A cross-strait agreement to make money, not war

ONLY a week after Taiwan signed the equivalent of a free trade agreement with China, the impact is already being felt across the region.

A Taiwan official said 22 members of the World Trade Organisation have asked Taiwan for briefings on the agreement, formally known as the Economic Cooperation Framework Agreement, or Ecfa.

Ironically, while Taiwan sought the accord in an attempt to avoid being isolated, other economic heavyweights, such as Japan and South Korea, are now wary that the island may have stolen a march on them in terms of exports to the mainland.

The Asahi Shimbun, for example, wrote on July 1, the day after the pact was signed, that it "could reshape the trade environment in Asia, forcing Japan to shift its strategy in trade talks while prompting companies to form new ties".

The South Korean news agency Yonhap quoted a report by the Korea International Trade Association calling for Seoul to sign a free trade pact with China quickly to offset the "significant damage" to South Korean exports to China.

According to Asahi, of the 20 biggest South Korean exports to China, 14, including liquid crystal displays, semiconductors and petrochemical products, compete against Taiwanese products. And these 14 account for 60 per cent of all South Korean exports to China.

A free trade agreement between China and the Association of Southeast Asian Nations came into effect in January, excluding Taiwan. Meanwhile, China, Japan and South Korea have been seeking greater economic integration

There was a fear that the island could become increasingly sidelined as all its major trading partners sign FTAs with one another.

By signing Ecfa, Taiwan at one stroke cemented its trade relationship with China and also put itself in a position to negotiate similar agreements with its other trading partners.

President Ma Ying-jeou, while acknowledging that the government could not "guarantee that many FTAs will be signed immediately", declared that Taiwan now "will stand a better chance".

And, judging from the media reaction, he is likely to be right. The Nihon Keizai Shimbun, for example, urged Japan to follow China's example and negotiate a free trade agreement with Taiwan, even though it acknowledged that the Chinese hoped to use Ecfa as a stepping stone towards a political agreement with Taiwan.

While Beijing has made public its opposition to governmental agreements between Taiwan and other countries, Wang Yi, director of the Taiwan Affairs Office under the Chinese State Council, said the day the Ecfa agreement was signed that the Chinese government would "reasonably, practically and adequately" deal with Taiwan's efforts to forge FTAs with other countries.

This has been interpreted in Taiwan as a promise not to obstruct Taiwan's efforts to forge trade agreements with other countries, as long as they are presented as nongovernmental accords.

Thus, the way now seems clear for Taiwan to both strengthen its trade with the mainland, its most important economic partner, and also to formalise agreements with its other major trading partners.

The accord marks a major step forward for Taiwan as it successfully overcomes political barriers previously imposed by China, which sought to isolate Taiwan internationally.

While Taiwan is driven purely by economic factors, China's focus is largely political as it seeks to diminish opposition within Taiwan to closer relations with the mainland.

Thus, Wang rather significantly asserted that Ecfa would not only help both sides raise their economic competitiveness, he said it would also "promote the common interests of the Chinese nation" -- a term that in Beijing's eyes includes both the mainland and Taiwan.

That is why, within Taiwan, there has been significant opposition to the accord with the opposition Democratic Progressive Party (DPP) warning that it could lead eventually to Taiwan's political absorption by China.

Ma, however, appears confident that Ecfa's political impact within Taiwan will be positive. In fact, he is counting on the expected economic benefits to translate into votes for his political party in municipal elections scheduled for November.

If the ruling party does well in those elections, it will mark a turning point in its political fortunes over the last two years. And that, in turn, will certainly enhance the president's re-election prospects in 2012.

Ma has shown that while his interests and those of China may coincide to some extent -- such as seeing to it that the DPP does not return to power -- he is totally uninterested in a political agreement with China.

With the signing of Ecfa, he said, the two sides of the Taiwan Strait will make money, not war, adding: "This is far more meaningful than inking a cross-strait peace agreement."
By Frank Ching for the New Straits Times, Kuala Lumpur
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