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48 Taiwan Development Perspectives 2009
time-consuming process, however. Consideration
should be given to possibilities of importing skilled
labor from abroad. In a knowledge-base economy, mobility
of high skilled labor is a critical index for a country’s
competitiveness; i.e., to turn a brain drain into a
brain inflow.
d. Deregulation and re-regulation:
One of the important government roles is to institute
rules of the game so as to reduce transaction costs,
enhance efficient resource allocation, and make the
market function and prevent market failure. Any regulations
that prevent or hinder the market from functioning
well should be abolished. For instance, the
destination and amount of foreign direct investment
should not be regulated and there should be no restrictions
on labor mobility. Re-regulation may guard
against market failure or malfunction. It may be applied
to improve information exposure and transparency,
food safety and quarantine inspection as well as raise
product standards and ensure professional accreditation.
Taiwan should seriously consider its participation
in Asian regional integration and cooperation as well as
its membership in international organizations to preclude
its being economically marginalized. 7 However,
since China plays an important dual role as an assembling
factory for Asian products as well as a huge potential
market for its neighboring economies, Taiwan
should improve and consolidate the cross-Strait to ensure
its long-term interests.
Taiwan’s cumulative foreign direct investment in
China has topped US$47.5 billion. Trade with China
totaled US$635 billon in 2007. The market-driven division
of labor across the Strait seems inevitable as it
7 Using computable general equilibrium (CGE) model,
Chow (2008) finds a significant negative effect on
Taiwan’s GDP if Taiwan is excluded from the recent
surge of RTAs and regional cooperation initiatives like
ASEAN plus 3. See also Chen and Ku (2007) for similar
results.
benefits the production competitiveness of both sides in
the international market.
As Taiwan has a geographical advantage of proximity
to China and is located in the center of East Asia,
the direct links of transportation and communication
across the Strait will greatly help promote trade and
investment by reducing direct or indirect transaction
costs. The direct links will also help realize a better
division of labor across the Strait and the globalization
of Taiwan businesses, which is conducive to the upgrading
of Taiwan’s industrial structure and participation
in Asian economic cooperation.
2. Economic Cooperation across the Taiwan
Strait
Official statistics show that from 1991 to last October,
Taiwan had invested a total of US$73.8 billion in
China, with cumulative trade reaching as much as
US$752.4 billion. However, not one single official investment
guarantee or trade agreement has been signed
between Taiwan and China. This makes Taiwanese
trade with China risky as it lacks any safeguards. It also
goes against the spirit of the WTO and is potentially
damaging to the Taiwanese economy. Both Taiwan and
China are intent on trade normalization across the Strait.
The three direct links of flights, maritime shipping and
postal service were set in place December 15, 2008.
The most urgent task facing Taiwan now is to further
institutionalize cross-Strait trade relations. The following
steps should be taken to achieve closer economic
cooperation between the two sides of the Strait.
a. Conclusion of a trade normalization arrangement:
Any institutional arrangements for cross-Strait
trade normalization should be made under the framework
of the World Trade Organization as both Taiwan
and China are its members. Cross-Strait economic cooperation
should accord with the trend of Asian economic
integration. As a result, the trade normalization
will enable Taiwan to join in the process of Asian eco-