IDSA COMMENT

Taiwan’s Unending Dialogue over ECFA

June 1, 2010

Taiwan is currently engaged in an intense domestic debate on the cross-strait matrix – the Economic Cooperation Framework Agreement (ECFA). On April 25, Ma Ying-jeou, leader of the ruling Chinese Nationalist Party (KMT), and Tsai Ing-wen, chairwoman of the opposition Democratic Progressive Party (DPP), debated ECFA on television. This was the first ever occasion in the political history of the Republic of China (ROC) that the President engaged in an open policy debate with the opposition party chairperson.

As part of its cross-strait agenda, the KMT-led government is expected to sign in June the ECFA, which, in the view of ECFA proponents, is expected to create better economic integration between Taiwan and mainland China. The agenda of ECFA is to “negotiate tariff concessions on major Taiwan exports to mainland China, raise Taiwan’s export competitiveness, and create job opportunities.” Though economic and trade agreements are nothing new under the aegis of globalization, the ECFA is somewhat more complex than other similar trade agreements: it entails an accord between two adversaries which do not officially recognize each other’s sovereignty. Whereas the DPP has constantly asked for a referendum on ECFA on the ground that it is closely linked to Taiwan’s political future, the KMT denies that connection and maintains that ECFA is only limited to economic engagement.

Also, the KMT argues that the ECFA does not come under the purview of the World Trade Organization (WTO) but is merely a bilateral agreement between Taiwan and mainland China to boost Cross-strait economic ties. Ma Ying-jeou is on record saying that, “If we sign an ECFA with mainland China, the pressure to sign FTAs with other countries will be reduced. … If we don’t sign one, other countries will enjoy zero tariffs when they export products to China, while our products will lose their competitiveness because of higher tariffs.” The DPP, on the other hand, contends that both Taiwan and China are separate members of the WTO and any bilateral or multilateral trade agreement with any power should adhere to the WTO mechanisms. DPP further believes that adhering to WTO arbitration and rules while signing the ECFA would strengthen Taiwan’s identity and its sovereignty as a separate region, for two specific reasons: First, WTO arbitration would help Taiwan avoid being swallowed by the mainland Chinese economic supremacy, with a third party being allowed to help resolve any possible future crisis. Second, adhering to the WTO mechanisms would keep intact the economic unit called the “Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu” under the world’s multilateral system. Tsai Ing-wen further said in the television debate that if DPP returns to power in the next general election scheduled for 2012, it would hold a referendum on whether the ECFA should be abolished. Leaders like Huang Kun-huei of the Taiwan Solidarity Union and former Premier Frank Hsieh support the anti-ECFA stand.

The idea of a trade agreement between mainland China and Taiwan was originally formulated by Vincent Siew of the KMT, currently the party’s vice-president. It was initially a part of the concept of cross-strait Common Market Foundation based on the European Union (EU) model, and advocated greater trade, tariff reduction, and eventually going for a common currency market between the two entities. In 2000, when the DPP came to power, it mooted a Comprehensive Economic Cooperation Agreement (CECA). After the KMT’s victory in the 2008 election, the issue acquired momentum and was renamed ECFA. However, Taiwan acceded to the WTO in 2001-02, when it was under DPP rule, along with the PRC. The WTO requires that while signing any bilateral or multilateral trade agreements its members should pursue an enforceable multilateral framework that adheres to the WTO agenda and guidelines. For this CECA/ECFA agreement there is the precedent of the Closer Economic Partnership Agreement (CEPA) signed between the Special Administrative Region (SAR) of Hong Kong and the PRC. The CEPA agreement conforms to Article 24 of the erstwhile GATT and is compatible with the rules of the WTO.

Although the CECA/ECFA agreement is politically abhorrent for the Taiwanese because of the widespread concern over the proposed deal affecting Taiwan’s political future, its proponents contend that it is good for Taiwan’s economic future and that it is not linked with any politics. It would avert Taiwan from being economically marginalized in Asia, with mainland China having free trade agreements with most countries of the region. It is pointed out that the ASEAN countries have gradually developed into almost a single free trade market with mainland China from January 2010; over 90 per cent of the goods traded between the two entities receive tariff-free treatment. Countries like South Korea and Japan are also eager to join the process and are engaged in serious dialogue with mainland China currently. KMT points to the unfolding scenario of a regional-level thirteen-country free trade market consisting of China, South Korea, Japan and ASEAN. It argues that without ECFA the higher tariffs involved in trade would diminish the prospects for Taiwan’s trade; ECFA would help Taiwan boost exports to the mainland and protect its investments and intellectual property rights.

The DPP maintains that the proposed agreement is tantamount to the surrender of Taiwan’s sovereignty to mainland China’s economic and political clout; that it would only result in the flooding of Taiwan by cheap goods from the mainland, which will eventually affect the local Taiwanese industries. It not only asks for a nation-wide referendum, but also urges the government to publicly disclose the nitty-gritty of the ECFA which it has concealed so far. As an alternative, the DPP prefers the trade and economic dialogue to be held under the WTO agenda to give more elbow room to Taiwan in the negotiations. However, what makes the ECFA matrix more important is its bilateral and global dimensions. Bilaterally, it is important for the domestic politics of the two mainstream political parties to help Taiwan recover from the current economic doldrums. For mainland China, the issue is more political than economic. PRC officials see it as a prelude to the unification process. Xi Jinping, the Chinese Vice-President, is on record as saying that the mainland would like to see the ECFA “smoothly proceed without disturbances so as to achieve results and produce economic benefit soon … the people in the mainland and Taiwan are both Chinese and the economy of both sides belongs to the Chinese economy, though the two sides have gone through different development paths over the past six decades.” To put in simple terms, the ECFA is the centrepiece of KMT’s willingness to strengthen its ties with the mainland and push its pro-China policy further and also to gain politically by boosting Taiwan’s economy before the 2012 general election. The DPP regularly points out to the dangers inherent in the KMT’s pro-China policy.

Globally, the ECFA conundrum would have some impact upon the US-China-Taiwan dynamic. The ECFA would definitely push Taiwan a step closer to China, which would mean a step away from the United States. It is believed that ECFA would bring the economic and political communities much closer across both sides of the Strait. Slowly, the issue of Taiwan seems to be drifting away from the hands of the United States. Yet, in the broader global context, the ECFA is definitely a forward-looking approach seen against the background of the larger ongoing economic trends in the Asia-Pacific region. Bodies like ASEAN and APEC have gained considerably from their closer economic and trade collaboration with smaller and bigger countries. What has really prevented Taiwan all these years from joining this club is its political status. In other words, China’s dominance in these bodies has eclipsed the scope for Taiwan’s participation in them. ECFA in this context is definitely a good thing for Taiwan and its economy.

To put it straight, the charter of trade liberalization and agreement has always invited debate and divisions in the economic planning of democratic societies: while the trade liberalization process does bring benefits, at the same time it also causes some hurts. For Taiwan, the process is in addition linked to its identity as a political unit. It is not yet quite clear whether civil society, academia or the greater Taiwan community support or oppose the ECFA. The broader public opinion in Taiwan seems to be unaware of the technicalities of the ECFA; their stance on the matter depends upon which political party they support. The fundamental ideological difference between the KMT and DPP supporters makes the debate on ECFA more complicated than it needs to be actually, with a peculiar intermix of politics and economics. The more important aspect of this debate appears to be about Taiwan’s political future.

The author is Associate Fellow at IDSA and currently a visiting faculty at the National Chung-Hsing University, Taiwan.