Students are not doing goods for Taiwan’s economy

Thousands of protestors have gathered outside Taiwan’s parliament building for more than 10 days because the trade in service agreement (TISA) about to be reached between China and Taiwan. On March 17, 2014, numbers of student activists crashed into the building and took over the building for days.

 

So what is service trade agreement all about? The TISA promotes trade in the service sector, reduces significant amount of tariffs on various products, and increases foreign direct investment. In fact, the TISA favors Taiwan more because China open up to 80 sectors for Taiwan, but Taiwan repays 64 only.

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Trade is always good as a whole. Countries wound not trade if the countries lose more than they gain. Especially for two very different regions between China and Taiwan, the resource allocation is very different. Taiwan is relative rich, and is much better at producing high value added goods and services. For example, Taiwan has one of the most developed beauty and hair salon industry in the world. On the other hand, China has comparative advantage in producing raw material and industrial products, these two kinds of products accounted for more than 60% of the exporting good to Taiwan. Trade happens between China and Taiwan is a classic example of Heckshcer-Ohlin type of trade. According to the model, Taiwan which is abundant at capital intensive goods will export capital intensive goods to China, for example, computer chips. And in the situation of Heckshcer-Ohlin model, small regions like Taiwan would gain tremendous benefits from the world’s largest population.

Nowadays, the services sector is the world’s largest employer. More than 70% of the global GDP are contributed by services. Last year, services sector in China just surpassed the industry sector, but is still lower than the world wide average. Therefore, China’s strong demand for service will be a temptation to anyone. To make TISA much better, Taiwan does not allow immigration or non-residential citizen work in Taiwan. As a result, Taiwanese does not have to worry about the cheap labor influx from China to lower down their wages.

 

Students are the main force protesting the TISA. Many students are worried that FDI from China would increase competition and force many companies out of business. They are concerned that they could not find a job when they graduated. Meanwhile, students are criticizing parliament because they think the approval process is not transparent and illegal.

Should students worried about their employment in the future? Yes, but not for the sake of TISA because TISA would bring more job opportunity because firms from China could only hire local citizens. And job creations brought by Chinese firm and local firms expansion will outweigh job destructions from inefficient small local businesses. What’s more, stronger competitions would require companies to lower down prices of their goods. Alternatively, Taiwan could import more cheap raw and intermediate material, and export back with high value added final goods.

Perhaps democracy and transparency issue is more relevant in their request. However, in today’s world, politics problems should not be attached to economic developments. Politics and business are considered to be mutually exclusive in many other countries.

Overall, TISA is more of a favor to Taiwan because TISA would boost up Taiwanese’ economy to a new high level. TISA is the key to open up the world’s second largest economy, and provides more job opportunity for Taiwanese students. Regardless of the political issues, Taiwan should have signed the agreement as soon as possible in case China regrets.

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Reference

http://www.reuters.com/article/2014/03/29/us-taiwan-protest-idUSBREA2S08820140329

http://www.abc.net.au/news/2014-03-30/an-taiwan-protest-over-china-trade-pact-won27t-deter-ma-xi-mee/5354570

http://www.economist.com/news/asia/21599807-students-occupy-taiwans-legislature-protest-against-free-trade-pact-china-manning

http://countryreport.mofcom.gov.cn/record/view.asp?news_id=38266

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