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ECFA and the Changing China-Taiwan Relations

Gunjan Singh
Research Assistant, Institute for Defence Studies and Analyses
email: gunjsingh@gmail.com

In a historic step, China and Taiwan are ready to sign the Economic Co-operation Framework Agreement (ECFA). It is expected that this trade agreement will be a great step in the ongoing economic integration. There will be a major lifting of tariff of about 800 commodities and will create a large number of employment opportunities for the Taiwanese. It will accelerate the level of Taiwanese growth by more than 1.7%. By showing the good returns from the ECFA the Kuomintang government is hoping to see positive results in the 2012 mayoral elections.

Though it took about 2 years of negotiations to reach the point of actually signing the deal there is a general apprehension within the Taiwanese community about the future outcomes. The analysts are predicting that it will be Taiwan which will be the major beneficiary. There is also a general consensus that Beijing will use this step to gain political mileage, more than economic. As Taipei becomes more and more ingrained in the Mainland economy, its political independence might be compromised. This may also have an effect on the Taiwan–United States relations. The more influence China has on Taiwan, with the increase in the economic interdependence in addition to the KMT government which has been a pro-reunification section, one can expect a large change in the Taiwan-US dynamics. It would not be far fetched to conclude that Taiwan may like to use its closeness with Beijing in order to gain some economic as well as political mileage in the international space.

The domestic response to this deal has not been very positive either. The pro-democracy and pro-independence lobbies perceive this as an act of compromise for the sovereignty of Taiwan. Lee Teng-hui, the former President of Taiwan has stated that this deal will surely ‘hurt Taiwan’. There is also consensus that as has been the case in the other regions of the world like Africa, Latin America, due to the competition with the cheap Chinese goods which will now flood the Taiwanese markets, the domestic companies might be forced to close down. Something which is not what the Taiwanese would expect.

The pro-deal lobby is of the opinion that the increasing economic clout of Beijing is something which Taiwan cannot ignore in the long run and this deal will benefit Taiwan more. Today Mainland is the largest trading partner of Taiwan and thus this appears to be the logical outcome. Earlier Premier Wen Jiabao had said that Mainland "can give up our profits because Taiwanese compatriots are our brothers."

Another important political outcome of this might be that South Korea may hurry towards signing the Free Trade Agreement (FTA) with China, a step which will definitely hamper the positive expectations from ECFA. On the other hand, there is general hope that Beijing, after signing the ECFA with Taiwan may allow it to sign the FTA with other countries. Till date Beijing was totally against this step as it did not consider Taiwan as a sovereign nation. Considering the level of importance which China has gained in the international arena, no country could go ahead and sign a deal with Taiwan at the cost of affecting its relations with China.

Though there is a great deal of limelight on this deal as it comes after almost six decades of hostile relations and under the shadow of the 1000 missiles which are facing Taiwan, the real and the tougher part comes after this act. It is believed that if China starts to play tough the Taiwanese domestic pressure may lead the KMT government to back track. The second round of talks includes negotiations on lowering of tariff on commodities like PVC plastics and high-tech commodities. They will also cover issues which are pretty sensitive for both sides which include Taiwan-made cars and machine tools. This level is perceived as essential for Taiwan's continued economic success.

Undoubtedly, there are a lot of issues to be considered and solved before a meaningful format is evolved for the cross-strait relations. One cannot deny that there has been a major leap in the level of interaction and the level of acceptance on both sides. Taiwan is using its new found comfort to gain some international leverage. Taiwan understands that it an era when the whole world is trying to get integrated into the Chinese economy and it cannot afford to sustain itself by maintaining a distance. On the other hand, Taipei hopes that if it gains acceptance at some level on the Mainland, it can work towards achieving space in some international organizations like the WHO which it has been working to do for a very long time. Thus this should not be viewed as a simple economic deal as a lot of political goals are expected to be achieved by both sides.

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