Potential Economic Sanctions from Mainland China, Is Taiwan Prepared？
Commercial Times Editorial, December 16, 2023
Results of the trade barrier investigation by mainland China, initially scheduled for release on January 12 next year, were unexpectedly disclosed ahead of time on December 15, leaving Taiwan in speculation and commotion. While our government denounces this move by the mainland, citing political motives, it also asserts that their investigation doesn't align with facts, and Taiwan categorically rejects it. The ruling Democratic Progressive Party (DPP) consistently criticizes the mainland, claiming it aims to intimidate Taiwan's economic voters. However, regardless of these criticisms, a fundamental question remains unanswered: Is Taiwan prepared for economic sanctions from the mainland?
Examining mainland China's conclusions from the trade barrier investigation, several key points emerge. First is their comprehensive review of laws and attempt for international appeal. China not only inventoried relevant regulations and provisions restricting the import of mainland Chinese products into Taiwan since 1992 but also provided data illustrating a trend in Taiwan's expanding restrictions on mainland Chinese products. Additionally, they invoked General Agreement on Tariffs and Trade (GATT) and World Trade Organization (WTO) reports to assert that Taiwan indeed imposes unilateral import measures against the mainland. Therefore, this can be seen as a comprehensive legal review, internationally declaring Taiwan's longstanding unfair trade practices towards the mainland.
Second, a comprehensive review of cross-strait trade has been undertaken. In the past, mainland China's similar trade barriers or anti-dumping investigations against Taiwan often focused on individual items or a limited number of products with similar characteristics, with the scope usually not extending too broadly. In this report, the mainland, using data as evidence, points out that since both sides joined the WTO, the mainland’s trade deficit with Taiwan has surged by 397 percent, expanding from $31.49 billion in 2002 to $156.5 billion in 2022. This is presented as strong evidence that Taiwan has persistently restricted the import of mainland products.
Finally, mainland China accuses Taiwan of violating WTO regulations while failing to fulfill the obligation outlined in Article 2 of the Economic Cooperation Framework Agreement (ECFA), which requires the "progressive reduction or elimination of tariffs and non-tariff barriers on the substantial majority of goods traded between the two sides." In other words, it emphasizes Taiwan’s unilateral benefiting from ECFA while remaining reluctant to fulfill its corresponding obligations, portraying an agreement breach.
These three focal points can be seen as a prelude to mainland China imposing trade sanctions on Taiwan. According to mainland Chinese regulations, responses to trade barriers may involve bilateral negotiations, initiating multilateral dispute resolution mechanisms, or adopting other appropriate measures. While the mainland insists that cross-strait negotiations must be based on a common political foundation, the Taiwanese government maintains that this issue should be addressed through multilateral dispute resolution mechanisms, specifically within the WTO framework. Due to the firm stances on both sides and the unlikelihood of Taiwan expanding imports from the mainland in the short term, China’s only available recourse seems to be economic and trade sanctions against Taiwan.
Generally, if mainland China adopts reciprocal sanctions—prohibiting the export of the same 2,509 items that Taiwan exports to the mainland—it may not significantly impact Taiwan's overall exports, but it could still affect related industries, especially agriculture. If the mainland targets the ECFA "early harvest" list, which accounted for 4.3 percent of Taiwan's exports to them in 2022, it would undoubtedly impact the survival of related small and medium-sized enterprises and traditional industries. However, the overall impact appears to be within a manageable range. Yet, if the mainland expands sanctions to high-value products not covered in the investigation, initiating tariffs or import restrictions, such measures could indeed stir up an economic and trade storm in Taiwan.
The DPP administration has consistently argued that cross-strait disputes must undergo consultation following WTO procedures. If consultation fails, the matter should then be referred to the WTO court for a similar determination. Only if Taiwan fails to implement a WTO judgment can mainland China legally take subsequent actions. However, this argument remains theoretical. Since 2019, a lack of judges has rendered the WTO dispute settlement mechanism paralyzed. Moreover, the fact that Taiwan has legal barriers restricting the import of mainland products is well known. Therefore, resorting to international procedures is merely a delaying tactic and does not help resolve potential trade sanctions from the mainland against Taiwan.
Some argue the reason that mainland China can effectively wield economic and trade tools against Taiwan’s favor is mainly because of a high degree of economic interdependence. Despite Taiwan's efforts, such as the New Southbound Policy introduced in 2016, to reduce economic dependence on the mainland, China remains Taiwan's primary economic and trade partner.
Due to this, any economic and trade measures by mainland China significantly impact Taiwan. Even though some even claim that Taiwan's exports to the mainland prove China's need for Taiwan, such arguments, ignoring the principles of comparative advantage, merely reflect the inadequacy and powerlessness of the Taiwanese government in handling cross-strait economic and trade issues. It's essential to recognize that with the rapid development of mainland Chinese industries, except for a few high-end technological products, the demand for Taiwanese products in the mainland is decreasing. These factors, combined with the potential market incentives for Taiwanese business people and global enterprises, show that Taiwan is unlikely to escape its dependence on the mainland in the short term.
During the administration of President Ma Ying-jeou from 2008 to 2016, scholars criticized the economic dependence of Taiwan on the Chinese mainland, citing reasons such as the large and dynamic economic scale of China, internal structural imbalances in Taiwan's industries, the mainland’s employing free trade agreements (FTAs) to encircle Taiwan, and the failure of the Ma administration to reverse these trends through policy. However, after a change in political leadership with the DPP in power, not only did these circumstances fail to improve but the DPP’s actively pushing for economic and trade decoupling with the mainland has plunged Taiwan into a political and economic deadlock.
While mainland China recognizes trade barriers imposed by Taiwan, they haven't disclosed any sanctions, indicating a willingness to chances for dialogues open. Generally speaking, the possibility of a full-scale military conflict across the strait is not high. However, as repeatedly emphasized in this editorial, if the mainland were to implement economic and trade sanctions against Taiwan, this would impact Taiwan's economy and signify an increased risk of political confrontation in the Taiwan Strait! Is Taiwan really prepared for all of this?
From: https://www.chinatimes.com/opinion/20231216000142-262113