Vancouver Sun, Canada
China-Taiwan trade agreements complex as shared history
Cooperation between two nations results in mix of opportunities, headaches
By Jonathan Manthorpe, Vancouver Sun
28 May 2012
As Ma Ying-jeou starts his second four years as president of Taiwan, his opening up of the economy to China in his first term is presenting the island nation with as many head-aches as opportunities.
While the lowering of barriers and signing of 16 agreements with China in the last four years have significantly eroded the six decades of hostility between the two countries, the economic benefits have been mixed and the future prospects uncertain.
Crucial for Taiwan now is whether Beijing will respond to the blandishments from Ma’s administration by drop-ping or at least moderating its objections to Taiwan, which China considers a rebel province, from making nation-to-nation trade treaties with other countries and international organizations.
Beijing’s willingness to give Taiwan "diplomatic space" is coming to the test as Taipei proceeds with negotiations for free trade agreements with Singapore and New Zealand.
So far Beijing has not leaned on the New Zealand or Singaporean governments to curb the talks or tried to insist that economic agreements with Taiwan need its stamp of approval.
But Taiwanese officials are watching Beijing’s reactions closely and are ready, for example, to downgrade the status of their deals with Singapore and New Zealand from treaty-like free trade agreements to less imposing commercial pacts.
In his inaugural address President Ma said he also wants Taiwan to join the expanding trans-Pacific Partnership within eight years.
The nine - member TPP appears set to become the major free trade association among Pacific Rim countries and it is important for Taiwan to obtain membership, though this will require Taipei to remove many market protections.
The TPP is important for Tai-wan not least because the country is not included in other regional trade pacts, especially the free trade agreements between the 10 countries of the Association of South East Asian Nations and China, Japan and South Korea.
South Korea in particular is Taiwan’s major competitor in the micro-chip market.
Trade between China and Tai-wan has grown to more than $100 billion last year with the easing of cross-strait transportation and communications early in Ma’s first term, encouragement of tourism and the signing of an economic cooperation framework agreement (ECFA) in June 2010.
To a degree, though, this easing of tensions stemming from China’s civil war in the 1940s has only drawn back a curtain on a substantial economic relationship that grew up in defiance of government embargoes.
The Taiwan government reckons that one million of its people are living and working in China managing Taiwanese-owned companies taking advantage of China’s relatively cheap labour.
Official estimates of the value of Taiwanese investment in China is over $100 billion, though many economists suspect the true figure is much larger.
Half of China’s top 20 exporting companies are Taiwanese-owned and although Taiwan’s bilateral trade with China is heavily in the island nation’s favour, 70 per cent of what Tai-wan exports to China is in fact components going to Taiwanese-owned factories in China for assembly.
Because the bilateral relation-ship is based so heavily on re-export from China it has not been able to avoid the global downturn since 2009. Cross-straits trade declined sharply in the first quarter of this year even as Taiwan’s officials hastily revamped their predictions of the country’s economic performance this year.
On Friday Taipei officials lowered their forecast for economic growth in 2012 to three per cent, only four weeks after issuing a forecast of a 3.8 per cent increase in gross domestic product this year.
High on the agenda of the Taiwan administration now is to press ahead with the next stage of ECFA agreements with China.
These are expected to be more difficult than the "low hanging fruit" and "early harvest" agreements of Ma’s first term.
But talks are expected to get underway in June on an investment protection agreement, which Taiwanese officials would like to have signed and sealed by the end of the year.
An agreement on trade and investment on goods and ser-vices is expected to be more difficult, and Taipei thinks it will be about two years before an accord can be reached.
Ma’s administration will have to be wary of Taiwanese public reaction as these talks proceed.
Over 84 per cent of Taiwan’s 23 million people are intent on maintaining their independence from China and are hyper-sensitive to any moves that might put them in Beijing’s grasp.
Many Taiwanese already see the opening up to China as a mixed economic blessing and a political danger.
There is significant public resistance to allowing unlimited Chinese investment in Taiwan.
And there are claims, for example, that the big beneficiaries from the 1.3 million Chinese tourists that visited Taiwan last year were the Chinese tour operators and not the island’s hospitality industry.