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June 29, 2010

China and Taiwan Signed a Trade Deal

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Taiwan is scheduled to sign signed its first trade treaty with China tomorrow, strengthening commercial ties with the fastest-growing major economy and the island’s biggest trading partner and investment destination.

* China will cut tariffs on 539 items from Taiwan valued at $13.8 billion, or about 16 percent of the island’s 2009 exports to the mainland
* Taiwan will cut tariffs on 267 items from China worth $2.86 billion, or about 10.5 percent of the country’s shipments to Taiwan in 2009
* Direct air, shipping and postal links were already re-established. In the first five months of this year, 70,445 Chinese visited Taiwan, 70 percent more than in the corresponding period a year earlier

The deal, known as the Economic Cooperation Framework Agreement (ECFA), will lower tariffs on two-way trade that's now estimated at around $120 billion annually and improve mutual market access in services

Analysts caution that the deal may be the peak for cross-strait relations, at least for the next few years. Any further major deals like ECFA are unlikely until (and if) Taiwan's China-friendly President Ma Ying-jeou is reelected in 2012. And the chances for political or military talks remain slim.

Ma and his party will face tough local elections this November, a legislative election in late 2011, and a March 2012 reelection bid.

The ECFA deal will now be sent to Taiwan's legislature, and the opposition has already begun a debate on how that review process should go. The opposition also looks set to moot another proposal to put ECFA to an island-wide referendum (two previous proposals were rejected by a referendum review committee). But the opposition holds too few seats to block the deal, meaning final passage is expected later this summer.
* In January, a separate trade accord took effect between China and the Association of Southeast Asian Nations, lowering tariffs on two-way trade. Similar deals for China with Japan and South Korea are under discussion.

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