Taiwan, China Sign Free Trade Deal

[ Video Courtesy of NTDTV ]

The Economic Cooperation Framework Agreement (ECFA) between Taiwan and China was finally signed on June 29 in Chongqing, China, after months of negotiations. Proponents of the deal see an improved economic climate, while critics fear the loss of Taiwan’s sovereignty.

The free trade accord plans for 539 Taiwanese products, valued at US$13.8 billion, to obtain free entry into China, while 267 Chinese products, worth US$2.9 billion, should see their tariff rates brought down to zero upon entry into Taiwan. The deal will also open the two countries’ service sectors.

“We have completed the signing of the ECFA with mainland China today. This is very meaningful for Taiwan as the pact starts a whole new era for Taiwan,” said Taiwanese President Ma Ying-jeou, lauding the deal as an “innovation.”

ECFA is seen as a key element in Taiwan’s economic development as the island-state seeks to brand itself as a global innovation center—a springboard economy that will allow Taiwanese and foreign businesses to settle in Taiwan and have free entry into the Chinese market.

The Ma administration is betting on the opportunities offered by the huge and growing Chinese market. It also hopes this agreement will make possible other free trade agreements. China has blocked Taiwan signing free trade agreement with other countries and the administration hopes this deal will be the first step toward China removing obstacles to Taiwan making deals with other countries.

However, criticism of ECFA abounds. A Taiwan News editorial noted that while the agreement read that it was “based on the principles of the World Trade Organization (WTO),” it did not make explicit the legal basis of the agreement—which should be Article 24 of the General Agreement on Tariffs and Trade (the ancestor of the WTO). 

It also forbids China and Taiwan to use WTO “trade remedies,” thus preventing Taiwan from ensuring trade exceptions on the basis of national security or cultural protection against its giant neighbor.

In response to the signing of the agreement, a small political party, the Taiwan Solidarity Union (TSU), promptly announced a referendum proposal on ECFA.

“Letting people directly approve the content of the ECFA would be more effective than relying on the Legislative Yuan’s [Taiwan’s legislative assembly’s] approval and supervision,” said TSU Secretary-General Lin Chih-jia.

Lin Yu-chang, spokesman for the main opposition party, the Democratic Progressive Party (DPP), declared that his party “will give its full assistance and backing to the Taiwan Solidarity Union’s new referendum initiative.”

Taiwan News reports that a similar referendum initiative was rejected early in June by the Referendum Review Committee of the executive branch of the government because of a “conflict between the reasoning and the question itself.” Should the initiative fail again, Lin told a press conference that the DPP may initiate another one itself, even more so if Taiwan does not sign any free trade deals with other countries within a year.

Spokesman Tsai Chi-chang said the DPP would announce its post-ECFA plans after further internal discussions.

Over a hundred thousand people expressed their disapproval of ECFA at a June 26 rally. Many fear that cheap goods from the mainland will enter Taiwan, increasing unemployment levels, further weakening Taiwan’s ability to preserve its distinct political status.

“The ECFA is a sham of the Chinese communist regime. Under the disguise of benefiting Taiwan, the regime will steal Taiwan’s capital, talent, and technology,” said 87-year-old Lee Teng-hui, former president of Taiwan (1988-2000) at the rally.

“It can’t be more obvious that the regime aims at taking over Taiwan,” Lee said.

At a forum organized on June 12 by Taiwan Advocates, a pro-independence think tank that he founded in 2001, Lee expressed his fear that ECFA would lead to a “wave of local industries exodus” if in a free flow of money, goods, technology, people, and services the ECFA effectively creates a one-China market similar to the European Union.

With the tariffs reduced, Lee fears that Taiwanese corporations will close down factories on the island and move to China where the market is larger, costs of productions are smaller, and the opportunity to make money is potentially greater.

At the June 26 protest, DPP Chairwoman Tsai Ing-wen added that the ECFA would weaken the domestic market and benefit “only conglomerates and a small minority of people” as the potential outflow of Taiwanese assets and inflow of cheap Chinese products could damage domestic market-oriented and community industries.

Lee urged Taiwanese people to voice their disapproval of the behavior of the governing party Kuomintang (KMT)—the party he once led—at the next municipal elections in December. Already in December 2009, the KMT lost some of its municipal seats, a loss that was largely attributed to disapproval of its cozy relationships with mainland China.

The Economic Cooperation Framework Agreement will enter into force on Jan. 1, 2011.