Opinion: Cross-Strait Service Trade Agreement

The Cross-Strait Service Trade Agreement (CSSTA, formally known as 海峽兩岸服務貿易協議) is an article of the Economic Cooperation Framework Agreement (ECFA) between the Republic of China and the People's Republic of China. The ECFA is signed in order to undermine commercial barriers between the two territories. Members of the Taiwan independence movement have violently opposed the agreement, as they argue that the large economy of mainland China will eventually crush the economy of Taiwan. Such arguments have been largely unsupported but appealed to the growing resentment towards Taiwan's dependence on China. Ignoring the political implications of such an agreement, the ECFA had created 260,000 jobs and boosted economic growth by 1.7% in the year after it had gone into effect. While the estimates provided by the Taiwan Ministry of Finance might have been biased, it is undeniable that free trade had been, and has been in the present, beneficial to the overall economy in Taiwan. The protectionist arguments of the Taiwan independence movement have also been overthrown by the development of a comprehensive "Program to Assist Industries in Adjusting to Trade Liberalization," to which the Taiwan Ministry of Economic Affairs had given a total budget of NT$98.2 billion ($3.2 billion USD) between 2010 to 2019. However, all this benefit has been assessed from a macroeconomic perspective. The industries in which the program invested in are unrepresentative of local services such as barbershops. The reason why the CSSTA is mentioned in the beginning of this post is that the article, signed in 2013, had expanded the contents of ECFA to apply across all services, which puts tremendous stress on small business owners and the labor market. The microeconomic ramifications of the CSSTA are the main point of investigation in this post.

The CSSTA opened 64 sectors of the Taiwanese economy to Chinese investment and 80 sectors of the Chinese economy to Taiwanese investment. The service industry alone occupies 70% of the Taiwanese economy. Investment in the area would, therefore, boost Taiwan's overall economy significantly. However, services in Taiwan are provided on a far smaller scale than in China. According to the economic analysis of Taiwan conducted by the Heritage Foundation, small and medium-sized enterprises are the backbone of Taiwan's economic expansion. On the other hand, services are provided on a far larger scale in China, given the prominence of e-commerce and government investment in conglomerates in the industry. Investment in the small and medium-sized businesses in Taiwan would, therefore, allow Chinese industries to gain control over the businesses fairly easily. The inflation of services supported by Chinese investment would decrease the value of the individual worker in each of the smaller businesses, effectively combining the businesses into larger clusters that function more like a corporation under the support of Chinese investors. Eventually, this would allow Chinese investors to consolidate a major percentage of Taiwan's entire service industry.

But of course, all this is just projections. So far, the stagnation of Taiwan's economy has kept Chinese investors out of small businesses. The increasingly competitive Chinese investors (which is ironic because the People's Republic of China is ruled by the Communist Party) are reluctant to take the risk and invest in a collection of businesses that would likely not profit. However, the CSSTA has given the People's Republic of China greater control over the individual Taiwanese worker. It is reported by the Economist that one-tenth of working-age Taiwanese now live in mainland China. The shift in the labor market decreases the efficiency of the Taiwanese manufacturing industry. According to Los Angeles Times, more than 40% of Taiwanese exports and more than 70% of Taiwan's outbound investments go through China. 79% of those exports are low-value-added midstream components such as parts of shoes, clothes, and electronics. Those products are then assembled in China before they are exported, generating more profit for the Chinese manufacturing industry with low returns for Taiwanese manufacturers. The smaller industries in Taiwan are decreasing in size due to the shrinking labor market, making them more vulnerable to the exploitation of foreign markets. The free trade agreement, starting with the ECFA and reinforced by the CSSTA, is, therefore, undermining Taiwan's economic system from its very foundation -- the source of labor.