Perhaps one of the most interesting and underreported news items of the past year has been the progression of the China-Taiwan Free Trade Agreement (also know by the very Chinese sounding mouth-full of a name Economic Co-operation Framework Agreement or ECFA). It was less than twenty years ago that President Clinton had to send the U.S.S. Nemitz into the Taiwan Strait in order to quell the rising threat of war between these two countries (OK, I know, Taiwan may or may not be am actual “country” but for purposes of this posting, lets just go with it). Since then things have improved quite a bit. As it so often does, economic collaboration resulting in mutual financial gains has helped Taiwan and China to over look their many differences and the possibility of military engagement has become less and less of a reality.
I spent several years living in Taiwan and was there when Ma Ying-Jeou won the Presidential election in 2008. Since taking office he has made the main goal of his administration to improve relations between his island and the mainland. This is a highly controversial topic in Taiwan, and many loud voices from the opposition party have accused Ma of trying to turn the island back over the China. This free trade agreement is the newest and most ambitious deal to improve relations between the two countries.
As can be expected during the negotiation of any free trade agreements there are many pundits in Taiwan sounds Ross Perot like alarms that this deal will create an influx of cheap Chinese goods that will decimate the Taiwanese economy. Let’s ignore these inane comments and focus on the real implications of the trade deal.
Taiwan is rightly worried about being left behind. After decades of being the model for Asian development the islands standing as a diplomatic pariah is staring to affect the economy. China has been negotiating free trade deals with other Asian nations and with organizations like ASEAN. This means good are able to flow into China with much cheaper tariffs than they are from Taiwan. This is making Taiwan much less competitive and leaders are worried that they will quickly get rolled over by other countries like South Korea or even Vietnam.
Ma is taking a realist approach in pursuing this trade agreement. Whatever your opinion of Ma or how Taiwan should interact with China, this deal does seem to be necessary. Unfortunately for Ma, the deal (along with other domestic missteps) is making him quite unpopular at home. He is hoping that this deal with China will pave the way for free trade agreements with other countries which China has previously pressured countries into forgoing. This may be optimistic on Taiwan’s part, but it seems as if they may have no choice in the matter.
Further Reading:
NYTimes: Weighing the Costs in Asian Trade Talks
The Economist: The Ties that Bind
The Economist: Know Your Customer
The Economist: No Such Thing as Free Trade
WPR: Global Insider: China-Taiwan Trade Relations
FT: Trade Deal Boosts Taiwan Ties with China
FT: Chinas Bear Hug has Benegits for Warry Taiwan
