Global Insider: China-Taiwan Trade Relations

Taiwanese Vice Minister of Economic Affairs Lin Sheng-chung said today that Taiwan might delay the signing of the Economic Cooperation Framework Agreement (ECFA) with China, which was originally slated to be ready for a June deadline. In an e-mail interview, Eurasia Group associate Nicholas Consonery explains Taiwan-China trade relations and the likely impact of the ECFA.

WPR: What is the status quo in terms of the regulation and extent of trade between Taiwan and China?

Nicholas Consonery: The total volume of trade between Taiwan and China has increased precipitously since Taiwan lifted a long-standing ban on direct trade and transport links between the two sides in 2000 -- going from just $31 billion in that year to $105 billion in 2008, according to Taiwanese official statistics. Currently, nearly 40 percent of Taiwanese exports are going to the mainland. But despite these gains, key industries in the Taiwanese economy -- like petrochemicals and machinery -- still face barriers in accessing the Chinese market. And concern is growing that these barriers are a big disadvantage for the Taiwanese economy, because key competitors in ASEAN will benefit from a recently signed free trade agreement between that economic organization and the mainland. For a more expansive rundown of the current scope of trade and industry restrictions between Taiwan and the mainland, see this recent testimony to Congress (.pdf) by Rupert Hammond-Chambers, president of the U.S.-Taiwan Business Council.

WPR: What would the ECFA likely change, and what are some likely sticking points?

Consonery: The key goal of the ECFA deal is to pave the way toward a free trade environment between the mainland and Taiwan. The two sides are currently in the process of agreeing on an "early harvest list" of industries where existing trade barriers will be reduced, and though this list is still under negotiation, the government in Taiwan has predicted that the major Taiwanese industries that would benefit from the ECFA deal would be petrochemicals, machinery, textiles, and steel. Estimates are all over the map, but many observers believe that Taiwan's domestic economic growth will benefit significantly from the signing of the deal -- a consensus seems to be in the range of 2 percentage points per year. Two big sticking points remain, but look unlikely to derail the signing of an initial deal: 1) steady domestic political opposition to the deal from the minority Democratic Progressive Party (DPP) in Taiwan (see this thrilling debate between President Ma Ying-jeou and Tsai Ying-wen, chairperson of the DPP); and, 2) unresolved discussions with Beijing over whether and how to open key industries that are extremely sensitive in Taiwan -- like the financial sector.