Wed, 05 Aug 2020

Taiwan Preps for Possible End to Landmark Trade Deal with China

Voice of America
11 Jul 2020, 18:35 GMT+10

TAIPEI, TAIWAN - China now has the chance to reconsider its 10-year-old Economic Cooperation Framework Agreement with Taiwan, the biggest-ever trade pact between the two rivals, and a Chinese media outlet hints at the agreement's demise.

The agreement, cutting tariffs on about 800 items on both sides and heralding more to come, capped two years of trust-building between governments that had gotten along poorly for decades. Now though, analysts say, the trust is gone and Taiwanese exporters have learned to rely less on the Chinese market over the past decade. A Chinese media outlet says the deal will "expire" this year.

The demise of the agreement would mark the biggest undoing of a China-Taiwan deal, upsetting Taiwanese who are part of a $149 billion trade relationship with China and cutting one of the few threads left in political relations between the two.

"It's rather hard to imagine that ECFA will be canceled but because China-Taiwan relations are very poor now and there's no more of the earlier political foundation for negotiating ECFA," said Huang Kwei-bo, vice dean of the international affairs college at National Chengchi University in Taipei.

"So, if this matter perhaps gradually becomes reality, then for Taiwan society it definitely would become an extremely, extremely hot topic," Huang said.

The deal lacks a formal renewal deadline, but international trade agreement language suggests that agreement signatories anywhere take no more than 10 years to establish customs union or free-trade zones. Taiwan's Bureau of Foreign Trade calls the 10-year idea nonbinding.

China and Taiwan had agreed via ECFA to reduce more trade and investment barriers, but they never implemented further liberalization.

The Chinese side is now hinting the deal may be ending, a media outlet says.

"The trade agreement is about to expire at the end of September this year," the state-run China Global Television Network said last month without elaborating.

Withdrawal from the pact requires 180 days' notice.

Any renegotiation would be tough because China stopped formal dialogue in 2016 because Taiwan President Tsai Ing-wen refused to describe both sides as one country. Her predecessor had agreed to call both sides "China," allowing for talks that spawned the ECFA.

China had seen the pact in 2010 as a way to bring the two sides closer - key to its unification agenda - by offering trade concessions. China eliminated tariffs on 539 Taiwanese imports while Taiwan cut tariffs on 267 Chinese products. Taiwanese farming, fishing, vehicle manufacturing, textiles and machinery industries benefited.

The end of the ECFA would hurt just under 5 percent of Taiwan's commerce with China, government officials have said.

China wants to make "life more difficult economically" for Taiwan, said Derek Grossman, senior analyst with the Rand Corp., a U.S. research institution. Over the past four years Chinese military ships and aircraft have passed near Taiwan, which is 160 kilometers away, and Chinese tourist arrivals to Taiwan began tapering in 2016.

Taiwan is ready in case China scraps the deal, analysts say. Tsai's government is trying to expand trade with 19 other countries via its New Southbound Policy, a strategy aimed at expanding Taipei's relations with countries in South and Southeast Asia, Grossman noted.

"I think part of the reason for [the] New Southbound Policy was kind of this expectation that China would cut them off economically at some point plus not trying to get overly dependent on Beijing," he said.

Taiwanese entrepreneurs in many industries, including finance, depend on China less now than they did 10 years ago because of the Chinese internal issues such as China's battle with COVID-19, said Alicia Garcia Herrero, chief Asia-Pacific economist with Natixis, a French financial services firm.

"Unless [ECFA] can be renewed automatically, this thing might simply go," Garcia said, as neither side would have an interest in pushing for it.

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