China, Taiwan to sign landmark trade pact
BEIJING - Longtime rivals China and Taiwan were set to sign a broad-reaching trade deal Tuesday to draw their economies closer, which Beijing hopes could lead to a political accommodation, six decades after they split amid civil war.
For its part, Taiwan hopes better terms of trade under the pact will keep the island from being economically marginalized as China's global clout grows. Beijing is granting Taiwanese products quick tariff reductions to show the benefits of closer ties.
The pact will do away with tariffs on hundreds of products traded across the strait and allow Taiwanese firms access to 11 service sectors on the mainland, including banking, accounting, insurance and hospitals. It should boost bilateral trade already totaling about $110 billion a year: some $80 billion in goods flowing to China, and $30 billion to Taiwan.
The deal will be signed in the southern Chinese city of Chongqing -- a venue with an evocative history. Communist leader Mao Zedong and Nationalist President Chiang Kai-shek tried to negotiate a truce there after World War II -- but failed. The two sides then resumed the civil war that ultimately saw Chiang's government driven from the mainland to Taiwan in 1949.
For decades, relations across the 100-mile- (160-kilometer-) wide Taiwan Strait have been strained and it remains a potential military flashpoint. China has some 1,300 missiles aimed at Taiwanese targets and, while Taiwan has cut its defense budget as a proportion of GDP in the last two years, it retains a well-equipped air force as deterrent.
Negotiators on Monday spoke of a new era in ties. The sides are also set to sign a second agreement on intellectual property rights protection.
"The signing of the two agreements is an important strategic measure the two sides across the strait take together to improve the competitiveness of the Chinese nation," Chen Yunlin, who oversaw negotiations for Beijing, told reporters at a welcoming ceremony for the Taiwanese delegation.
Formally known as the Economic Cooperation Framework Agreement, the pact marks a political victory for both governments. Chinese President Hu Jintao has sought to move beyond the threatening rhetoric that long characterized Beijing's response to Taiwan's refusal to unify with the mainland. His government has talked of ending the state of hostility with Taiwan and negotiating a peace treaty.
For Taiwan President Ma Ying-jeou, the deal is the high-point in the rapprochement that he has engineered since being elected two years ago on a platform to reduce tensions and strengthen economic ties. But Ma is under pressure to prove his strategy is working to Taiwan's boisterous democracy and a divided public skeptical about Beijing's intentions.
More than 30,000 Taiwanese protested the deal in the capital Taipei over the weekend. Taiwan's opposition Democratic Progressive Party have criticized Ma for proceeding without enough public input and rejecting calls for a public referendum on the agreement.
Still, polls show a majority of Taiwanese support the deal because of the economic boost it promises.
Dan Blumenthal, resident fellow at American Enterprise Institute for Public Policy Research in Washington, D.C., said the deal was intended by China to win goodwill and put forth a "kinder, gentler face" to the Taiwanese.
He said Beijing may also view it as a step toward unification but noted that remained an unlikely outcome as opinion polls show Taiwanese still clearly oppose being part of the mainland.
Notwithstanding years of political tension, Taiwanese businesses are already some of the most eager investors in China, having poured at least $83 billion into the mainland over the past two decades. About 40,000 Taiwanese companies now operate there.
Ma's government says the deal will keep Taiwanese businesses competitive with Southeast Asian countries, whose free trade agreement with China came into force Jan. 1.
"The pact will help Taiwan compete with Southeast Asian products on an equal footing in the Chinese market ... and allow Chinese consumers to buy Taiwanese products cheaply," Chiang Pin-kung, Taiwan's chief negotiator, said shortly after arriving in Chongqing on Monday.
Analysts from the Peterson Institute for International Economics, a Washington think tank, project the deal could help Taiwan increase its GDP by up to 5.3 percent by 2020 and have described it as "an ambitious accord that fundamentally changes the game between Taiwan and China."
"We can think of few (if any) other policy reforms available to Taipei that could deliver such gains," authors Daniel Rosen and Wang Zhi wrote in the policy brief released this month.
While the deal will bring the two economies even closer together, Steve Lin, an economics professor at Taiwan's National Chengchi University, said it stops short of creating European Union-style integration with free exchanges of labor, unified tariff rates or a common currency.
"The ECFA only provides a freer environment," Lin said. "We want their market and they want our technologies ... Such integration will benefit both sides. The two economies will cooperate and also compete against each other."
The agreement is expected to be easily approved by Taiwan's legislature next month, because Ma's ruling Nationalist Party holds a majority of the seats.