Free trade agreements can be very good bait

Free trade has been seen by many as the answer to warfare, and the US statesman Benjamin Franklin said, "No nation was ever ruined by trade." However, we cannot be sure of the effects of the increasingly popular free trade agreements (FTAs).

Even though cross-strait hostilities persist and trade has not be "normalized" between the two sides of the Taiwan Strait, an FTA and the idea of a "common market" are being discussed.

If a country believes that free trade is likely to reduce the likelihood of resource misallocation and benefit the country, there is no need to sign any trade agreement with any party. Unilateral removal of tariffs and other trade barriers can disregard the reaction of other nations and reciprocity.

But the "economic correctness" of trade unilateralism usually can't outplay the demands for concession and commitment. There is also the question of other countries taking advantage of better trade terms. Therefore, it is unlikely that such unilateralism will become mainstream. But if we look at the contribution of lowering tariffs after World War II, 66 percent was made by economic and trade reforms and liberalization of each individual country, 25 percent was from the efforts of multilateralism and the WTO, and only 10 percent was bilateral or regional, such as trade agreements.

The characteristics of mutual benefit and exclusiveness of FTAs challenge the "non-discriminatory spirit" of the WTO, which has served to clear many obstacles to trade since World War II.

In addition, the EU's experience in integrating European countries is also far-reaching. At first, the bloc only attempted to motivate each member state to cooperate in regional peace and security and gradually sought to profoundly integrate each nation in social, economic, financial and regional issues.

The passage of the 1987 Single European Act (SEA), which later inspired the North American Free Trade Agreement (NAFTA) and the Asia-Pacific Economic Cooperation Forum (APEC), represented a watershed in regional integration. Prior to 1987, organizations of this type were classified as customs unions. After that, the phase of the common market began.

In a nutshell, an FTA is signed between two or more parties, who commit themselves to achieving greater economic and trade cooperation between themselves than the multilateral commitments that the WTO can offer. There should be no barriers for capital flow and personnel relocation. A common market includes two markets: the commodity market and the production market.

At this juncture, there are indeed quite a few disparities between Taiwan and China, at least in economic, political and military and cultural areas. Economic integration or economic disparity are, to a certain extent, related to geographical distance (transportation cost is also closely related to lack of direct links of both sides) in addition to tariff or non-tariff barriers.

China's recent decision to remove import tariffs on some Taiwanese fruit shows China is willing to take the lead in making concessions. But as both Taiwan and China are WTO members, they are obliged to follow the regulations governing preferential tariff treatment. In other words, unless both sides sign a trade agreement stating that this relates exclusively to Taiwan, China's removal of import tariffs must necessarily apply to all other WTO members.

What exactly are Beijing's goals? Does China simply want to normalize economic and trade relations with Taipei, or is this simply bait to lure Taipei into signing an FTA with Beijing?

Honigmann Hong is associate research fellow at the Division of International Affairs of the Taiwan Institute of Economic Research.

TRANSLATED BY YA-TI LIN AND DANIEL CHENG