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Is the Services Agreement with China a Trojan Horse for Taiwan?

Taiwan-China relations are one of the best examples illustrating the insanity of international relations. Taiwan, a tiny island with its official name of Republic of China (ROC) had represented the Chinese mainland in the United Nations with veto power until 1971 when the General Assembly adopted the resolution 2758 recognizing the People’s Republic of China (China, or the PRC) as “the only legitimate representative of China to the United Nations”. In the multilateral trading system, the ROC was among the 23 founding Contracting Parties to the General Agreement on Tariffs and Trade (the GATT), but soon withdrew from the GATT after the Chinese civil war broke up and the ROC retreated to Taiwan in 1949. While Taiwan later applied for GATT observer status, this status was withdrawn as a consequence of the above mentioned 2758 resolution. Nonetheless, by virtue of the unique constitutional feature of the GATT/WTO system, Taiwan applied for the GATT and later WTO membership and acceded to the WTO in 2002 as a separate customs territory. Therefore, within the WTO, it turns out to be a unique situation where Taiwan and China (also Hong Kong and Macau) co-exist within the WTO.

At the domestic level, the political climate between Taiwan and China has significantly changed over the past decades, moving from hostility to reconciliation (or unification). The perception and definition of Taiwan-China relations is also subject to change. The former President Lee Teng-Hui defined the Taiwan-China relations as special State-to-State relationship while the current President Ma Ying-jeo defines the relations as One Country Two Areas. In line with this principle of One Country Two Areas, Ma has conducted negotiations and concluded a number of agreements with China since his victory of Presidential election in 2008. Among these agreements, the Economic Cooperation Framework Agreement (ECFA) and the Cross-Strait Agreement on Trade in Services (the Services Agreement) are of greatest importance; the latter leads to the occupation of legislature in Taiwan (referred to as Sunflower Movement; the occupations persists at the time of writing). The ECFA is an interim agreement leading to the formation of a free trade area between Taiwan and China and may find its legal basis in Article XXIV of the GATT 1994 (and Article V of the GATS) while the Services Agreement finds its legal basis in Article V of the GATS. The ECFA and the Services Agreement are unique in many ways.

Seen from the perspective of the WTO law, the ECFA and Services Agreement are (interim) FTAs leading to the formation of a free trade area concluded by two WTO Members. From the perspective of public international law, they are international agreement concluded by a sovereign state and an unrecognized state. However, seen from domestic law, given that China claims that Taiwan is part of China and that the current Taiwanese President, Ma, sees the Taiwan-China relations as ‘One Country, Two Areas’, the ECFA and Services Agreement are not ‘international’ agreement in terms of domestic law. Also, both Taiwan, due to the political ideology of Ma’s administration, and China choose not to internationalize the ECFA and the Services Agreement in the WTO context and thus resist from notifying the WTO with a view to avoiding the screening process under the Committee of Regional Trade Agreement (CRTA). However, such approach may risk of alienating the ECFA and Service Agreement from the multilateral framework. Such approach is especially reckless given that the dispute settlement mechanisms provided in the ECFA and Services are based on a mutually satisfactory agreement. As power asymmetry is a common drawback of bilateral negotiations, this mechanism by resolving dispute through a mutually satisfactory agreement would inevitably be dominated by power politics, power-oriented rather than rule-based.

Seen from the viewpoint of political economy, the ECFA and Services Agreement represent an opportunity of reconciliation and closer integration between Taiwan and China. At the same time, the ECFA and Services Agreement are agreements Taiwan concluded with a counterpart which asserts that Taiwan is an unalienable part of its territory and which is obliged under Anti-Secession Law to use force when Taiwan act under any name or by any means to cause the fact of Taiwan’s secession from China, or that major incidents entailing Taiwan’s secession from China should occur, or that possibilities for a peaceful reunification should be completely exhausted”. Therefore, in view of the threat of China, Taiwan’s negotiations with China have to be conducted in a prudent manner and the popular trust is indispensable for their support. Unfortunately, such prudence and trust is missing in current case, in particular in relation to the Services Agreement.

The recklessness of Taiwan’s negotiators can be seen both during the negotiation and the ratification phase of the Services Trade Agreement. During the negotiations processes, there was no impact assessment or feasibility study. Besides, the liberalization agenda is largely influenced by dominant industry sectors, such as financial services. By contrast, most affected industries have not been consulted. As a consequence, the negotiations are captured by powerful interest groups at the expense of vulnerable sectors. Furthermore, mechanisms for facilitating domestic affected industries to survive the transitory liberalization process are not in place. These combining factors lead to the wealth re-distribution in reverse and exacerbate the economic inequality. Finally, the passage of Services Agreement may worsen the hollowing-out trend of Taiwan’s economy since a large number of industries have migrated to China for cheap labor and low environmental standards. This trend results in the growing unemployment rate and decreasing salary in Taiwan, in particular for the younger generation.

In addition to social and economic impacts, the negotiations of Service Agreement have also posed a serious challenge to Taiwan’s young democracy. The congressional oversight of negotiation processes is not possible since the executive branch has persistently refused to disclose and provide any relevant information on the ground of confidentiality of negotiations. Even after the negotiations were done and when the Service Agreement enters into the stage of ratification, the executive branch still declines to disclose who is in charge of the negotiations. Even worse, as Taiwan’s current government does not define the Services Agreement as an ‘international’ agreement; the Executive Branch misleadingly asserts that Services Agreement is not subject to Congressional deliberation and ratification. While the executive branch subsequently gave in on limited ground owing to the occupation of legislature, it still maintains that the Services Agreement is not subject to modification or reservation and can be agreed in a package on ‘yes/no’ basis. The main argument of the executive branch is that doing otherwise would undermine Taiwan’s international reputation and prejudice Taiwan’s future FTA negotiations, in particular the Trans-Pacific Partnership Agreement. However, such argument is groundless for three reasons. Firstly, it is common sense that within democratic countries, an international agreement would have to undergone ratification process after the negotiations are done. Therefore, negotiating partners do envisage that an international agreement may fail to obtain sufficient congressional votes and thus unable to enter into force for some negotiating party. Secondly, the key to secure sufficient vote in the Congress for an international agreement to come into force is to inform the Congress in good time during the negotiation processes. Such practice is in line with the principle of democratic governance instead of blaming the Congress for its unwillingness to support the international agreement concerned. Finally, in contrast to high negotiation cost in multilateral negotiations to reach a compromise, thus making it extremely difficult for the Congress of an individual negotiating party to modify the agreement, such high negation cost is not present during the bilateral negotiations. On the contrary, it would be beneficial for both negotiating parties to go back and forth to re-open the negotiations in order to reach the optimal deal.

The outrage against the Service Agreement finally burst off when congressmen of the ruling party decided to send the agreement directly to plenary session after a 30 minutes’ meeting in the first reading procedure in the Congress. The combining effects of social and economic inequity, intergeneration injustice and democratic deficit led to the occupation of legislature by university students, supported by academics and non-governmental organizations. The occupation extended to the Cabinet’s office, which resulted in violent eviction. In response, a demonstration composing around 500,000 people was positioned on 30 March.

What is the implication of such occupation movement for Europeans? To begin with, I need not to remind European readers of the importance of Article 21(2) of the Treaty on European Union which speaks of the consolidation and support democracy, the rule of law and human rights. However, it is a pity that the EU has always been very cautious, if not over-cautious, when it comes to Taiwan-China relations. Compared to Arab Spring and Ukraine Revolution, the EU has paid far less, if any, attention to Taiwan’s occupation of legislature. The European External Relations Service (EEAS) has not issued any statement in support of Taiwan’s student movement or condemning the use of violence. Secondly, the trade dependence and conflicts between EU and China is nothing new. The European Commission in its Global Europe strategy states that due to the opportunities and challenges posed by China, the EU will not pursue FTA talks with China but opted for stand-alone bilateral investment agreement instead. In fact, the current BIT negotiations have been underway. Secondly, the EU has been negotiating with China with a view to modernizing its 1985 Economic and Trade Cooperation Agreement with China. Whether the EU is able to continue its practices in inserting human rights and democracy clauses in the EU-China Partnership and Cooperation Agreement remains to be seen. This would highly impact the EU’s image as a normative power. At this stage, I am not so optimistic about the end result of PCA negotiations.

And what can Taiwan and China learn from European experiences? At the outset, one has to be aware that the differences between European integration and Taiwan-China relations should not underestimated in that European integration are composed by democratic sovereign states and China is not a democratic country and does not recognize Taiwan as a sovereign counterpart. As I argue in my book WTO and the Greater China, European integration does contribute to peace and security in the European continent, the peace is democratic peace while the security is security with human right protection. Such conditions are not in place in the economic (or potentially political) integration between Taiwan and China. One point needs to be pointed here is that one of the main reasons for the movement against the Service Trade Agreement leading to the occupation of legislature is that the accelerating economic integration would eventually leads political unification.

That being said, to transplant European experiences into the context of Taiwan-China relations, one thing may be of great help. During the process of European integration, the European Court of Justice (now, the Court of Justice of the European Union) has played a key role. It helps to resolve the disputes between EU institutions and member states and contributes to the protection of fundamental freedom and human rights. In contrast to European design, the dispute settlement mechanism in the ECFA and the Services Agreement is based on mutually satisfactory agreement. Such thin form of dispute resolution will not be able offer sufficient protection both to contracting parties to the ECFA and Services Agreement and to their people.

To conclude, the New York Times, with a comic, describes the Services Agreement as a Trojan horse, whether this prediction is true is subject to debate and remains to be seen. Nonetheless, to dance with an elephant like China, it necessitates much prudence and great skills, which Taiwan’s negotiators desperately need.

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Chien-Huei Wu

Chien-Huei Wu

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