- - Tuesday, April 1, 2014

One of the most peculiar exercises of democracy in history has been unfolding over the past two weeks in Taiwan — a country known for its quirky politics.

Thousands of demonstrators took over the Taiwanese parliament building on March 18 to forestall the ruling party from passing a trade-in-services agreement with China that threatens to integrate the island’s economy with China‘s. They are still there.

It is peculiar for three reasons: First, it’s the first time in democratic Asia that a parliament building has been taken over by peaceful protesters without a coup, junta or tank in sight. Second, the demonstrators have the tacit approval of most parliamentarians themselves. Third, the U.S. State Department seems to be enjoying the spectacle.

The department’s official spokesman noted in a routine diplomatic briefing, “Well, we certainly support Taiwan’s vibrant democracy, which allows for this kind of robust political dialogue on a range of issues,” not a typical U.S. reaction to a mob takeover of a functioning legislative process.

The Taiwanese activists also learned useful lessons from Ukraine. Taiwan is America’s 11th-largest trading partner and sixth-largest market for U.S. farm goods. Taiwan’s economy is on the verge of being absorbed by China’s and is now struggling to avoid that fate.

There are similarities with Ukraine, where protesters are struggling to avoid being absorbed by Russia and to strengthen ties with the democracies of the European Union.

Poor Ukraine only ranks as No. 70 on the list of U.S. trading partners. Russia, in fact, is Ukraine’s largest market, but strong pro-Russian politicians maneuvered to forestall a European embrace by scuttling a EU partnership with a hammerlock dependence on Russia. The results in Ukraine, however, have not been pretty.

Likewise, strong pro-China political forces in Taiwan seek to lock the longtime pro-American island into China’s economic sphere and sever its security relationships with the United States and democratic Asia. Like Ukrainian voters, most of Taiwan’s voters — about 70 percent — think their country is already far too entwined with a giant neighbor. Huge popular sentiment in Taiwan supports the demonstrators and opposes the unionists.

Today’s Taiwanese are far more aware of the lack of support they have in Washington than Ukrainians are. That hasn’t deterred them, though, from thinking of ways to avoid joining Hong Kong and Macau as just another “special administrative region” of China.

“When Taiwan’s vocally pro-China ruling Chinese Nationalist Party tried to ram a new Trade in Services Agreement with China through Taiwan’s parliament on March 17, even the Nationalist Party’s own legislators had second thoughts. Alas, they were under strict legislative whip discipline and did not dare vote ‘no.’” The only way left to derail the agreement was to short-circuit the parliamentary process entirely.

The Trade in Services Agreement will not benefit Taiwan’s services exports. Instead, there is a potential that it will be used by China as a backdoor into the U.S. market unless rules of origin are very tight. The integration of the Taiwanese and Chinese economies may make it more complicated for Taiwan to achieve workable new free-trade agreements with its Pacific partners, not less.

Taiwan literally is a “nation of shopkeepers.” About 2.4 million of its 6 million workers are employed in Taiwan’s 1 million shops and services. Taiwan’s domestic services sector is diffuse and varied; local retail, printing, e-commerce, logistics, mass transport, taxis, even undertakers, are in vibrant and dynamic competition. China’s services sector is far more centralized, and restricted by government regulation and licensing.

In general, Taiwanese businesses already have far more access to China’s services sectors than any other foreign investors. Of course, Taiwanese investors in China do not have the same protections from arbitrary law enforcement, regulations and contract disputes as investors from other countries, which have embassies. Chinese investors in Taiwan’s services would be functioning in a modern democracy with an established rule of law and contracts.

Most of the agreement’s market openings are restricted to Fujian province and are conditional. For example, Taiwanese undertakers are banned from cremation services in China, where 99 percent of all funerals involve cremation. Yet Taiwan’s market openings for Chinese investors are countrywide and unconditional.

Taiwanese also calculate that their ability to penetrate China’s financial services market under the agreement would be greatly restricted, with little prospect of influencing reforms in China’s financial sector. Taiwan’s banking institutions are smaller, diffused and too competitive among themselves to have any structural impact in China.

Story Continues →