Trade Deal Draws Taiwan Closer Into China's Embrace
Taiwan's President Ma Ying-jeou listens during a news conference in Taipei. Photographer: Maurice Tsai/Bloomberg
June 28 (Bloomberg) -- Kenneth DeWoskin, a director of Deloitte LLP's China Research and Insight Center, talks with Bloomberg's Rishaad Salamat about trade negotiations between China and Taiwan. Taiwan and China aim to sign three agreements in a sixth round of cross-strait talks that will be held later this year, Chiang Pin-kung, chairman of the Taipei-based Straits Exchange Foundation, said. Cross-strait negotiations resumed in 2008 after a nine-year halt during which former Taiwan president Lee Teng-hui described the talks as "state-to-state," a term Beijing rejected. China claims the self-ruled island as its territory and has threatened force to impose Taiwan’s unification with the mainland. (Source: Bloomberg)
Taiwan is scheduled to sign its first trade treaty with China tomorrow, strengthening commercial ties with the fastest-growing major economy and the island’s biggest trading partner and investment destination.
The accord to be signed in the Chinese city of Chongqing, former headquarters of Taiwan’s ruling Kuomintang when they battled Mao Zedong’s Communists during China’s civil war, shows how much relations with the mainland have warmed since Taiwanese president Ma Ying-jeou took office in May 2008.
“This would not be imaginable two or three years ago,” Carl Chien, senior country officer at JPMorgan Chase & Co. said by telephone in Taipei. “The mere fact that the two governments are signing some kind of treaty is already a record-breaking thing.”
China set aside its claim that Taiwan is a renegade province to negotiate the Economic Cooperation Framework Agreement, betting that ever-tighter economic integration will achieve what six decades of military threats did not. For Taiwan, opening China’s market restores the island’s competitiveness in the world’s third-biggest economy and may pave the way for similar agreements with other trading partners.
China will cut tariffs on 539 items from Taiwan valued at $13.8 billion, or about 16 percent of the island’s 2009 exports to the mainland, Zheng Lizhong, vice chairman of the Association for Relations Across the Taiwan Straits, said last week. Taiwan will cut tariffs on 267 items from China worth $2.86 billion, or about 10.5 percent of the country’s shipments to Taiwan in 2009.
Chinese Visitors
The trade deal is the latest sign of rapprochement between the two civil war foes. Since Ma took office, direct air, shipping and postal links have been established. In the first five months of this year, 70,445 Chinese visited Taiwan, 70 percent more than in the corresponding period a year earlier, according to Taiwan Tourism Bureau numbers.
Taiwan’s benchmark stock index gained 16 percent in the past year as Ma’s administration pushed for a trade pact with China. Taiwan’s dollar appreciated 0.5 percent to NT$32.036 against its U.S. counterpart as of 9:55 a.m. local time, according to Taipei Forex Inc.
Taiwan is keen to reach the trade deal with China in order to secure for its companies the same preferential treatment the mainland now offers 10 Southeast Asian countries.
Southeast Asia
In January, a separate trade accord took effect between China and the Association of Southeast Asian Nations, lowering tariffs on two-way trade. Similar deals for China with Japan and South Korea are under discussion.
“It’s vital for us economically, it’s a matter of life and death,” said Philip Yang, a professor of political science at National Taiwan University in Taipei. “If we sign we won’t be in a disadvantageous position with Asean and Korea, our major economic rivals in China.”
Still, the proposed trade pact doesn’t include items some Taiwanese companies had wanted, such as tariff cuts for polyvinyl chloride, or PVC, one of the island’s top exports, and easing restrictions in the semiconductor industry.
Under the pact, China will open up 11 service sectors such as banking, insurance, hospitals and accounting, while Taiwan agreed to offer wider access in seven areas, including banking and movies, the two sides said.
“China is incorporating Taiwan into its supply chain and Taiwan’s economy will become part of China’s economy, and that is the biggest worry for Taiwan people,” Tsai Ing-wen, chairwoman of the opposition Democratic Progressive Party, said at a rally on June 26 to protest the accord.
The opposition claims the agreement will give the Beijing government too much clout over Taiwan and may cost jobs by allowing cheaper Chinese goods to flood the island’s markets.
Ma ‘Cooperating’
Ma is “cooperating with the Chinese communists to unify Taiwan,” former Taiwanese presidentLee Teng-hui, who supports independence for Taiwan, said at the start of the march by more than 30,000 people, the Taiwan News reported.
Trade with the mainland, Taiwan’s largest export market, rose 68 percent in the first four months of 2010 compared with same period last year, and Taiwan investment rose 44.7 percent, China’s Tang Wei, head of Taiwan, Hong Kong and Macao affairs at China’s Ministry of Commerce said on June 13. China and Hong Kong accounted for 43 percent of Taiwan’s exports, according to data from the island’s Ministry of Finance.
Under the deal, tariff reductions on items including petrochemicals, auto parts, textiles and machinery will be implemented in three stages over two years, by which time tariffs will be brought to zero.
Vital For Taiwan
A trade agreement with China is also vital to Taiwan as it seeks similar accords with other regional trading partners.
The agreement will “ease the concerns of most of the countries in the world and start to bring Taiwan back to a normal position in establishing FTA relationships with its important trading partner countries,” J.T. Wang, chairman of Acer Inc., the world’s largest notebook computer supplier, said in an e-mailed reply to questions.
Opposition fears that China will use its economic embrace of Taiwan as a way to achieve its ultimate goal of reunification may be overdone, said Liu Bih-rong, a professor of political science at Soochow University in Taipei.
“The economic track and political track are separate,” he said. “China may hope economic links will lead to political negotiation, but in Taiwan the majority don’t want to move that fast.”
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