TAIWAN: by Jeffry BabbNews Weekly
Could China trade pact reduce cross-strait tension?
, August 7, 2010
Trade is Taiwan's lifeblood, and the administration of President Ma Ying-jeou is banking on a new trade agreement with mainland China giving the economy a shot in the arm. The self-governing island sees no alternative but to do a deal with Beijing to allow its exports greater access to the giant China market.
Taiwan, with some 23 million people crammed into an area half the size of Tasmania, is a world centre of the information technology industry. Taiwan's investors have poured in excess of $100 billion into investments on the Chinese mainland, helping to kick-start China's export-led growth story.
The global financial crisis hit Taiwan hard, but the economy has been rebounding, with exports in June soaring 34 per cent. Exports to emerging markets were particularly strong in June, with exports to Russia, Indonesia and China booming. GDP growth is forecast to exceed 7 per cent in 2010, boosted by exports and strong growth in private investment.
The key market for Taiwan is China. Relations with the Asian giant have warmed significantly since the election of President Ma. The June 29 signing of the Economic Cooperation Framework Agreement (ECFA) with Beijing has given confidence a boost.
Beijing did not like the previous administration of Chen Shui-bian, who remains in detention over massive corruption within his Democratic Progressive Party (DPP) Government. Beijing was suspicious of Chen's push for Taiwan independence, something China's Communist leadership has warned it will not tolerate.
The ECFA pact is not a free trade agreement. Both Taiwan and mainland China have agreed to open their markets to some of each other's products. Under the "early harvest" provisions, some Taiwan industries will get an immediate boost. In an outcome reminiscent of Australia's own market opening, some clothing and textile industries will be hard hit, especially towelling.
Although some small factory owners are apprehensive about the increased competition, the public reaction to the ECFA pact is positive. Recent public opinion surveys show that almost 70 per cent of Taiwan's people believe that institutionalised cross-Taiwan-Strait negotiations are conducive to peace and stability in relations with China, while almost 60 per cent believe that cross-strait economic and trade negotiations will be conducive to Taiwan's economic development.
As things stood previously, Taiwan was in danger of being shut out of the developing Asian free trade zone, with China and the Association of South East Asian Nations (ASEAN) now locked into a free trade pact. Taiwan is a small country surrounded by giants and it must trade with them to prosper. Taiwan simply lacks the land and resources to be self-sufficient.
For the average citizen of Taiwan, the opening to the mainland is seen in pragmatic terms. Tourism from mainland China has been booming, and now daily flights go direct from Taiwan to destinations in mainland China.
The public understands that Taiwan must trade to survive. Taipei will now find it easier to negotiate free trade pacts with other nations, although Beijing will veto free trade agreements (FTAs) with nations that China does not also have free trade pacts with, so Australia and Taiwan are not likely to sign an FTA any time soon.
Negotiations between Australia and China for an FTA are deadlocked over issues such as giving China free access to buy Australian companies and, from Australia's point of view, allowing more access for Australian banks to the China market.
President Ma has repeatedly said that the ECFA pact is predicated on "no independence, no unification and no use of force". Ma said that the signing of the ECFA pact "starts off a whole new era for Taiwan".
Taiwan will use the ECFA to build itself into a global innovation centre, a trade hub in the Asia Pacific region, and a headquarters for both Taiwanese and foreign businesses, Ma said.
The signing of the ECFA pact has met with universal international approval. The United States has welcomed the ECFA agreement, seeing it as a means of reducing tensions in the Taiwan Strait. The World Trade Organization sees the pact as a means of boosting trade in the Asian region and as part of the structural upgrading of the island's economy.
In all, the ECFA pact will significantly reduce Taiwan's isolation in the world trading system. The tit-for-tat diplomatic battle for the loyalties of the 23 remaining nations with formal diplomatic ties to Taipei has gone quiet.
Beijing has signalled that it will allow Taiwan some international breathing space, such as Taiwan's observer status in the World Health Assembly. Taiwan would like membership in other United Nations functional agencies, such as the civil aviation body, but progress has been slow.
The ECFA agreement must be approved by Taiwan's parliament. The independence-leaning DPP opposes the pact, but Ma's Kuomintang has an overwhelming majority in the Legislative Yuan, the single-chamber parliament of Taiwan.
The DPP may try to frustrate passage of the ECFA bill by "Taiwan filibuster" tactics such as starting fights and mobbing the Speaker's podium, but this time it's unlikely to work.