Taiwan seals trade hug with mainland
By Olivia Chung
HONG KONG - A trade pact signed on Tuesday between mainland China and Taiwan
has brought the economies of the political rivals to their closest in the six
decades since they split amid civil war.
The Economic Cooperation Framework Agreement (ECFA) includes an "early harvest"
list of goods and services, with 539 Taiwanese products, worth US$13.8 billion
or 16% of Taiwan’s exports to China last year, likely to receive zero tariff
rates in the mainland within the next two years. In the other direction, 267
mainland products, worth $2.86 billion or about 10.5% of mainland exports to
Taiwan, receiving the same treatment across the Taiwan Strait.
Chen Yunlin, president of the Beijing-based Association for
Relations Across the Taiwan Straits, and his counterpart, Chiang Pin-kung,
chairman of the Taipei-based Straits Exchange Foundation, signed the ECFA,
which will take effect on January 1, 2011.
"The trade pact is crucial in deepening cross-strait ties ... It provides a
foundation for more economic cooperation," Chiang said at the press conference
after the signing ceremony in the southern mainland city of Chongqing.
Taiwan companies have already invested an estimated $150 billion in the
mainland since 1991, and about 40,000 Taiwanese companies now operate in the
mainland, with two-way trade worth about $90 billion a year.
Chen said the pact would spur further investment and create jobs. Taiwanese
banks operating on the mainland will now have the right to conduct business in
the yuan currency one year after establishing local branches, and to offer yuan
loans to China-based Taiwanese companies if the branches are profitable after
their first year of operation. Mainland banks will be able to convert their
representative offices in Taiwan into branches after a year of operation.
Despite the claimed benefits, the deal has its critics in Taiwan, with about
20,000 Taiwanese, including former president Lee Teng-hui and former opposition
Democratic Progress Party (DPP) vice president Annette Lu, staging a protest
march in Taipei, Taiwan's capital, on Saturday. They denounced the ECFA as
leading to a "one-China market", threatening the island's sovereignty and the
traditional sectors of its economy.
Opponents of the ECFA also point to the disparity in the initial benefits
accruing from the trade pact, with Taiwanese items exceeding mainland goods by
roughly five-to-one in export value. They claim that the mainland side has been
generous in order to sway public opinion in Taiwan in favor of Taiwanese
President Ma Ying-jeou's cross-strait policy.
The deal will transform Taiwan's economy in the long term, according to Ma
Tieying, a China studies analyst. "It has more political influence than
economic by boosting Taiwan's economic reliance on the mainland instead of the
United States, which had long been Taiwan's biggest trade partner," he said.
The mainland has been the island's largest trade partner since 2003, when it
overtook the United States. In March, Taiwan's exports to China and Hong Kong
reached $10.26 billion, the highest amount yet in a single month. Its exports
to the mainland and Hong Kong in the first quarter, at $26.42 billion,
accounted for a record 42.8% of its total exports.
The trade pact is "a milestone in cross-strait economic exchanges between the
two sides since they split after a civil war in 1949 as it shows the two sides
can prosper through talks and negotiations," Ma Tieying said.
Ma Tieying also pointed out that the agreement was signed in Chongqing, "which
holds historical and political implication as communist leader Mao Zedong and
Nationalist president Chiang Kai-shek tried, in vain, to negotiate a peace talk
there after World War II," he said. "The venue shows how much ties have
improved between the two parties."
The losing side in that conflict, the Kuomintang, now leads the government in
Taiwan, having been elected back to power in May 2008. Since then, ties between
the mainland and Taiwan have improved, with this week's signing marking the
fifth round of high-level cross-strait talks in that period.
A total of 12 agreements and two consensus arrangements were reached in the
previous four rounds of talks, resulting in direct mail, transport, trade,
two-way tourism and investment across the Taiwan Strait. Previously, most of
such contact had to be carried out via a third territory, such as Hong Kong.
One consequence is a surge in mainlanders visiting Taiwan. In the first five
months of this year, 70,445 Chinese visited Taiwan, 70% more than in the
corresponding period a year earlier, according to the Taiwan Tourism Bureau.
James Sung, a political scientist at City University of Hong Kong, agreed that
the pact represented an economic and political milestone.
"Taiwan will depend more on the mainland economically and the way in which
[mainland] China and Taiwan talked and negotiated in the process leading to the
signing of the ECFA can serve as a model for both to conclude other pacts,
which include kinds of political agreement," Sung said.
The deal is also a major accomplishment for Ma and his government. Sung and Ma
Tieying believe the signing of the agreement could help lead to a meeting
between the Ma Ying-jeou and Chinese President Hu Jintao.
The next meeting between Chen and Chiang, likely to take place in Taiwan near
the end of this year, will focus on investment protection, Taiwan officials
said on the sidelines of the press conference.
President Ma in April dismissed concerns that Taiwan might become too dependent
on China economically after the signing of ECFA, saying the pact would be
purely economic. "We are an independent country," Ma said when he answered
questions at the Taiwan Foreign Correspondents' Club in Taipei. "There will be
no political language in the ECFA documents."
The pact is expected to create 260,000 jobs and add about 1.7 percentage points
to Taiwan's economic growth annually, according to a Taiwan
government-sponsored study.
Analysts from the Peterson Institute for International Economics, a Washington
think-tank, forecast that the deal could help Taiwan increase its gross
domestic product (GDP) by up to 5.3% by 2020. They described it as an ambitious
accord that fundamentally changes the game between Taiwan and China.
Taiwan's GDP increased 13.27% in the first quarter this year on the back of
strong export demand. Last year's GDP, hit by a slump in overseas markets amid
the global financial crisis, shrank 1.91%, Taiwan's worst post-war performance.
Speculation that Chinese businesses had also complained about imbalances in the
early harvest list were dismissed by Zheng Lizhong, deputy chairman of the
mainland's Association for Relations Across the Taiwan Strait. China's economy
was willing to make sacrifices "because both sides are one family", he said.
Despite the political opposition, much of the Taiwan business sector was eager
to see the deal sealed after a free-trade pact between the mainland and the 10
member states of the Association of Southeast Asian Nations (ASEAN) came into
force in January, raising concern that the island might be economically
marginalized.
The trade deal will help remove trade and investment barriers between the two
sides, "a step forward to boost cross-strait financial integration", said Lo
Chih-cheng, a professor of political science at Taiwan's Soochow University,
Olivia Chung is a senior Asia Times Online reporter.
(Copyright 2010 Asia Times Online (Holdings) Ltd. All rights reserved. Please
contact us about
sales, syndication and
republishing.)
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
