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Richard Bush:

Take a Chance on Service Pact

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Take a Chance on Service Pact

Source:CW

In this exclusive interview, the former American diplomatic representative to Taiwan considers the delicate balance of cross-strait affairs,Taiwan's enduring relationship with the United States, and the road to future competitiveness.

Take a Chance on Service Pact

By Chia-lun Huang
From CommonWealth Magazine (vol. 545 )

Richard Bush, formerly the managing director of the American Institute in Taiwan and currently thedirector of the Center for East Asia Policy Studies at the Brookings Institute, is a scholar with extensive practical experience and an authoritative voice on Taiwan-China-US relations.During his recent trip to Taiwan, he not only paid a visit to President Ma Ying-jeou, but also took time to speak with CommonWealth Magazine,urging Taiwan to stay strong and accept the challenge of trade liberalization.

Following are highlights from this exclusive interview.


Could you share with us the progress on TPP (Trans-Pacific Partnership)?

Itseems pretty clear now that the TPA (Trade Promotion Authority) is not going to be passed before the Novemberelection. I think there is not strong enough support, particularly among the Democrats, that this is worth doing for now.

So TPP negotiationswill not likely be completed this year?

Other TPP countries could be forgiven if they say, we are not going to make our final hardest concession, because the US doesn't have TPA. If they make their hardest concession without the administration getting the TPA, they are exposing themselves to post-TPA demands that reflect pressure and concession that Obama has to make with key members of congress in order to get their support for TPA. Hence most countries would just defer, especially since this is not the easiest trade agreement that has been tried.

What is the implication for Taiwan?

Well, I think the most important thing Taiwan can do is to start getting ready internally, such aslooking into outdated regulation that would have to be set aside or abandoned for TPP. If that work is underway, that could be a good signal. I think working hard with the US on a bilateral investment agreement would be outstanding, because investment is a key element of TPP, and if you have already done a good investment agreement under TIFA (the Taiwan-U.S. Trade and Investment Framework Agreement), then Taiwan is moving ahead of the game. I think that creating a stronger confidence among other trading partners that Taiwan can actually ratify and implement the trade agreements it negotiates is also very important.

How would you interpret the recent protests in Taiwan about the Cross-strait Agreement on Trade in Services?

First of all, I think nobody can dispute that there is a general fear of growing engagement with China. Second, there is also a danger in Taiwan being marginalized in terms of the economic liberalization effort in the Asian region. It has been marginalized in recent decade, and China is responsible for that. It means that Taiwan doesn't gain the market access advantages that other countries do.

This is a dilemma. If you stop liberalization with China, then marginalization will increase. So if avoiding marginalization is one of Taiwan's objectives and is part of maintaining Taiwan's competitiveness and prosperity, then you have to strike a balance between the risks of marginalization and the risk of dependence on China. It's devilishly hard to do. The benefits of trade agreements are not always easy to understand. Often the benefits are long term and generalized, but the cost is immediate and specific, with certain sectors in a more vulnerable position.

I would stress that Taiwan faces really difficult dilemmas, with no single right answer to how to address them. Any strategy any leader has for addressing these dilemmas is not so easy to convey, in the kind of media environment and in ways that the various audiences and stakeholder can or will appreciate. A DPP president will face the same problem.

Most democratic societies have similar problems with their political systems, including the US: the fragmentation of media voices, polarization and politicization. Any democratic leader trying to make the case for trade liberalization in a difficult situation like Taiwan faces is going to have difficulties. The temptation to just deny that the dilemma exists is understandable, but denial isn't a good option.

Denial?

An example of denial is the idea of doing liberalization with other trading partners first, instead of liberalizing with China first. I am not sure that is realistic. I believe that the US in principle would take Taiwan's desire to enter TPP seriously if it is clearly committed to removing protectionist barriers. But I am not sure other countries would be so courageous. We may not be so subject to political pressure from China, but since TPP is a multilateral venture, there are other points of influence and pressure that China will have.

There is public fear about opening up to China and letting them leverage control over Taiwanese society. Do you think that worry is valid?

I think Taiwan society is more resilient than some people think. Liberalization does require a difficult transition, in which some sectors will lose out, but the net effect will be to increase competitiveness. This is worth doing for its own sake, even if it results in a closer economic relationship with China. It's just what any economy in Taiwan's position in the global economy has to do, and opening up is one way to help stimulate that.

Taiwan is not the only place that has fears about the consequences of globalization and the consequences of rapid technological change and economic dependence. Granted, Taiwan is in a unique position, so it probably has to be especially careful and smart on how it goes about engaging the mainland.

Liberalization and interdependence with just the mainland has its risks, and a more protectionist approach has its risk as well. Finding the right balance is difficult, but I think part of the balance is pursuing liberalization in several different directions at once, and catching up with liberalization with other trading partners, and then taking steps internally to increase Taiwan's capacity to seize opportunities and meet challenges.

So do you think the Trade Services Agreement is good for Taiwan?

I think Taiwan should take a chance on it.

What are some steps that Taiwan could take internally to increase its competitiveness?

The first has to do with the education system. There are too many universities on this island, too many university spaces, and perhaps too many students with a certain kind of education. This has created an imbalance in supply and demand of skills. If you have graduates with only certain kinds of skills, then young people are going to be afraid of not getting a job.

Second is creating the right policies and institutions to make Taiwan more of a knowledge-based economy. And education is an important part of that, because you want people with the skills for an innovation economy, not the old economy. External trade liberalization can help, because it accelerates the move away from inefficient industries and toward those that thrive in an innovation economy.

Third, I think energy is another area where some choices have to be made. There are risks and consequences with any kind of energy sources that make up a country's energy mix, and there are costs and benefits that have to be weighed.But a prolonged debate over what the mix should be is probably not in the best interestsof the country.

This year marks the 35th anniversary of the Taiwan Relations Act (TRA), but there have been talks of abandoning Taiwan for better China relations. What's your observation?

This idea that the US might abandon Taiwan in order to have better relations with China has been around for a long time, and it surfaces in different ways and different times, but it really is a non-mainstream view. It is not the view of the American policy community, both inside and outside the government.

We are not in an era where, even if we did sacrifice Taiwan, we would have good relations with China. That's because we have many other problems. So it's in a way naïve to think that all these problems would go away if we conceded on Taiwan. At the time TRA was enacted, it reflected a strong political commitment and support for Taiwan, and that political commitment has been renewed and still remains strong.

What do you think of unification?

I think it all depends on the conditions and terms. It is clear that "one country, two systems" is not a basis for the two sides of the Strait to resolve the long-running dispute between them. The Taiwan public demonstrated this clearly enough, and not just in the last few weeks. The skepticism here about China is real, and China is gradually learning that this skepticism is real and can't be changed. I am not sure what the answer is, and it is really up to the mainland to creatively come up with an approach that might have some market here. I just know what won't work.In my view, a closer economic relationship doesn't necessarily create a slippery slope to unification, and the sentiments we've seen in the last couple of weeks are in part a resistance to any kind of reunification on China's terms.

There is a need for good public policy that would form a firebreak against an easy transition from economic dependence to political concessions. One also has to ask if political attitudes in Taiwan are sophisticated enough to say yes to certain aspects of relations with China and no to others. Whatever scenario plays out, the question Taiwan should ask is if it can strengthen itself and make it more resistant to that kind of pressure.

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