China-Taiwan Trade Deal Has a Lesson for Korea

      June 30, 2010 12:47

      China and Taiwan signed a trade pact on Tuesday integrating their economies into a single market. The signing of the Economic Cooperation Framework Agreement signals the emergence of a pan-Chinese market that encompasses China, Taiwan, Hong Kong and Macau, boasting a consumer base of 1.4 billion people with a combined economy scaled at US$5.5 trillion.

      Under ECFA, China will scrap tariffs on 539 Taiwanese products within the next two years. That amounts to $13.8 billion worth of exports. In return, Taiwan will abolish tariffs on 267 Chinese exports worth $2.85 billion. China made major concessions, which give Taiwan twice the number of tariff-free exports and a five-fold advantage in money terms. Also, China allowed imports of Taiwanese agricultural products, but Taiwan kept Chinese farm goods out of its market. China agreed to initially open 11 service sectors to Taiwanese businesses, while Taiwan gave China access to nine.

      In return, China gained major political momentum to form a Chinese economic bloc, taking one more step toward the so-called "One China" vision. Taiwan has managed to escape from potential isolation amid a global frenzy of free trade agreements.

      China and Taiwan overcame tremendous obstacles to sign ECFA. China first extended an olive branch to Taiwan in 1979 by offering to end the military standoff and opening mail, air and trade routes across the straits. It also stopped the firing of artillery rounds toward the Kinmen islands which had continued since 1958. Taiwan in turn scrapped its "three no's" policy of avoiding contact, confrontation and compromise with China and allowed civil exchanges between Taiwan and the mainland starting in 1987.

      Taiwan's export dependency on China and Hong Kong stands at 40 percent, while between 60 to 70 percent of its outbound shipments head to China. Those foundations made ECFA possible.

      For Korea, the landmark agreement is something to envy in light of the South's relationship with North Korea. The message sent by ECFA is clear: such achievements are possible only when both sides yield and exercise restraint with their sights set on long-term goals for the benefit of all.

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