China, Taiwan forge strongest ties yet with sweeping trade deal

The latest China-Taiwan trade deal, signed Tuesday, avoided discussing sensitive political relations but signaled much closer cooperation between the longtime rivals.

Jason Lee/Reuters
China and Taiwan signed a historic deal on Tuesday to boost $100 billion in two-way trade. Taiwan's Straits Exchange Foundation (SEF) Chairman P.K. Chiang (l.) shakes hands with Chen Yunlin, Chairman of China's Association for Relations Across the Taiwan Straits (ARATS), in front of a gift which Chiang presents Chen after a signing ceremony, in Chongqing, Tuesday.

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."

Li Peng, assistant director of the Taiwan Research Institute at China's Xiamen University, said that Beijing is keenly aware of Ma's situation. "It's not our policy to force Ma Ying-jeou to begin political dialogue," he says. "We are patient enough to wait until the situation is better. The Chinese mainland also believes it's not a good time for the two sides to talk about political issues."

Military mistrust remains

Taiwan's military is also balking at even modest confidence-building measures (CBMs) with China's military, such as joint search-and-rescue exercises. Arthur Ding, a Taiwanese security expert, says that Chinese military officials he meets at conferences have frequently brought up such CBMs and said Taiwan should have the "guts" to move forward with them.

But Ding says military-to-military talks are too politically risky for Ma's government. "Before 2012, it's not likely that CBMs will kick off," he says. "The president wants to keep things as simple as possible, and if he can't handle the CBMs issue well, it will hurt his campaign."

Timing isn't the only hurdle to cross-strait peace. Ma has repeatedly said that China must first draw down its arsenal of missiles on the coast opposite Taiwan before he'll enter political talks. So far, that appears to be a nonstarter.

"We believe the missile issue could be settled during the political talks between the two sides, it shouldn't be the precondition for talks," says Xiamen University's Li. "I think most [Chinese] officials hold this kind of view."

In the past decade China has deployed at least 1,300 short-range ballistic missiles and scores of land-attack cruise missiles on the coast facing Taiwan, according to Taiwan and America’s militaries. China has also built up its submarine force and is believed to be testing an anti-ship ballistic missile with an eye toward denying the US Navy access to the Taiwan Strait area in a fight.

Beijing insists the build-up is to deter pro-independence "splittists" in Taiwan. But Taiwan cites the buildup in its requests for advanced US weaponry, including more F-16 fighter jets. Washington has so far ignored that request, but it sold Taiwan $6.4 billion in other weapons in January, infuriating Beijing.

Noisy summer likely

The trade deal won't pass quietly in Taiwan – a ruckus is likely to erupt in coming weeks as the pro-independence opposition tries to obstruct ECFA with referendums and filibustering. Tens of thousands marched against the deal in Taipei on Saturday, saying ECFA threatens both Taiwan's economy and political sovereignty.

The deal will now be sent to Taiwan's legislature, and the opposition has already begun a debate on how that review process should go. The opposition also looks set to moot another proposal to put ECFA to an island-wide referendum (two previous proposals were rejected by a referendum review committee).

But the opposition holds too few seats to block the deal, meaning final passage is expected later this summer.

Staff writer Peter Ford contributed from Beijing.

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