China Stalls Over Redoing Taiwan Trade Pact

Taiwan grows anxious over looming deadline

By: Jens Kastner

A beneficial bilateral trade agreement put in place in 2010 by China to attempt to lure Taiwan closer into Beijing’s embrace is now expiring with no word whether it will be renewed. The initially-agreed 10-year duration of the pact ends on June 29 with an option for review by either side.  

With Beijing seriously angered by Taiwan’s refusal to tie itself closer to the mainland, hopes of the pact’s survival are in danger. Tensions have been rising sharply in recent months as an estranged government and people in Taiwan back away from China, partly as a result of China’s growing crackdown on civil liberties in Hong Kong, an indication of what Beijing would do in the event of complete reunification.

A frustrated and increasingly xenophobic China has been ratcheting up military pressure through overflights and growing naval patrols near the island. Taiwan, on the other hand, has greatly undermined China’s Covid-19 global propaganda drive by stopping the pandemic cold on its own soil and with a crusade against the pro-China World Health Organization chief Tedros Adhanom Ghebreyesus.

Voters recalled the pro-Chinese mayor of the southern city of Kaohsiung and on June 9 Taiwan tolerated a rare flyover by a US military transport plane, indicating growing closeness to the US and presenting a grave provocation for China which for decades has been saying that it would launch war if Taiwan were to invite foreign forces to set up presence on the island. 

The Economic Cooperation Framework Agreement (ECFA) was put into effect in 2010, when Taiwan was ruled by the China-friendly Kuomintang, but government-to-government exchanges were eliminated unilaterally by Beijing in 2016, when the anti-China Democratic Progressive Party came into power in Taipei and refused to negotiate on China’s terms.

The pact reduced Chinese tariffs to zero for 539 Taiwanese exports including agricultural products, petrochemicals, textiles, machinery, and transportation vehicles, and eliminated Taiwanese tariffs on 267 Chinese exports including machinery, petrochemicals, transportation vehicles, and textiles.

According to Chinese data, Taiwanese exporters have saved Chinese import tariffs totaling a relatively humble RMB37.5 billion (US$5.3 billion) by late-2019 as a result, but the ECFA’s expiry could nonetheless deal a blow to Taiwan as illustrated by the fact that Taiwan exports of farm produce to China tripled from 2010 to 2018 thanks to the ECFA, making China the largest export market for farm produce in Taiwan.

In the event of the ECFA’s termination, the China-Taiwan trade regime would return to World Trade Organization terms, increasing estimated average tariff rates of 7.3 percent. Given that China has trade agreements in place with South Korea as Taiwan’s main competitor on the higher-value end, and the Association of South-East Asian Nations (ASEAN), as Taiwan’s main competitor on agriculture, observers speaking to Asia Sentinel say dissolution would obviously represent a heavy burden for Taiwanese manufacturers whose products are mainly made for the Chinese market.

They also say that China’s WTO status as a developing economy versus Taiwan’s status as a developed one would provide China with much more latitude than Taiwan in setting import tariffs.

“China can source fish and farm produce from ASEAN instead of Taiwan, and China can source petrochemicals and other things from South Korea instead of Taiwan,” said Bert Lim, a Taiwanese economist and the president of the Taipei-based World Economic Society think tank.

“The Chinese side could easily terminate ECFA, given that it is today relying far less on Taiwanese investment than 10 years ago, whereas China still constitutes Taiwan’s largest export market,” he added.

Lim went on to predict that the looming completion of the Regional Comprehensive Economic Partnership Agreement (RCEP) comprising ASEAN and Australia, New Zealand, China, Japan and South Korea, will deal an additional blow to Taiwan’s competitiveness on trade.

The Taiwanese government, for its part, plays down the seriousness of the situation, with the Ministry of Economic Affairs forecasting that a termination of the agreement would affect less than 5 percent of trade exchanges with China, as Taiwanese companies have since ECFA’s implementation established manufacturing chains in countries other than China.

The Taiwanese government also played down the risks of Taiwan’s exclusion of the Japan-led Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) for which Taiwan’s refusal to open its doors for food imports produced in the areas affected by the 2011 Fukushima Dai-ichi nuclear disaster has been singled out as the main reason by Japan’s foreign ministry.

Meanwhile, trade negotiations with the US, Taiwan’s second-largest export market, have been on ice for year, owing to the US’s discontent with a Taiwanese ban on US pork containing ractopamine, an animal feed additive used to promote leanness and increase food conversion efficiency, and bovine intestines.

According to the World Economic Society’s Lim, the likelihood of China terminating the ECFA is high as a result of what he perceives as recent “hostile policies toward China” implemented by the Taiwanese side.