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Fate of trade pact hangs in the balance amid Beijing-Taipei tensions

South China Morning Post | 27 March 2021

Fate of trade pact hangs in the balance amid Beijing-Taipei tensions

by Lawrence Chung

With tensions running high between Beijing and Taipei, the fate of a landmark trade pact they signed over a decade ago hangs in the balance.

The preferential trade agreement – called the Economic Cooperation Framework Agreement (ECFA) – was signed in June 2010 and a 10-year deadline has now passed for it to become a full free-trade deal.

There has been no action from either side of the Taiwan Strait, but there are growing nationalistic voices in mainland China calling for Beijing to end the deal to put more pressure on Tsai Ing-wen, Taiwan’s independence-leaning president.

Observers say Beijing is unlikely to do that, but if the agreement ended it would have more of an impact on Taiwan. They also say that the ECFA’s fate will only become clear after Beijing reshuffles its leadership in late 2022.

The deal took effect under mainland-friendly president Ma Ying-jeou, of the Kuomintang, whose policy of engaging Beijing saw warmer ties across the strait.

It appears tilted in Taiwan’s favour – reducing tariffs on 539 Taiwanese products sent to mainland China, and 267 mainland products entering the self-ruled island.

The Taiwanese exports are worth about US$20 billion, and include petrochemicals, textiles, machinery and agricultural products – about 7 per cent of Taiwan’s total exports, according to official statistics. The mainland products include petrochemicals and machinery and the exports are worth about US$6 billion.

The deal also gives Taiwan market access to 11 mainland service sectors, including banking, securities, hospitals and accounting. Beijing gets access to seven Taiwanese service sectors, including banking and film.

While there is no written clause saying the pact ends after 10 years, it is World Trade Organization practice that such a deal no longer stands if the two sides fail to negotiate a full free-trade agreement after a decade. Beijing and Taipei are both WTO members.

“This has long been an established practice of the WTO, that an agreement like the ECFA, which is a kind of provisional or semi-free trade pact, would come to an end in 10 years if the two entities are unable to work out a free-trade deal,” said Max Lo, a cross-strait analyst at the Centre for Advanced Technology at Tamkang University in Taipei.

But if the WTO did not receive any complaints from other members objecting to the continuation of the deal, it could keep going, he said.

Lo added that the agreement could be terminated by either side with just 180 days’ notice.

Cross-strait relations have worsened in recent years since Beijing suspended official exchanges with Taipei in 2016 after Tsai took office and refused to accept the one-China principle. Beijing considers Taiwan part of its territory that must be brought under mainland control, by force if necessary.

Taipei’s relations with Washington have meanwhile become warmer, angering Beijing, which is at odds with the US on issues ranging from trade to human rights and security.

There have been growing calls in mainland China since September – including in state media and online – for Beijing to terminate the ECFA on the grounds that Taipei is the main beneficiary and that Tsai and her party are moving towards independence rather than cross-strait unification.

But Liu Meng-chun, of the Chung-Hua Institution for Economic Research, a Taipei-based think tank, said it was unlikely that Beijing would end the deal.

“Beijing has been promoting the integrated development of cross-strait relations, and terminating the ECFA is not in line with its political interests,” he said. “Besides, the pact is too small to have any substantial impact on the mainland’s economy.”
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Beijing’s Taiwan Affairs Office has said there was no plan to end the ECFA as it was an important link between the two sides.

Chiu Chui-cheng, vice-chairman of Taipei’s Mainland Affairs Council, said there was “no question” over the continuation of the deal and that Tsai would uphold the agreement signed by her predecessor.

According to Lo, from the Taipei university, it was unlikely the Tsai government would drop the deal, given its benefits for the island.

“Though it’s embarrassing for Tsai since she strongly opposed the deal before she became president, she hasn’t found any need to terminate the pact, which is actually in Taiwan’s interests,” Lo said.

He said its future was in the hands of Beijing.

“The mainland will elect the new leadership during the 20th National Party Congress in 2022 … and only then will we know the final fate of the ECFA,” he said.

 source: South China Morning Post