China, Taiwan forge strongest ties yet with sweeping trade deal

China and Taiwan signed a landmark deal Tuesday that formalizes trade ties between Asia's rising economic giant and one of its most successful high-tech "tigers," and sidesteps a political dispute that once threatened to boil over into war.

The deal, known as the Economic Cooperation Framework Agreement (ECFA), will lower tariffs on two-way trade that's now estimated at around $120 billion annually and improve mutual market access in services, among other benefits.

The agreement steered well clear of politics, with officials from both sides insisting that ECFA touches only on economic issues. Indeed, the Chinese term for the deal refers only to "two shores," making no mention of China or Taiwan's official titles, and ECFA was signed by semiofficial representatives, not government officials.

But the deal is a sign of how much relations have improved between China and the self-ruled island it views as its own. Caught in a vicious cycle of mistrust and recriminations just two years ago, the two sides have since inked a dozen transport and commercial deals, with ECFA being by far the most important.

"Part of ECFA's significance is that each side is telling the other that it wants to solve problems through sincere negotiations instead of by cursing and political warfare," says Hu Shiqing, researcher at the Taiwan Studies Institute of the China Academy of Social Sciences, a government-linked think tank in Beijing.

In Chongqing, China, where the signing took place, Taiwan's top representative Chiang Pin-kung heralded the start of a "new era of mutual trust," while China's Chen Yunlin said the deal will "boost the global competitiveness of the Chinese nation," according to reports.

Political ties still on ice

But analysts caution that the deal may be the peak for cross-strait relations, at least for the next few years. Any further major deals like ECFA are unlikely until (and if) Taiwan's China-friendly President Ma Ying-jeou is reelected in 2012. And the chances for political or military talks remain slim.

So far, there's been no progress on resolving the underlying, six-decade-old sovereignty dispute between the two sides. Today's deal notwithstanding, China and Taiwan still do not formally recognize the other's existence, a mutual snub dating back to China's civil war. (China's Kuomintang, fleeing Chinese communist troops, set up a government-in-exile in Taiwan in the 1940s that later developed into Taiwan's current democracy.)

Meanwhile, President Ma has seen his approval ratings dip as he's spent political capital pushing ECFA, to 28 percent in mid-June from about 40 percent in mid-2009. With the pro-independence opposition mounting a full-throated anti-ECFA campaign, he’s likely to shift back into campaign mode. That means more pro-Taiwan rhetoric and less happy talk about China.

Ma and his party will face tough local elections this November, a legislative election in late 2011, and a March 2012 reelection bid. There's already loud domestic opposition to his cross-strait economic agenda, let alone anything more ambitious.

"Ma Ying-jeou will make every effort to prove to voters that [ECFA] really brings the positive results he promised," says George Tsai, a political analyst at Chinese Culture University in Taipei. "But time is short, and people's patience is also short.

"So in the next two years, its not in Ma's interest to enter political dialogue [with China] – it's not on his agenda," says Mr. Tsai, and even if he's reelected in two years' time, "don't expect too much."

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