Since Ma Ying-jeou became Taiwan's president, there have been some significant breakthroughs in cross-strait ties. The 'three links' of direct postal, trade and transport services have been implemented; the next target is a comprehensive economic co-operation agreement.
The main aim of such an agreement is to promote the free flow of goods, services and capital across the strait. To protect Taiwanese farmers' interests, agricultural products will probably be excluded.
The Ma administration is giving priority to concluding the agreement. Economic integration within the Asia-Pacific region has exerted a lot of pressure on Taiwan. The global financial crisis has also hit the island's economy, so Mr Ma has to work hard to revive his declining popularity.
According to an agreement in 2002, the Asean-China Free Trade Area (ACFTA) will start operation next year, involving at first the five original Association of Southeast Asian Nations members (Thailand, Indonesia, Malaysia, Singapore and the Philippines), plus Brunei. These countries have agreed to implement a mutual comprehensive waiver of tariffs.
The remaining four Asean members (Myanmar, Cambodia, Laos and Vietnam) will join in 2015. Asean plus China, Japan and South Korea will probably conclude a treaty in 2012 to create the largest free-trade area in the world. And, if progress is smooth, India, Australia and New Zealand will probably participate at a later stage.
This all means that, if Taiwan cannot reach agreement with mainland China, there is a danger that it will be increasingly isolated economically. This is certainly a very serious threat, as the island depends highly on trade. The business community in Taiwan is acutely aware of the danger. There are more than 300,000 Taiwanese businessmen on the mainland today; they have been investing heavily in Southeast Asia, too, in recent years. According to Taiwanese authorities, when the ACFTA comes into effect in 2010, it will result in a loss for Taiwan of about 1 per cent of its gross domestic product. However, the comprehensive economic co-operation agreement across the strait will bring benefits of up to 1.4 per cent of its GDP.
The opposition Democratic Progressive Party has naturally attacked the proposed agreement as damaging Taiwan's sovereignty. It emphasises that Taiwan's professionals will face competition from their mainland counterparts, and the dumping of cheap products from across the strait will result in lost factory jobs.