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China, Taiwan to sign breakthrough trade deal

China and Taiwan are completing an agreement to increase bilateral trade. Taiwan's government says the trade deal will boost economic growth; the opposition party says it will erode sovereignty.

By Jonathan AdamsCorrespondent / June 24, 2010

Chinese negotiator Zheng Lizhong, left, shakes hands with his Taiwan counterpart, Kao Koong-lian, at the start of a meeting aimed at putting the finishing touches on a bilateral trade deal between the two rivals Thursday in Taipei, Taiwan. Taiwan and China plan to sign the economic cooperation framework agreement (ECFA) late June in China's southern city of Chongqinq.

Wally Santana/AP Photo

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Taipei, Taiwan

China and Taiwan have wrapped up negotiations on a landmark trade agreement that would cut tariffs on a range of goods and services and establish a formal framework for economic ties, officials from both sides said Thursday in Taipei.

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The deal – known as the Economic Cooperation Framework Agreement, and set to be formally signed in the Chinese city of Chongqing next Tuesday – is the most significant step yet toward normalizing relations across the Taiwan Strait, once one of Asia's most dangerous flash-points.

"In terms of cross-strait relations, ECFA is a very important milestone," said Taiwan official Kao Koong-lian at a press conference at the plush Grand Hotel in Taipei.

Observers caution that the deal must still clear Taiwan's legislature, which will likely convene early next month in a special session to review its contents, according to local media reports.

Economists expect the deal to give both sides a boost. "China has a huge market, and Taiwan has a relatively strong industrial base," says Tony Phoo, a Taipei-based economist for Standard Chartered Bank. "The increase in terms of cross-strait trade and investment flows will be positive for both China and Taiwan's economies."

One government-commissioned study estimated that cross-strait liberalization could add 1.65 percent to 1.72 percent to Taiwan's gross domestic product, depending on the scale of tariff reductions, create 260,000 jobs, and lure nearly $9 billion in new foreign investment in the seven years after the deal is signed.

Taiwan could use the boost; its GDP shrunk 2.5 percent last year to $361.5 billion, while China's GDP grew 8.7 percent to $4.8 trillion. Current annual bilateral trade is about $120 billion.

Despite the two sides' progress on economic ties, more thorny political and military issues remain unresolved. Earlier this year, Taiwan bought $6.4 billion in weaponry from the US to counter China's military buildup across the Strait.

China slammed the US for that sale, but it didn't appear to effect ongoing commercial talks with Taiwan.

Furor over China ties

But the new deal has stirred intense debate in Taiwan. China views self-ruled Taiwan as its territory, and the island's pro-independence opposition says ECFA is just part of Beijing's unification agenda. It worries the deal will erode Taiwan's sovereignty and further hollow out the island's traditional manufacturing industries.

The opposition Democratic Progressive Party (DPP) has planned a large-scale rally in Taipei Saturday against the deal.

That anxiety is mirrored elsewhere, as China seeks to cut deals with trading partners across the region. Worries are also high in Indonesia, for example, as a trade deal it signed with China as part of the Association of Southeast Asian Nations began to take effect this year. As in Indonesia, some Taiwanese fear they will be hard-pressed to compete with a flood of cheap Chinese products.

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