Taiwan and the mainland are set to sign a controversial trade agreement today that is being hailed as the most important deal between the two sides since the end of the civil war 60 years ago. The ruling Kuomintang says the Economic Co-operation Framework Agreement (ECFA), which will be signed in Chongqing, will boost annual two-way trade by US$100 billion by knocking down tariffs on more than 800 items. Critics fear the agreement will result in cheap mainland goods flooding the island, a huge loss in jobs on Taiwan, an exodus of experienced managers, engineers and scientists to the mainland, and a growing dependence on Beijing, which claims sovereignty over the island. According to the agreement, 'early harvest' tariff cuts have been agreed on for 539 Taiwanese products going to the mainland and 267 products heading the opposite way, as well as open markets for banking and other services. The reductions on the Taiwanese items are said to amount to US$13.84 billion while those from mainland are valued at US$2.86 billion. The tariff cuts will affect about 15 per cent of Taiwan's exports to the mainland, including petrochemicals and plastics, cars and parts, textiles, machine tools and medical equipment. (The list does not include PVC products, one of Taiwan's top exports, or completely-assembled automobiles). In addition, the mainland's computer services, airline maintenance and medical sectors will open their doors to Taiwanese investment. In return, Taiwan will slash tariffs on mainland products, from toothbrushes to wristwatches, to bicycle tyres and industrial oils, as well as allow mainland investment to pour into the island's service industries. Taiwan's banks will be one of the main beneficiaries of the agreement, being permitted to deal in the yuan a year earlier than current rules allow. They will also be able to turn their representative offices on the mainland into branches after just one year, rather than two, giving them privileges not enjoyed by foreign banks. The agreement will also allow Taiwan banks to provide lending to the mainland's small and medium enterprise sector, an area in which the banks have built extensive expertise. 'For us, this is another opportunity to get into the mainland banking market faster,' said a Taiwanese banker based in Beijing. She said that Taiwanese banks would also be allowed to invest in the mainland's city commercial lenders, with a maximum set at 20 to 25 per cent in any one bank, and with the right to do yuan and commercial banking from the start, without a waiting period. 'The biggest advantage will be the network,' the Taiwanese banker said. 'If a city commercial bank has 100 branches in a certain province, that will be a big plus for Taiwan banks to expand their business coverage.' She said at present, foreign banks could only open one branch per year. 'If we invest in a city commercial bank, then we're talking about 50 to 100 branches at one time, depending on the bank,' she said. 'We can expand our business in one blink.' The administration of Taiwanese President Ma Ying-jeou has been anxious to conclude the ECFA to win the same preferential treatment Beijing offers 10 Southeast Asian countries - in January China and the Association of Southeast Asian Nations concluded a separate free trade pact that cut tariffs on two-way trade. Beijing is also looking at similar trade arrangements with Japan and South Korea, and so Taiwan is eager to gain a competitive edge. With the mainland being Taiwan's largest investment destination and trading partner, absorbing 40 per cent of its exports, Ma expressed fears that the island's export market would be put at risk if Taiwan did not get its own trade agreement with the mainland. But not everyone is in such a hurry. The Taiwan News warned in an editorial that the pact, which excludes finished vehicles, would limit the upgrading of the island's automobile industry as tariff incentives would encourage automobile parts companies to move to the mainland for assembly in Chinese brand-name vehicles. This would pull Taiwanese parts manufacturers into the mainland's supply chains and discourage international manufacturers from using Taiwan as a base for making auto exports to the mainland. 'The ECFA of course is not the perfect way, but considering the current situation, we cannot avoid dealing with the mainland,' the Taiwanese banker said. 'Taiwan's economy is heavily reliant on the mainland, and the fact is we cannot avoid the market because the global economy is quite focused on China.' Opponents of the agreement pushed hard for a referendum, arguing that the pact could hurt Taiwan's economy and sovereignty. Several surveys have shown that more than 60 per cent of the people in Taiwan favour submitting the ECFA to a referendum. Tens of thousands of protesters braved thunderstorms to turn up for a demonstration in Taipei on Saturday calling for a referendum. 'The Ma government insists that the ECFA's benefits are greater than its harm and that it is 'Taiwan's vitamin'. But who will have a chance to eat this vitamin?' the Taiwan News quoted Democratic Progressive Party chairwoman Tsai Ing-wen as saying at the demonstration. 'Only conglomerates and a small minority of people will benefit while the interests of most industries and ordinary people will be sacrificed,' Tsai told the crowd, adding that the ECFA would undermine community industries and lead to a society in which 'the poorer get poorer and rich get richer'. Former Taiwanese president Lee Teng-hui, 87, told the protesters: 'The ECFA will benefit big corporations rather than the general public, labour or small businesses. It is wrong and it will hurt Taiwan.' Lin Chong-pin, strategic studies professor at Tamkang University in Taipei, who has served in KMT and DPP administrations, said Beijing had tailored the pact to meet the needs of low-income people in Taiwan. 'At least on the surface, to me, Beijing is aiming the whole thing at the basic voters in the south of Taiwan,' he said. 'Beijing would like to win the hearts and minds of the poor.' He said that over the past month or so, there had been 'a strange interplay' between Beijing and the DPP regarding opposition to the ECFA. 'A very strange exchange of ideas has been going on via the media, without any contact,' Lin said. 'Whenever the DPP raised a question of doubt, Beijing would address it almost immediately.' He said that the exchange left the KMT completely on the sidelines, which was 'really ironic'. Lin said recent polls showed that Taiwanese now saw the mainland as less hostile than at any time in the past, but that support for the status quo was also at an all-time high. He added that while there was majority support for the ECFA, people still had doubts and so also favoured a referendum. 'People would like to see greater economic prosperity brought about by the ECFA, but they also want to keep their way of life for as long as possible,' he said. 'They feel a bit uncertain if the two sides get together too soon. 'The voters are not stupid. They've suffered from the economic downturn long enough,' he said. 'They want to see improvement in their economic life but they also have a gnawing in the back of their minds about whether economic integration will lead too soon to a change in political arrangements that will change their lives.' The KMT has steadfastly rejected holding a referendum. Observers say Ma, whose popularity rating has fallen to 30 per cent, is using the ECFA to improve his chances for re-election, as well as to counter challenges the party is facing in the year-end mayoral elections in five special municipalities. The United Daily, a pro-KMT newspaper, said that if Ma's administration failed to achieve the promises held out by the ECFA, he could lose the next presidential election. According to an editorial on June 22: 'The ECFA issues are a double-edged sword ... The Ma Ying-jeou government hopes that the signing of a cross-strait ECFA would create a positive political atmosphere, or at least not cause any negative effects on domestic politics. However, the gap emerging between the reality and expectations on the ECFA early harvest lists might incite a political storm against the Ma administration.' The opposition is also hoping to gain political mileage should the ECFA prove to be less than touted. 'Everyone should use their votes in the five municipal mayoral elections to teach a lesson to the Ma government, which cherishes neither Taiwan or its people,' Lee told demonstrators. Daniel Lynch, a professor of international relations at the University of Southern California's US-China Institute, is surprised by the KMT's lack of transparency in pushing the pact. 'When you think about it, here is a president with a 30 per cent approval rating and a profoundly unsuccessful record in leading his party in by-elections during the past eight months imposing this enormously consequential trade agreement on society - a trade agreement ... that aims ultimately to annex Taiwan, to coerce it into unification,' Lynch said. 'Wouldn't the president have been wiser to seek broad public support for ECFA?' He said that not only did Ma refuse to hold a referendum, but it appeared, according to Taiwanese media reports, that he also wanted to limit the legislature's discussion of the pact. 'And all of this comes just as many observers expect China's economic growth to slow - perhaps substantially,' he said. 'In such a situation, why wouldn't Ma and the KMT have sought the political cover that could come from broad consultation?' The ECFA, once signed, is slated for approval by Taiwan's cabinet, after which it will be sent to the Legislative Yuan. The legislature is expected to hold an extraordinary session on Monday to examine the treaty. The two sides plan to sign three other agreements in a sixth round of cross-strait talks that will take place later this year, Chiang Pin-kung, chairman of the Taipei-based Straits Exchange Foundation, said. The new agreements will cover investment protection and trade in goods and services. Mutual benefits The pact is expected to boost two-way trade by US$100 billion Taiwan will cut tariffs for 267 mainland products, while the mainland will cut tariffs for this many Taiwanese goods: 539
