The government’s proposal of an economic cooperation framework agreement (ECFA) with China has polarized public opinion in Taiwan. The polarization is not only caused by differing economic and political perspectives, but also because the nature of the proposal remains undisclosed.
The government says that there is nothing to disclose because the agreement has yet to be negotiated. Such an argument is erroneous because it is not the details but the general nature of the pact that the public is eager to understand.
The WTO non-discriminatory principle, as embodied in the most favored nation clause, calls for equal treatment of similar products imported from different WTO members. However, Article 24 of the General Agreement on Tariffs and Trade (GATT) allows members to form a free trade area or agreement (FTA) to eliminate tariffs on substantially all trade and not to extend such preferential treatment to non-FTA members.
The strict requirement that an FTA eliminate tariffs on more than 90 percent of trade is to set a high standard for exception to most favored nation status. Otherwise, different groups of WTO members eliminating tariffs on portions of trade would nullify the most favored nation non-discrimination principle.
That said, to increase trade opportunities for developing members, WTO has an Enabling Clause to allow them to reach a preferential arrangements to reduce tariffs. An FTA requires elimination of tariffs on substantially all trade, while a preferential arrangement allows reduction of tariffs on partial trade; the two are different both in content and legal coverage.
The administration of President Ma Ying-jeou (馬英九) says an ECFA will be something similar to the ASEAN-China Framework Agreement. The WTO says it is a preferential arrangement. ASEAN and China signed a Framework Agreement on Comprehensive Economic Cooperation in 2002. China thereby offered early-harvest preferential tariffs on agricultural and fishery products from ASEAN members. The two subsequently signed an Agreement on Trade in Goods and an Agreement on Trade in Services in 2004 and 2006 respectively. Thereafter, the two parties gradually reduced tariffs on trade in goods, and are set to eliminate tariffs on substantially all goods, establishing an FTA next year.
The ASEAN countries and China are WTO developing members. They are therefore entitled to invoke the Enabling Clause — which permits trading preferences targeted at developing and least developed countries — and sign a preferential arrangement. However, the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu committed itself in its Accession Working Party Report of 2001 “not to claim any right granted under WTO Agreements to developing country Members,” so it is not entitled to sign any preferential arrangement with fellow WTO members.
Nevertheless, Article 24 of GATT also sanctions interim agreements aiming to establish an FTA. The maximum transitional period is 10 years. Even though Taiwan can only sign an FTA, it does not mean that Taiwan is obliged to liberalize all trade immediately. ASEAN and China plan to establish their FTA in eight years. If Taiwan signs an FTA interim agreement with China and sets the goal of implementing it in 10 years, it is no hastier than the ASEAN-China agreement.
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