Just like a regular free-trade agreement (FTA), the Economic Cooperation Framework Agreement (ECFA) between Taiwan and China can be divided into three main parts: market deregulation, trade rules, including trade remedies and dispute settlement, and the establishment of organizations required for the deregulation of markets or assisting with the implementation of the trade rules. The third part specifically refers to the Cross-Strait Economic Cooperation Committee (CSECC), which was established by Taiwan’s Straits Exchange Foundation and China’s Association for Relations Across the Taiwan Strait on Jan. 6.
The ECFA discussions focused mainly on the liberalization of markets, but even if fully implemented, the early-harvest list which came into effect on Jan. 1 only accounts for about one-seventh of cross-strait trade. The extent of the potential benefits and actual impact of the ECFA will depend on the results of subsequent negotiations.
The most important thing to pay attention to is whether the two sides will allow further liberalization of “substantially all trade” as the WTO terminology is worded. In relation to goods, for example, this would actually means zero import taxes.
However, the ECFA only stipulates that the two sides shall conclude consultations on a goods related trade agreement “expeditiously,” while the content and timetable for trade liberalization remain uncertain, causing the concern among some trade partners.
As American Institute in Taiwan Chairman Raymond Burghardt said on Nov. 30 last year: “Now that the [ECFA] is in force, we encourage the parties [Taiwan and China] to notify the WTO of the ECFA in a manner consistent with the requirements for agreements that cover substantially all trade.”
The comment reflected two concerns. Business is business and Washington is concerned about the business opportunities for US enterprises with further cross-strait economic integration, as well as the systemic benefits, namely whether Taiwan and China will follow WTO rules for FTAs. However, the concern among some that the ECFA will become a domestic Chinese matter if the two sides fail to notify the WTO of the agreement is probably not a major concern for the US at this stage.
The ECFA negotiations are dealing with the easy issues first and leaving the more difficult aspects for later, but this also implies that talks will become increasingly difficult. In addition to the fact that continued market deregulation is a complicated matter to begin with because it directly involves industrial adjustments and domestic income distribution, and because the design of the ECFA was given precedence, follow-up talks must establish a conflict resolution mechanism and trade remedy measures. Based on the current design, these heavy tasks would fall on the committee.
Until the ECFA dispute settlement agreement is signed, the two sides will handle disputes either through cross-strait talks or the committee. Trade remedy measures include anti-dumping and equalization taxes involving unfair trade, as well as bilateral and multilateral safeguards in response to the implementation of the ECFA. At the moment, there are temporary bilateral safeguards for the items on the early-harvest list, but the related regulations are unclear until future trade talks are completed.
Despite this complexity, we only need to focus on one key point: Will ECFA dispute resolution and trade remedy measures be handled via the committee and other cross-strait mechanisms in the future or will they be the final step for handling such issues?
While routine issues can be handled within the framework of an FTA or a regional framework, WTO conflict resolution or other related multilateral procedures cannot be excluded. The decisions by the dispute settlement mechanism of the North American Free Trade Agreement, for example, are suggestive without any binding force. This could serve as an example for China and Taiwan.
It is unavoidable that trade will create friction and disputes. In light of the sensitivity of cross-strait relations, handling trade disputes through a cross-strait mechanism is likely to make things worse. In such cases, handling the matters through multilateral solutions and international arbitration can lower the conflict or function as a firewall.
The same reasoning applies to the question of whether the committee’s organizational design and functions should be simplified as much as possible, such as specifically focusing on follow-up talks on the trade in goods and services.
The committee is comprised of task forces from the two governments’ international trade and industry agencies. In other words, it is quite clear that the committee is an institution, not just a negotiation platform, and such an institution does not exist under any of the other FTAs Taiwan has signed.
The design is modeled on the Joint Steering Committee in China’s Closer Economic Partnership Arrangement with both Hong Kong and Macao. However, those two partnership agreements clearly define the steering commitees’ role using the word “including,” while the CSECC text says “including, but not limited to” — giving it almost no restrictions.
The CSECC has three roles: an administrative role involving follow-up talks, a quasi-judicial role involving interpretation and settlement of disputes and a quasi-legislative role involving integration of follow-up agreements into the ECFA.
Without proper adjustment and monitoring, the CSECC will inevitably become a source of conflict in the near future.
Honigmann Hong is an assistant professor in National Tsing Hua University’s China studies program.
TRANSLATED BY EDDY CHANG
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