Taiwan, ECFA, and the Politics of Free Trade

Last June, the two "unofficial" organizations representing Taiwan and the People's Republic of China (PRC) signed an Economic Cooperation Framework Agreement (ECFA) on behalf of their respective governments. Taiwanese critics have slammed the agreement as a further surrender to Beijing of their island's autonomy by allegedly pro-mainland President Ma Ying-jeou. Supporters of the agreement have highlighted the potential business opportunities that greater trade with the mainland will bring. What are the potential economic costs and benefits of the ECFA for Taiwan? Does the ECFA enhance or restrict Taiwan's free trade with other parties? Will Taiwan still be able to work within international trade organizations to increase its public space? What are the domestic Taiwanese dynamics that will determine the success or failure of the agreement? The implications and potential effects of the ECFA were discussed at an October 18 event, hosted by the Asia program.

Merrit "Terry" Cooke, founder and CEO of GC3 and a former career officer at the State Department, and recent Public Policy Scholar at the Woodrow Wilson Center, summarized the effects of the ECFA on business and economics in Taiwan. Cooke characterized the agreement as natural and necessary, but insufficient. It is natural because Taiwan has long traded with the mainland in light manufactures and information technology. Businesses in these sectors were less conspicuous and could therefore bypass official bans on trade that heavy industry could not. According to Cooke, the ECFA thus addresses long-standing imbalances in Taiwan's trade profile with China. The agreement, he argues, is necessary, because the triangular relationship among the United States, China, and Taiwan has always been most stable when there are strong bilateral linkages between all three of these countries. The ECFA strengthens the "leg of the tripod" between China and Taiwan. Nevertheless, with trade disputes over issues such as beef imports, Cooke feels that more needs to be done to strengthen the U.S.-Taiwan "leg" of the relationship. Despite his positive view of the ECFA in general, Cooke also noted that it is insufficient: outstanding issues such as the lack of stable platforms for dispute resolution have left little recourse for Taiwanese firms when they have felt that their business on the mainland has been targeted for political reasons.

Why then is the ECFA controversial in Taiwan? According to Shelley Rigger, Brown Professor of Political Science at Davidson College, there are fundamental contradictions in the way the agreement is viewed by Taipei on one hand, and Beijing on the other. In Beijing, the ECFA is clearly seen as an extension of the mainland's political influence, with the long-term goal to bring Taiwan formally under Beijing's control. Within Taiwan there is a broad political consensus on the importance of retaining the island's autonomy from the mainland, although significant political divisions exist around the question of how Taiwan should deal with the rise of the PRC. For most within the governing Nationalist Party (Kuomintang - KMT), the ECFA is a realistic acknowledgement that the mainland's growing economic might holds significant business opportunities for Taiwan. In fact, from a purely economic standpoint, the ECFA has been weighted to Taiwan's advantage in order to offset concerns about the island's autonomy. The opposition Democratic People's Party (DPP) in Taiwan, however, believes that it will be difficult in the long term to resist the political pull of China given the economic ties under the ECFA, and that the government is playing a dangerous game. If the ECFA succeeds in boosting Taiwanese growth and Taiwan manages to hold on to its autonomy, the KMT will have scored an impressive political victory. If it fails, the DPP can claim that the government sacrificed Taiwanese autonomy for little gain.

So, is President Ma selling the island's autonomy away, as some of his detractors claim? According to David Brown, adjunct professor at Johns Hopkins School of Advanced International Studies, the ECFA is seen by the Ma administration as part of an overall focus on regional trade. With nations in Southeast Asia and the Pacific lining up to sign free trade agreements (FTAs) with the PRC, Taipei did not want to be left behind in negotiations. Indeed, the ECFA originated in talks on the margins of regional meetings like the Asia-Pacific Economic Cooperation (APEC) forum. However, while Ma emphasized the importance of FTAs in domestic political debates, Beijing would not accommodate mention of trade with third parties in the ECFA, a stipulation that Ma apparently sought. What effect the ECFA will have on Taiwan's ability to increase its diplomatic space is therefore in question. Critics point out that Ma, probably with prodding from the mainland, cancelled a planned FTA task-force after the ECFA was signed. Nevertheless, Beijing has not expressed objection to a subsequent joint statement between Taiwan and Singapore that they were negotiating a "World Trade Organisation-consistent economic agreement," wording almost certainly designed to avoid sovereignty implications. Brown thus concluded that Beijing has opened a small door for Taiwan on regional trade. Beijing will not oppose trade agreements with other regional partners like Singapore, as long as they do not invite questions about Taiwan's autonomy. Here though, Beijing's stance represents pragmatism more than benevolence, as it knows that its resistance to such deals would risk aggravating anti-mainland sentiment within Taiwan, setting back the objective of drawing the island ever further into the PRC's orbit.

By Bryce Wakefield
Robert M. Hathaway, Director, Asia Program