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Sunday, 12 September 2010

Down the Economic Path

Today sees the implementation of the Economic Co-operation Framework Agreement (ECFA) between the People's Republic of China and Taiwan- a trade agreement being widely described (in the words of the BBC) “as the most significant agreement since civil war divided them [the China and Taiwan] in 1949”. The provisions of the new treaty sees the elimination of tarrifs on over 500 Taiwanese exports to China, and over 250 types of goods going the other way.

The reaction to the ECFA has been generally positive, with both Taiwanese and Chinese media highlighting the benefits the freer economic exchanges will bring to both countries. Taiwan News emphasised the groundwork the ECFA has laid for future cross-strait economic talks, and Xinhua has run coverage showing the benefit the agreement will accord to Chinese financial companies. Groupings including the Bank of China and the Bank of Communications have already applied to the Taiwanese government for permission to set-up operating centres in the country, while Taiwanese businesses have also begun to make moves towards establishing a presence in the PRC.

However, according to the BBC, the ECFA has encountered opposition in Taiwan from those who fear that the treaty will make the country more dependent on mainland China. These are legitimate concerns. The defeat of the nationalist Kuomintang party by the Chinese Communist Party in 1949 saw the former retreat to Taiwan and establish a rival government of China. Chinese overtures towards the invasion of the country in the 1950s and 1960s were hampered by America's military and financial support for Taiwanese independence- as result, the island remains a separate state to this day. The People's Republic still maintains its claims to Taiwan, and re-unification with the mainland is a stated government objective, yet the CCP has come to accept that such an eventuality is unlikely to be realised anytime soon.

It is thus easy to see why the ECFA has drawn criticism within Taiwan. If the country were to become more dependent on the PRC due to closer economic ties, over time the case might arise where a Taiwanese government has little choice but to accept PRC demands for the extension of CCP authority to the island province. In addition, as the example of the build up to the Tiananmen incident of 1989 shows, economic reform can also create expectation of political reform. If Taiwan's businesses see a real benefit from closer co-operation, this could lead to pressure on politicians to bring the country back under the mainland's wing.

Of course, it might be the case that Taiwan is able to stand firm as an independent state in the future. However, it could perhaps look to learn lessons from the example of the United Kingdom. Originally, the UK pledged to join a European economic grouping to allow for free trade and collective European development. Over the course of the last few decades, membership of the European Economic Community has morphed into UK involvement in a European Union- a change that has come with a loss of some of the country's political sovereignty to the supranational levels of government. While the PRC-Taiwan case has many differences, the example of the UK shows how dangerous it is to wander down the path of increased economic co-operation.

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