. The country sorely needs it. Today, it has Asia’s second-highest youth unemployment rate -- 13 percent. Average monthly wages, meanwhile, have stagnated for over a decade and half. Taiwanese workers also dread a flood of immigrants from the mainland who would accept lower salaries and remain loyal to the communist regime in Beijing. 

HOSTILE TAKEOVER

Many in Taiwan fear that the cross-strait agreement, in addition to damaging the Taiwanese economy, could mark the beginning of a path toward political unification with China. This fear has reinforced Taiwan’s strengthened sense of national identity developed in the years since its transition to democracy in the early 1990s. The country’s 40-plus years of autocratic rule under the Kuomintang originally created political divisions between the ethnic Taiwanese majority and the mainlander minority, the émigré group that followed Chiang Kai-shek to Taiwan in 1949. These divisions did continue to influence politics after the presidency of Lee Teng-hui, Taiwan’s first freely elected leader in 1996. But survey data from recent years show that a majority of Taiwan’s citizens -- including the descendants of mainlanders, a community that traditionally considered themselves Chinese -- now oppose unification and consider themselves distinctly Taiwanese. Their identification with Taiwanese nationality has also increased steadily over the last two decades. This is true for Taiwanese citizens of all ethnicities, but especially for those between the ages 20 and 59 and those who have taken trips to China. 

It is in this context that the Sunflower Movement and other recent protests -- on issues ranging from nuclear power plants, environmental degradation, and media monopolies -- have brought together groups previously divided over the question of national identity. Third- and fourth- generation mainlanders, along with diehard supporters of de jure independence and small business owners, many of whom had hoped that closer economic ties with China would improve Taiwan’s economy, have all joined the student movement. They have come to accept the reality of Chinese economic power but squarely reject its brand of capitalism and its closed political system. And though they recognize that Taiwan cannot afford to totally cut off its economic relationship with China, they will continue to demand transparency from their government, insisting that it renegotiate or reject the terms of the cross-strait agreement. Before inking agreements of any kind with China, Ma ought to listen carefully to the Taiwanese public and remember that he serves in a democracy.

The weeks-long protest in Taiwan reflects a broader regional anxiety about Chinese assertiveness, particularly when it comes to the disputed oil- and gas-rich areas of the East China Sea and South China Sea. Recent Chinese moves have also stoked nationalist sentiments in Japan, the Philippines, and Vietnam. At stake is whether Beijing can continue getting away with playing by its own rules at the expense of the region’s democracies. 

Like many in Taiwan, the populations of these countries now view Beijing’s newfound assertiveness, whether in negotiating unfair trade agreements or in escalating territorial disputes, as an unwelcome intrusion on their national sovereignty. Trade agreements, in particular, are meant to establish a level playing field for all the economies involved, and they are most beneficial when both sides abide by transparent rules and regulations. In this case, China has rejected that basic premise. If the reaction in Taiwan is any indication, Beijing’s quest for regional hegemony may well face real limits.