By Jieming Chu & Nicole White

Traditional medicine market in Taiwan, one of the local industries likely to be affected by the TISA. Source: Murdocke23’s flicker photostream, used under a creative commons license.

On June 21, mainland China and Taiwan signed a Trade in Services Agreement (TISA), promising to open up certain service sectors on either side of the Taiwan Strait to increase investment and trade. The TISA has triggered harsh criticism within Taiwan from the main opposition party, the Democratic Progressive Party (DPP), as well as from several legislators of the ruling Kuomingtang (KMT) party, and leading members of certain local industries. In response to vociferous demands, the Legislative Yuan has agreed to thoroughly scrutinize the TISA by reviewing each clause individually before a vote. The robust debate on the TISA demonstrates to the international community that Taiwan’s public and lawmakers are engaging in a serious discussion on a strategic decision that will impact the island’s future trajectory.

One point of contention lies in the TISA’s alleged negative economic implications on specific industries, including publishing, traditional Chinese medicine, and tourism. The publishing sector exerted strong pressure on President Ma Ying-jeou’s administration and successfully excluded itself from the TISA’s full liberalization efforts.  Opponents of the agreement argue that neither the Taiwanese government nor the island’s services industry is prepared to deal with the influx of mainland workers and businesses that are expected to come to the island. Considering that the TISA requires mainland investors to hire local Taiwanese workers, the DPP’s concern on job loss for Taiwanese blue collar workers is exaggerated and largely unsubstantiated.

It is important to acknowledge that the TISA, unlike the previously ratified Cross-Strait Economic Cooperation Framework Agreement (ECFA), is not a one-sided agreement full of good-will gestures and concessions from mainland China, but rather a set of bargains that aims to bring actual economic benefits to businesses in both the mainland and Taiwan. Under the agreement, the mainland will open 80 categories of services to Taiwanese investors and Taiwan will open 64 to mainland investors. This inevitably will introduce competition to local industries in Taiwan, particularly tourism and traditional medicine, which will have to compete with mainland rivals for market share. Although some industries will be impacted more negatively than others, the TISA is overall extremely important for expanding the scope and influence of Taiwan’s service sector in mainland China. After all, Taiwan’s service sector is significantly more advanced than the mainland’s and has a comparative advantage in industries such as beauty and hair salons.

Furthermore, the TISA is a vital step towards achieving Taiwan’s bi-partisan goal of joining more regional and international free trade agreements such as the Regional Comprehensive Economic Partnership (RCEP) and the Trans-Pacific Partnership (TPP). In order to participate in regional trade architectures, Taiwan’s economy requires further liberalization and reform. The TISA represents a genuine effort to open up the service sector and is an important indicator to foreign countries that Taiwan is ready to commit to greater levels of economic liberalization.

Taiwan’s internal debate about the TISA coincides with the 6^th round of China-South Korea FTA talks, bringing attention to Taiwan and South Korea’s competition for market share due to the similarity of their economic structures. Therefore, the earlier the TISA is ratified and implemented, the greater the advantage Taiwan will enjoy over South Korea, in the mainland Chinese market. The increased scale of Taiwan’s service industry after its entry into the mainland will also help it compete with other similar economies should Taiwan eventually enter larger multilateral free trade agreements. The experience and access Taiwanese firms will gain in the mainland’s service sector may also attract third parties to invest in Taiwan in order to use Taiwan as a base for launching business ventures in the mainland.

Opposition to increased economic integration with the mainland reflects the conflicting attitudes towards striking a balance between Taiwan’s goals for economic liberalization and political sovereignty. The surface-level political concern is over the lack of transparency; DPP politicians, along with some KMT lawmakers, fault the Ma administration for not sharing enough information with the Legislative Yuan or members of the affected business sectors throughout the TISA negotiation process. Although increased consultation could have helped garner public support initially, elected officials need to negotiate treaties in private and ratify them in public in order to have adequate negotiating space to settle on the most beneficial deal. Nevertheless, private negotiations only reinforce DPP suspicions that the KMT is striking secret deals with mainland China.

On a substantive level, the opposition is concerned that economic ties will inevitably influence political calculations. As demonstrated in Taiwan’s 2012 presidential elections, the Taiwanese expatriates in mainland China and their pro-mainland constituency played a significant role in securing Ma’s narrow victory. These expatriates, or Taishang, have strong incentives to vote for Beijing-friendly politicians in order to secure their economic interests in the mainland.

However, there is reason to believe that Beijing will not push Taipei into a corner in the foreseeable future. Xi Jinping’s administration will likely be internally focused on the multitude of pressing domestic issues and inclined to avoid the extra tension, especially when the cross-Strait relationship is at its best and still improving. A pragmatic Taiwan should take advantage of the mainland’s enormous market size to boost the welfare of its society. Efforts to avoid deeper economic integration with the mainland will undoubtedly exert high costs on Taiwan’s economy and could reverse the progress made so far to strengthen cross-Strait relations.

Mr. Jieming Chu is a researcher with the Freeman Chair in China Studies at CSIS. Ms. Nicole White is Research Assistant & Program Coordinator for the Freeman Chair in China Studies.