Friday 30 Sep 2022 | 14:12 | SYDNEY
Friday 30 Sep 2022 | 14:12 | SYDNEY

The Taiwan trade gamble


Malcolm Cook

5 July 2010 14:04

Last week, Taiwan became the second developed economy (after plucky New Zealand) to sign a free trade agreement with the People's Republic of China, the first such agreement between two North Asian economies.

Signing the Economic Cooperation Framework Agreement (ECFA) is a victory for President Ma's approach to cross-strait relations and for a Taiwan economy that is already very dependent on trade and investment relations with China. In 2008, over 70% of outward-bound capital from Taiwan landed across the strait in China.

However, for Taiwan, this is not simply a commercial deal with its largest economic partner. President Ma's Administration sees the signing of ECFA, and the larger warming of cross-strait relations it represents, as a way of helping Taiwan engage more with the rest of the world and to increase Taiwan's 'international space'. Following this hopeful logic, the Ma Administration is hoping that ECFA acts as an opening for other WTO members to start trade negotiations with Taiwan.

So far, Taiwan has been largely frozen out of the shift to bilateral trade diplomacy of the last decade or so. Before ECFA, Taiwan had only signed FTAs with Panama, Nicaragua, El Salvador and Honduras (all part of the club of 23 countries that recognise the Republic of China [Taiwan] as a state).

This is where the gamble comes in.

While ECFA is clearly in Beijing's 'peaceful reunification' interests, it is not clear that it is in Beijing's interests for ECFA to be a tool for Taiwan to increase its 'international space'. So far, in post-signing official statements, Chinese officials have been non-committal on Taiwan using ECFA as a stepping stone for trade deals with other WTO members.

Will WTO members seeking closer trading relations with both China and Taiwan now see ECFA as a signal to start trade negotiations with Taiwan as another WTO member? Or will states continue to shy away from formal trade negotiations with Taiwan for fear of the damage it could do to relations with China? The Nihon Keizai Shinbum newspaper in Japan is plugging for the former, braver option. The Philippine Government seems to have pre-emptively opted for the safer latter one.

Ironically, while it is still far from clear whether ECFA will encourage other WTO members to start trade negotiations with Taiwan, ECFA has increased South Korean and Japanese incentives for getting an FTA with China.

Photo by Flickr user thecliff1973, used under a Creative Commons license.