Chinese President Hu Jintao (胡錦濤) and Premier Wen Jiabao (溫家寶) have repeatedly said they would see to it that Taiwan benefits more from the proposed economic cooperation framework agreement (ECFA) by making tariff concessions. That statement has led to wishful thinking in Taiwan: It is as if people are hoping to benefit from an ECFA without having to do anything. However, no one is discussing what these benefits are and why China is offering them.
As the Chinese economy grows, so is the power of domestic interests in China, where government and business work like a family. Key heads of government agencies usually have vested interests in the businesses under their supervision. This is why Beijing-based China Petrochemical Corp opposes adding Taiwan’s petrochemical industry to the “early harvest list” for immediate tariff concessions. China’s steel and glass industries also complain about being unable to enter the Taiwanese market and demand to be added to the Chinese list for immediate tariff concessions.
Cross-strait negotiations over the early harvest lists have reached a deadlock. They are unable to even come up with dates for the second round of talks later this month.
It should be noted that Hu’s and Wen’s statements were verbal and are not discussed in Wen’s “Report on the Work of the Government.” This means the promise will not be a general principle applied by Beijing’s negotiation team. Rather, it is a political bargaining chip in the hands of the Chinese leadership.
President Ma Ying-jeou (馬英九) defines an ECFA as a cross-strait “free-trade agreement” and calls it normal economic and trade negotiations based on WTO principles. However, it is because Taiwan’s and China’s status at the WTO is not equal that it becomes necessary for China to offer Taiwan benefits.
Taiwan entered the WTO as a developed country while China entered as a developing one. Consequently, China has much more bargaining leverage and greater room to maneuver. For example, Taiwan’s restriction on Chinese industrial and agricultural product imports violates the WTO’s most-favored-nation (MFN) principle, while China’s restriction is legitimate. That is why Hu and Wen said they would offer Taiwanese farmers and small and medium enterprises more benefits.
As for the financial sector, while under WTO rules Taiwan must open its door to China, China can add unilateral restrictions. Chinese banks refuse to open up to Taiwan to the same degree because they are afraid that other countries would make the same request based on the MFN principle. That is why Taiwan’s financial industry is left wishing that Beijing would offer more benefits.
Based on WTO principles, China can handle the talks with ease. This allows Chinese negotiators to play bad cop while the top leadership plays good cop and engage in some political dealing. By treating an ECFA as a monolithic agreement, the Ma administration is letting Beijing direct talks, which is a serious strategic mistake.
Negotiations on all 12 cross-strait agreements signed by the Taiwanese and Chinese governments were launched when the Democratic Progressive Party was in power. They were conducted individually because the government did not want to restrict its room for maneuver by treating them as a single package.
The ECFA talks are the first cross-strait talks for which the Ma administration is fully responsible. Based on what we’ve seen so far, it seems that the incompetence with which the government handled the US beef scandal will be repeated. This time, however, the consequences will be much more serious.