When President Ma Ying-jeou (馬英九) came to power in May last year, one important task was to improve cross-strait ties. In Ma’s words, “The icy ties are just beginning to thaw and the construction of a bridge [for dialogue] is just starting.”
His top priority was direct links in trade, transportation and other areas, a drastic change in policy over previous “indirect” economic links between Taiwan and China, in which transactions had to transit through Hong Kong.
Moreover, it was a change from the previous arrangement of unilateral economic transactions to bilateral agreements duly signed by both governments.
One issue that has emerged is talks between the two governments on a cross-strait economic cooperation framework agreement (ECFA). An ECFA, under the framework of the WTO, can be summarized as having three integrated components:
First, a free trade agreement (FTA). The FTA would allow no tariffs, in the spirit of the WTO. Now, Taiwan and China are both members of the world trade body, but an ECFA as it stands lacks the reciprocity of an FTA. That is, in an ECFA’s current form, China would be giving up a lot and asking for little from Taiwan.
Second, liberalization of service sector. Among other services, Taiwan expects to be the first choice for special privileges from China on banking and finance.
Third, foreign direct investment (FDI) liberalization and protection. Among other things, this development would include intellectual property protection.
Details of an ECFA began to emerge in concrete form in March. Current debate has since settled on the following themes: While the Chinese Nationalist Party (KMT) government emphasizes economic benefits for Taiwan, the Democratic Progressive Party (DPP) has emphasized corrosion of Taiwan’s sovereignty and a heavy economic dependence on China. The discussion that follows focuses on the economic aspects of this debate.
President Ma has repeatedly stated the need for negotiations and passage of an economic agreement with China. The aim is not only to improve cross-strait relations, but also, and most importantly, to strengthen Taiwan’s international competitiveness. An agreement would also be the first step in a new era of attempts by Taiwan to economically integrate with the region.
In the beginning, 60 percent of Taiwanese supported signing an ECFA and major industry groups immediately voiced support for the initiative.
For instance, the Chinese National Federation of Industries, a Taiwanese organization, gave conditional support to an ECFA. It urged the government to sign it next year at the latest. However, it also urged the government to take several precautionary measures, including avoiding over-reliance on China’s economy, protecting Taiwan’s business advantages and strengthening cooperation with the US, Europe and Japan on technology imports.
One immediate advantage for Taiwan would be the increase in the size of its economy. China, the world’s third-largest economy with an estimated GDP last year of US$7.973 trillion, has great potential in terms of consumer purchasing power. It also happens that China is Taiwan’s biggest export partner, accounting for about 40 percent of exports. Furthermore, China, with a population of 1.3 billion, would increase Taiwan’s economic reach.
An ECFA would also avoid the further marginalization of the Taiwanese economy, which even now has precious few FTAs with other countries. A statement from the Ministry of Economic Affairs has argued that, with the FTA between ASEAN and China to take effect next year, Taiwan’s competitiveness vis a vis ASEAN would suffer without an ECFA because Chinese customs charges would be 5 percent to 10 percent greater than those applying to ASEAN exporters.