China and Taiwan sign landmark deal
Financial Times | June 29 2010
China and Taiwan sign landmark deal
By Robin Kwong in Taipei
China and Taiwan on Tuesday signed a landmark trade deal that marks the most dramatic improvement in cross-Strait relations in more than half a century.
The Economic Co-operation Framework Agreement is the centrepiece of Taiwanese president Ma Ying-jeou’s effort to mend relations with China, which suffered under eight years of Chen Shui-bian, the former pro-independence Taiwanese president.
Taiwan hopes the deal will also smooth the path to sign free trade agreements with other countries in a bid to ensure that its export-oriented economy is not marginalised as trade deals flourish across Asia.
The agreement that negotiators signed in the Chinese city of Chongqing represents the first phase in trade liberalisation rather than a comprehensive free trade agreement. It also has China doing most of the economic opening in the initial round.
China will cut import tariffs across 539 products and services worth $13.84bn in trade. The cuts on Taiwan’s side will only account for $3bn worth of goods. China also agreed not to ask for the opening of agriculture sectors or for Chinese labourers to be allowed to work in Taiwan.
Bonnie Tu, chief financial officer at Taiwan’s Giant Manufacturing, the world’s biggest bicycle maker by revenues, welcomed the agreement which she said would help her company better manage production. Giant currently produces its high-end bicycles in Taiwan with factories in China making more mid-ranged models.
“If there is no tax issue, we can really integrate our factories and shuffle [production] as we like,” she said. “China’s economy of scale for high-end bicycles could be really big.”
China currently imposes a 17 per cent tariff on bicycles and bicycle parts from Taiwan, which under the agreement would be cut to zero within three years. Ms Tu said the deal would likely allow Giant to export more high-end bicycles, such as carbon-fibre bikes, to China.
Kenichi Ohmae, the Japanese corporate strategist, said the agreement was a “very carefully crafted vitamin for Taiwan’s continued success”.
The semi-official Chung-hua Institute for Economic Research in Taipei estimates that the agreement could create 260,000 jobs and add 1.7 per cent to Taiwan’s economy.
Over the long term, economists Dan Rosen and Wang Zhi of the Washington-based Peterson Institute for International Economics think the deal could add a net 5.3 per cent to Taiwan’s economy by 2020.
“We can think of few (if any) other policy reforms available to Taipei that could deliver such gains,” they said.
While the deal was hailed by business leaders and analysts, some Taiwanese have raised concerns about the political consequences of moving economically closer to China.
On Saturday, tens of thousands of people braved pouring rain and took to the streets of Taipei to make a last effort to protest against the deal, which is expected to be approved by the ruling party-dominated legislature within this year.
One banker in Taipei said China’s main goal was to “draw Taiwan closer for eventual unification”.
“It’s easy to oppose moving closer to China now, but once people enjoy the economic benefits it would be very hard to reverse [the deal],” the banker said.
Chen Hsien-chiung, a businesswoman in her 40s, said she was concerned that the deal would produce an “unstable society” for Taiwan’s children.
“Don’t forget that they have not removed those missiles,” she added, referring to the roughly 1,300 short-ranged missiles China has aimed at Taiwan.
Tsai Ing-wen, chairwoman of the opposition Democratic Progressive party, said that if the deal “was a vitamin, then it will only be eaten by big businesses and the rich-poor divide will be even greater in Taiwan”.
However, as a sign of how popular opposition to the deal has waned in recent days, turnout at the weekend fell short of the 100,000 touted by the DPP. It was also far less than the 600,000 people who rallied in October 2008 to express disapproval of Mr Ma amid the financial crisis.
Additional reporting by Chen Yu-ting
