If there must be a common market

The idea of launching a so-called "one China common market" or "cross-strait common market" has ignited heated debate in Taiwan. What is a common market? Is a common market any different from a free trade agreement? If there must be a common market, is Taiwan ready for it, and is a common market between China and Taiwan feasible?

Although presidential candidates have discussed a common market, there is a significant gap in the perceptions of such a market between academics and the public. For that reason, taking a closer look at the relevant issues may help clarify any possible misunderstandings.

Most people consider the EU a typical common market. A common market, however, theoretically lies somewhere between a "customs union" and an "economic union." A customs union requires its members to adopt the same set of tariffs toward outsiders.

An economic union goes one step further by also allowing the free flow of goods, people and capital within the contracted area. The EU is closer to a true economic union than a common market.

To further simplify the above terms, the WTO provides a more straightforward explanation of a common market. The WTO defines all possible forms of regional economic integration as "regional trade agreements." From the standpoint of political economics, a regional trade agreement is the same thing as a free trade agreement. In terms of the degree of economic integration, the scale of a common market is even broader than a free trade agreement.

A common market is not necessarily a "common market" as one might think. Under the WTO framework, there exist a few economic integration examples that use the name "common market" even though their scale of economic integration varies widely. For example, the WTO recognizes The Common Market for Eastern and Southern Africa as a free trade agreement, but categorizes the Central American Common Market as a customs union. There are free trade agreements that are not yet common markets, despite the fact they use the term.

It is obvious that the WTO recognizes all free trade agreements and leaves the contracting parties to liberally characterize their scale of integration.

In addition, the WTO allows its members a full degree of freedom to sign free trade agreements as long as the contracting countries submit the agreements for the WTO's consent. As a member of the WTO, Taiwan is not restricted from signing free trade agreements with other WTO members.

Consequently, the proposed "One China Common Market" or "Cross-strait Common Market" wouldn't necessarily be identical to the academically defined "common market," but would be a free trade agreement.

This isn't the first time Taiwan has considered signing a free trade agreement with China under the WTO framework. The proposal is not a new one, and China rejected the proposal.

China is more interested in negotiating a Closer Economic Partnership Arrangement (CEPA) -- the model adopted by China and Hong Kong -- with Taiwan.

But Taiwan has already rejected such a proposal because it includes the "one country, two systems" clause. Therefore, a CEPA is out of the question.

If there must be a common market between Taiwan and China, it must be a free trade agreement and it has to be signed under the WTO framework.

First, a bilateral free trade agreement under the WTO framework would prevent other WTO members from objecting that the agreement was signed under the table.

Second, the WTO framework would secure Taiwan's status as an independent customs territory.

Third, the agreement would not include terms related to political sovereignty but remain solely in the realm of economics. If there must be a common market, it should ensure that the country's national interest would be well secured.

But it's time for a reality check. It's obvious that China will never sign a trade agreement with Taiwan, since those agreements are generally signed between sovereign states, and China does not consider Taiwan a sovereign state. That means a common market with China is unrealistic and Taiwan should stop hoping for it.

If a common market is not feasible, does Taiwan have other options? The answer is yes.

The Free Trade Area of the Asia-Pacific (FTAAP) pursued by APEC and the Pacific Economic Cooperation Council (PECC) is a much better area for Taiwan to concentrate on. The idea behind the FTAAP is to make the entire APEC or PECC area a free trade area. Taiwan is a formal member of both the APEC and PECC, so the potential FTAAP would not exclude it. And the FTAAP, composed of most of Taiwan's major trading partners, would bring greater benefits to Taiwan.

Darson Chiu is an associate research fellow at the Taiwan Institute of Economic Research.