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Monday, March 16, 2009

Clinching a free trade accord with Beijing


Chinese Premier Wen Jiabao recently offered to hold political and military talks with Taiwan in order to end the state of hostility between the two sides, which has existed for 60 years. Taiwan immediately rejected the offer, with President Ma Ying-jeou saying through a spokesman, "At this stage, we will only talk about economic and trade issues."

That is certainly the right attitude to adopt. Relations with China have improved dramatically since Ma became Taiwan's leader last year, with four agreements — none of which were overtly political — signed in 2008. But he must move cautiously if only because there is a great deal of suspicion within Taiwan of Beijing's intentions.

So sensitive is the situation that the president has had to change the name of the trade agreement that he wants to negotiate with Beijing, previously called a cross-strait Comprehensive Economic Cooperation Agreement (CECA).

Political opponents felt that sounded too much like CEPA, the Closer Economic Partnership Arrangement that Hong Kong and Macau have signed with the mainland, and feared that such an accord would signify that Taiwan, like Hong Kong and Macau, came under Chinese sovereignty.

Partly for that reason, Ma decided to change the name. Now, it is called ECFA for Economic Cooperation Framework Agreement. Taiwan also feels that a framework agreement will be easier to negotiate than a comprehensive one.

The global economic downturn has struck Taiwan hard. A report by the Chung-Hua Institution for Economic Research indicates that the island will lose an additional 100,000 jobs if it does not reach a trade accord with the mainland soon.

Taiwan is eager to negotiate agreements with its major trading partners but has had little success. Discussions with Singapore began during the presidency of Chen Shui-bian but were broken off when Singapore realized that Taipei was looking at the political value of such an accord to move it toward de jure independence, rather than at the economic benefits.

So far, Taiwan has only been able to negotiate free trade agreements with tiny countries that account for only 1 percent of its annual trade. But Ma has made it clear that he will not declare independence during his term. His administration wants trade agreements for their economic, not political, value.

To Taiwan, a trade agreement with Beijing is crucial not only because the mainland is now the island's most important trading partner but also because it hopes that such an accord will pave the way to agreements with the countries of Southeast Asia and end Taiwan's marginalization in the Asia-Pacific region.

Beijing and the Association of Southeast Asian Nations (ASEAN) have reached an agreement under which most tariffs will be eliminated by next year between China and the six original ASEAN members. The remaining four members will be included in the FTA by 2015. This will create a free trade zone with a population larger than either NAFTA or the European Union. Moreover, Japan, South Korea and India also have FTA deals with ASEAN. And last month Australia and New Zealand signed FTA accords with ASEAN.

Thus Taiwan's major trading partners are weaving an FTA network among themselves that excludes Taiwan. Unless this changes, Taiwan will find it more difficult to trade since it will have to pay export duties that other countries do not.

Studies show that if China, Japan and South Korea join ASEAN in an FTA, Taiwan's GDP will shrink by more than one percentage point. The more countries involved, the greater the impact on Taiwan. That's why Taiwan is feeling increasingly desperate. It wants to reach a trade agreement with China after which, it hopes, other trading partners will be willing to sign similar accords. There is a danger that if Taiwan does not achieve a breakthrough, it will find itself in nearly the same boat as North Korea — an outcast within the international community.

It is Ma's hope that once Beijing has reached a trade agreement with Taiwan, it will not object to similar agreements between Taiwan and its other trading partners. This will not necessarily be the case.

Beijing may still object to other countries reaching trade agreements with Taiwan. But at least those countries will then be able to point to the mainland's agreement with Taiwan and argue that they, too, should have the same right to conclude trade accords with the island. Thus Taiwan thinks, rightly, that it has everything to gain and little to lose.

Frank Ching is a journalist and commentator.


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