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 , Correspondent

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    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.
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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.

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.

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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.

Two opposition-led proposals to hold a referendum on ECFA have been blocked by a referendum review committee. Observers now expect the pro-independence opposition to try to obstruct the deal in the legislature, where the review procedures for ECFA are not yet clear. But the opposition holds too few seats to block the deal in an up-or-down vote.

The opposition has also slammed how Taiwan's government has handled the negotiations.

"The public and opposition party's greatest frustration is that the government still hasn't clearly explained many things," the opposition DPP said in a statement released Thursday. "It is deliberately down-playing the possible negative effects [of ECFA] on Taiwan's domestic industries."

Focus on economy

Taiwan's government insists that the deal will help Taiwan's economy, and allow it to join the trend of economic integration in East Asia. Taiwan has seen itself left out of trade deals among neighbors, due to China's interference. Beijing typically objects to the island signing any formal deals that would suggest that it is a separate state.

On Thursday, officials from both sides dodged reporters' questions on whether China would allow Taiwan to sign trade deals with other countries such as the US or Japan after the ECFA is signed.

"We didn't have time to discuss this question," said Taiwan trade official Huang Chih-peng.

"We'll have to properly handle this issue," said Chinese official Zheng Lizhong, while urging Taiwanese not to worry because "the two sides of the [Taiwan] Strait are family."

Cross-strait relations have warmed rapidly since the China-friendly President Ma Ying-jeou took office in Taiwan in May 2008 on a pragmatic platform of improving cross-strait commercial ties. Ma has replaced his predecessor's brash pro-independence rhetoric with a low-key approach and embrace of the two sides' common Chinese heritage.

Tariff reductions under the ECFA would likely begin in early 2011 and be phased in over two years, according to officials and local media reports. Tariffs will first be cut on 539 Taiwan exports to China, including petrochemicals, textile products, and machinery products. Tariffs will fall on 267 Chinese exports to Taiwan, officials said.

A few petrochemical products such as PVC (polyvinyl chloride) and PE (polyethylene), as well as autos, did not make it into the so-called "early harvest" list of items to receive the first tariff cuts; those items will require further negotiations, said Huang, the Taiwan trade official.

In services, ECFA will give Taiwan banks a shortcut to opening branches and doing business in the yuan, or renminbi, in China. Wholly-owned Taiwanese hospitals will also be allowed to operate in China.

A separate agreement on protecting intellectual property rights will also be signed Tuesday, officials said.

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