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Merrill Lynch warns of negative economic impact of pact delay

TAIPEI--From protests to legislative deadlock, the recent delays in ratifying the trade in services agreement with China could limit Taiwan's GDP growth in 2014, according to research from Bank of America Merrill Lynch.

As the Legislature has been occupied by student-led protesters since March 18, lawmakers have been unable to make progress on their discussion over the pact, postponing further any future cross-strait agreement on trade in merchandise, said Marcella Chow, a Hong Kong-based economist at Merrill Lynch.

"In our view, the current dispute over service trade agreement creates uncertainty over the timing for Taiwan to discuss the subsequent goods agreement, which we see as having a larger impact on Taiwan than the service trade agreement, given Taiwan's higher reliance on goods trade," she wrote in a report issued Tuesday.

She echoed the administration's stance that trade deals with China must come before Taiwan has a chance of entering the Trans-Pacific Partnership and Regional Comprehensive Economic Partnership, two regional free trade blocs currently being negotiated.

The delay in service agreement ratification is preventing Taiwan from achieving its goal of trade liberalization while providing regional trade rivals with a competitive advantage that poses a threat to Taiwan's long-term growth prospects, she added.

"We currently expect (Taiwan's) 2014 GDP to grow 2.9 percent year-on-year but, in our view, growth may be capped at 2.5 percent if lawmakers fail to pass the cross-strait services agreement," Chow said.

"In addition, a lack of willingness to open up the service sector may send a dire signal to other countries that Taiwan is not ready to commit to greater economic liberalization," she warned.

The trade-in-services agreement with China, which was inked in June last year, builds on the cross-strait Economic Cooperation Framework Agreement (ECFA) signed in 2010.

The services pact was signed in June last year, but did not make it into the Legislature for review until this month.

Taiwanese business groups called on the public Tuesday to work together for the nation and to come to terms through dialogue to end the standoff at the Legislature.

Nelson Chang, vice chairman of the Chinese National Association of Industry and Commerce in Taiwan, said that maintaining a closed market would mean excluding most of Taiwan's industries from international trade systems and would weaken competitiveness.

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