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Anti-Services Pact Furor

What Should Taiwan Do Next?


What Should Taiwan Do Next?


How can Taiwan find a solution for cross-strait contacts that guarantees economic benefits, democracy and national security? Here are three steps Taiwan needs to take to rebuild the public's trust in the government.



What Should Taiwan Do Next?

By Yi-Shan Chen, Shu-ren Koo
From CommonWealth Magazine (vol. 544 )

Trade pacts tend to spark controversy between those who stand to gain from them and those who feel vulnerable. Not just in Taiwan.

"Members of President Lee Myung-bak's governing party, coughing from tear gas sprayed by an opposition legislator, rammed a free-trade agreement between South Korea and the United States through Parliament on Tuesday," the New York Times wrote on Nov. 22, 2011.

Yet this tumultuous scene did not ring the death knell for trade liberalization in South Korea. In early March of 2014, South Korea and Canada signed a free trade agreement, and Seoul is slated to finalize trade negotiations with China later this year.

How March 2014 in Taiwan will go down in history depends on whether the ruling and the opposition parties will be able to solve the standoff over the Cross-Strait Agreement on Trade in Services (CATS), and whether they will be able to identify the crux of the problem – why the trade pact has mobilized such massive protest across society.

"It has never been a problem of signing or not signing the Trade in Services Agreement, but how to sign it," says Chen Tain-Jy, economics professor at National Taiwan University and former chairman of the Council for Economic Planning and Development (CEPD). "Taiwan should establish a mechanism for trade negotiations."

China has two faces - it is a lucrative market and a formidable potential enemy, causing the Taiwanese to be torn between hope and fear. Cross-strait negotiations can never be about economics alone, but must follow statutory procedures and canvass a broad spectrum of opinions before Taiwan can arrive at a bottom-line solution to cross-strait exchanges that assures economic benefits, political democracy and national security.

Greater Emphasis on National Security Considerations

"The biggest problem with the Trade in Services Agreement is that national security concerns have not been taken into account," says Chang Jung-feng, division director at the Chung-Hua Institution for Economic Research (CIER) and a former negotiator for Taiwan's accession to the World Trade Organization (WTO). Chang speaks frankly about the risks involved: "Opening up the services sector is not the same as the import and export of goods. The Trade in Services Agreement would allow Chinese to come to Taiwan to establish a presence for doing business. But behind many Chinese companies is the Chinese Communist Party, and China is a country with territorial ambitions toward Taiwan."

President Ma Ying-jeou and his government often dismiss opposition to the Trade in Services Agreement as motivated by blanket rejection of anything Chinese. "China has never regarded the Republic of China as a normal country. Treating China as an ordinary country is what's abnormal," posits one media observer.

A closer look at the Annexes of the trade pact, which contain both sides' commitments on the opening of specific service sectors, show that it would be unfair to claim that the negotiators did not pay heed to the national security risks involved.

For fifteen of the 64 sectors that Taiwan has pledged to open under the agreement, such as printing, online services, hospitals, travel agencies and banking, certain restrictions apply: Chinese investors cannot take a majority stake or a controlling stake in a Taiwanese company, and the number of Chinese companies investing in a single sector is regulated too.

"Without a controlling interest you cannot appoint managers or important executives," remarks Economics Minister Chang Chia-juch, trying to allay fears over growing Chinese influence in Taiwanese boardrooms.

Lee Roy Chun, deputy director of CIER's Taiwan WTO and RTA Center, a think tank for the Ministry of Economic Affairs (MOEA), believes that clear risk assessment is necessary regarding Chinese investment in Taiwan: "It is about the probability of national security risks and whether we can control them. It is not about whether there are any risks at all."

The ability to control the risk of Chinese influence is exactly where Taiwanese society does not trust its government.

"That the ownership ratio cannot exceed 50 percent, that's deceptive. We who are in business know all too well that you can easily find a ruse to solve this problem. So figuring out how to exert control is what's most important," stated J. P. Tseng, chairman of International Ocean Freight Forwarders & Logistics, in no uncertain terms as his thundering voice rolled over a public hearing at the Legislative Yuan last September. Tseng's enterprise is doing much of its business in the Greater China region.

Tiny Group of Ten Screening Chinese Investment

Within the giant machinery of government, there is only one unit screening Chinese investments – the 4th Division of the Investment Commission under the MOEA. The division's staff of just ten people is responsible for a wide array of tasks including handling applications by Chinese companies for investing in Taiwan and examining the state of applicants' business operations.

The most important regulatory basis for their work is Article 8 of the Measures Governing Investment Permits to the People of Mainland Area. It allows the Taiwanese government to restrict, prohibit or even revoke or terminate investment by Chinese investors if they: hold a monopoly market position; play a politically, socially or culturally sensitive role; could impact national security; or could negatively affect domestic economic development or financial stability.

The commission's spokesperson Chu Ping points out that many people worry Chinese investors could run bookstores as fully owned companies, and then attempt to influence public opinion. However, as Chu explains, the bookstore sector was opened up four years ago, and the Commission has already rejected the applications of two large Chinese bookstore chains.

But opponents of the Trade in Services Agreement can't help wondering, if the officials who screen Chinese investments in Taiwan believe that Chinese retailers could adversely impact Taiwan's domestic market and therefore block them, why has this sensitive area been listed in the CATS among the service sectors to be opened up?

Step One: Empowering the National Security and Mainland Affairs Councils

CIER's Chang observes that the Ma administration's biggest problem in negotiations with China is that the National Security system and the Mainland Affairs Council have become dysfunctional. As a former WTO negotiator, Chang notes that training in the economics and trade system naturally predisposes a person to emphasize economic interests. The task of the National Security Council, however, is to safeguard overall national interest and put it above economic benefits.

A veteran trade official who did not want to be named notes that the current cross-strait decision-making mechanism does not differ at all from that used by Ma's predecessors Lee Teng-hui and Chen Shui-bian. The current president is even ready to commit more resources. "In terms of the mechanism's hierarchical level, we don't have a problem, the point is that policy orientation and the international environment have changed. Formerly we had 'No Haste, Be Patient,' and 'Effective Management' (as the guiding principles of cross-strait policy), now it's about easing cross-strait tension and expanding our international participation," the official remarks.

For a long time the National Security Council, the Mainland Affairs Council and the MOEA have maintained a mutual relationship characterized by "constructive tension."

But in the CATS negotiations, the National Security Council was represented by its former deputy secretary general John C.C. Deng, who is a career bureaucrat at the Bureau of Foreign Trade. At the Mainland Affairs Council, career civil servants such as Fu Don-cheng and Liu Te-shun, who were around under former President Lee Teng-hui when the "No Haste, Be Patient" policy was in place and are well trained in risk management, have already retired or resigned from their posts. The council's current minister Wang Yu-chi should have personally visited Legislative Yuan president Wang Jin-pyng before the CATS was signed, but he failed to do so.

"Seeing that the trade-in-services pact has been mishandled like this, the person who should step down more than anyone else is Wang Yu-chi," says Ho Pei-shan, deputy executive director of the Policy Research and Coordinating Committee of the major opposition Democratic Progressive Party (DPP).

In late January, Wang announced at his annual Lunar New Year press conference that the Mainland Affairs Council would launch a two-step national security review mechanism for cross-strait agreements. Agreements would first be sent to the Executive Yuan and then be put before the expert members of the National Security Council. The attending reporters looked at each other in shock and disbelief, wondering whether Wu's statement meant that cross-strait agreements had not undergone a national security review in the past.

In fact, the Mainland Affairs Council itself has cross-governmental review functions, as 18 of the Mainland Affairs Council's members are cabinet ministers, and the deputy secretary-generals of the Presidential Office, the Executive Yuan and the National Security Council as well as the heads of the Military Intelligence Bureau and the Criminal Investigation Bureau serve as its consultants.

The trade agreement controversy has rung an alarm bell, signaling that cross-strait exchanges are about to enter deep waters.

As interactions with China become increasingly political in nature, Taiwan's administrative apparatus must, as a first step, expand the scope of its advisory and decision-making operations to include the research and examination of issues beyond the realm of economics, and to take account of dissenting opinions, if it is to be capable of truly assessing the overall impact of cross-strait trade liberalization on Taiwan.

Step Two: Legislating Cross-strait Negotiation Procedures

In 2011 South Korea paid a price for concluding its free trade agreement with the United States, in the form of a tear gas attack in parliament. Consequently, Park Geun-hye, who ran for president at the time, urged for the legislation of procedures for the conclusion and implementation of trade pacts in her campaign platform.

Liou To-hai, professor of diplomacy at National Chengchi University, believes this demonstrated that Park's political party had a commitment to transparency in handling free trade agreements. This stance became one of the major reasons she won the presidency. The law also smoothly resolved confrontation between the ruling and the opposition parties so that South Korea was able to continue to walk further down the road of trade liberalization.

When controversy erupted in Taiwan over the CATS last June, the Executive Yuan tried to limit the damage by hurriedly issuing an administrative order titled Guidelines Governing Negotiation, Consultation and Communication of Economic Cooperation Agreements. President Ma on March 29 eventually agreed to look into the legislation of "cross-strait agreement negotiations." The Mainland Affairs Council is supposed to present the government's version in the first week of April.

Chiou Wen-tsong, assistant research fellow with the Institutum Jurisprudentiae of Academia Sinica, has drafted a "Law on the Conclusion of Cross-strait Agreements" on behalf of civic groups. Chiou points out that under the current system there is no legal basis for parliamentary oversight before and after the signing of trade agreements. Without relevant legislation no one knows how to go about reviewing such pacts.

"Originally, the Legislative Yuan was planning to solve the problem through negotiations between the ruling and the opposition parties. But the ruling Kuomintang (KMT) does not have a good track record when it comes to honoring such negotiations, so why should the electorate still trust it?" Chiou asks rhetorically.

Currently, the legislature is gradually building consensus across party lines. KMT lawmaker Chiang Chi-chen, who submitted the draft Act on the Conclusion of Treaties in February, believes that the ruling and the opposition parties must acknowledge that past negotiation processes were not regulated by law at all and that it was therefore easy for the different parties to have their own takes on the story. A relevant law should be passed as soon as possible to guarantee adequate parliamentary involvement before and during treaty negotiations.

The next challenge members of civil society and the political parties face is how to formulate relevant laws and regulations so that they are in line with the state of the nation and still work, because Taiwan is, after all, not the United States or South Korea. Do the Taiwanese place greater trust in their legislature than in the Executive Yuan? How can a balance be struck between the executive branch, the legislative branch, Taiwan's special international status and the realities of negotiations? All these issues require further discussion.

Through the often cited Trade Promotion Authority legislation, the U.S. Congress defines negotiating objectives, oversight and consultation procedures for trade negotiations and fast-track procedures for the passage of trade agreements. The U.S. government can only negotiate if it has been granted trade promotion authority by Congress. Still, the United States is the only country using this approach, because under the U.S. Constitution trade policy and trade negotiations are elements of congressional authority.

In South Korea, which has a semi-presidential system like Taiwan, foreign policy and trade pacts are under the authority of the Executive branch, while parliament is clearly in a weaker position.

Presently more than 100 academics have signed a signature campaign in support of the draft legislation submitted by the civic groups Taiwan Democracy Watch, the Democratic Front Against Cross-Strait Trade in Services Agreement and the Taiwan Association for Human Rights, hailing it as a successful merger of the South Korean and American approaches while adopting high standards.

The draft bill demands that the Executive Yuan report first to the legislature before launching negotiations. Should the negotiations pertain to military, political or territorial issues, the government needs to win the consent of two thirds of the legislators before it can negotiate. When the negotiations conclude, but the agreement has not yet been signed, the full text of the draft agreement must be made public and an overall impact assessment report must be submitted to the Legislative Yuan.

If members of civil society submit a differing assessment, the Legislative Yuan should be enabled to hold public hearings to clarify factual disputes and evaluate whether a resumption of the negotiations should be demanded. "Of course, if there are factual disputes, these must be addressed. You cannot wait until the treaty has been signed," argues Chiou. "The hearing procedure will be unnecessary if the government does a good job with the impact assessment and if there are no factual disputes," Chiou explains further.

The problem is that when negotiating international agreements with other countries, it may not be possible to reveal their contents to the public, or even submit them for review in governmental hearings.

For example, when Taiwan and New Zealand were negotiating their free trade agreement last year, both sides simultaneously reported to their respective legislatures two weeks before it was to be signed, explaining the outcome of negotiations. But the announcement of the treaty text was strictly prohibited.

Step Three: Rebuild Mutual Trust

In cross-strait relations there are no purely economic issues. Without mutual trust, any legislation will only become a tool for litigation, obstruction and mutual suspicion. If the student protesters and the political parties do not trust each other, if they do not believe that the other side is fighting for the interests of this country just like themselves, then a law will not take Taiwan any step further.

Together with the late former South African president Nelson Mandela and Bishop Desmond Tutu, Albie Sachs, a former judge on the Constitutional Court of South Africa, played a key role in promoting forgiveness and reconciliation after the end of the racist Apartheid regime. When visiting Taiwan late last year, Sachs expressed in an interview that he hoped the people of Taiwan, particularly intellectuals, would be more proactive and positive instead of dogmatically clinging to the established opinion that there are only two choices: either be annexed, or be antagonistic. He urged the people not to give up searching for a dignified way to seek organic contacts and mutually beneficial ties with China.

Sachs emphatically called on the Taiwanese to start trying to be more imaginative, and to think innovatively.

As cross-strait relations are treading treacherous waters, national security must be taken into consideration on top of economic issues. Before procedures for cross-strait agreements can be written into law, further discussion is necessary to dispel the controversy. We need to rebuild mutual trust in society and find common ground on cross-strait relations from among the many different opinions. China will always be a factor in Taiwan's political landscape. If we do not think outside of the box to be able to take our next step, that will be the sadness of Taiwan.  

Translated from the Chinese by Susanne Ganz