Taiwan and China aim to sign a landmark free trade-style agreement by June aimed at bringing the political rivals closer while opening the often-isolated island’s $390bn economy to trade pacts around the world.
The economic cooperation framework (ECFA) agreement between economic powerhouse China and export-reliant Taiwan would conclude two years of trade and transit talks following decades of political hostilities.
The following is an overview of EFCA’s likely content and expected impact:
Contents of the deal
Tariffs would fall to varying degrees in sectors included on an “early harvest list”, seen as a highlight of the deal. Negotiators have taken LCD panels and agricultural products off a list of sectors eligible for early trade tariff reductions, putting off some to future talks.
China has also agreed to avoid hurting the most vulnerable sectors of Taiwan’s $390bn economy.
Import tariffs will remain highest for sectors in Taiwan that might lose ground to a greater flow of goods from China. Financial services and institutional investors will benefit from more open financial markets on each side, while legal transparency rules should help high-tech R&D in Taiwan.
Negotiation timeline
Chinese officials say they want to fast-track the deal, despite its complexity, while the Taiwanese government has said it aims to sign it at formal talks by the end of June.
Taiwan’s parliament could hold up the ECFA by demanding revisions subject to Beijing’s approval.
Market impact
The Taiwan Stock Exchange and the Taiwan dollar will firm slightly when the deal is signed. Shares of listed companies from China’s Fujian province, geographically closest to Taiwan, would gain in Chinese markets.
Likely gains for Taiwan, China
Taiwan will receive a first-time blessing from Beijing to discuss free-trade agreements with the US, Singapore and other countries, which would react positively to the export-dependent island’s tie-up with China’s much larger economy.
Beijing is hoping the deal will help it win points in Taiwan for any later talks about political unification.
Political risks
If negotiations carry into the second half of the year, the ECFA will become enmeshed in fractious Taiwan local elections, with anti-China opposition candidates saying the deal will flood the island with cheap Chinese goods or herald cross-Strait political unification.
The ruling KMT is staking much of the vote on the ECFA in polls seen as a bellwether for the 2012 presidential race.
