(Reuters) – A landmark trade deal between Taiwan and China will cut tariffs on more than 800 products and open up service industries, officials and sources said on Thursday, giving a major boost to around $100 billion in annual two-way trade.
World | China
The most significant deal between the former political foes in 60 years will be signed on June 29 in Chongqing, once briefly the capital of China under the rule of the Nationalists, who are now Taiwan’s ruling party after losing the civil war to Mao Zedong’s Communists in 1949 and retreating to the island.
Taiwan’s government has been heavily pushing the deal, fearing the country’s $390 billion export-led economy will lose out to rivals in the booming Chinese market.
“In all free-trade agreement negotiations, there are bound to be winners and losers,” said Tony Phoo, an economist with HSBC in Taipei.
“I think, looking at what we have so far, the list covers most of the top export categories for what Taiwan ships to China, so it’s not too bad of a deal.
The economic cooperation framework agreement (ECFA) would see tariffs cut on 539 Taiwanese products bound for China and 267 Chinese products exported to Taiwan, Premier Wu Den-yih told reporters at parliament. The cuts on the Taiwan items are valued at $13.84 billion and those from China $2.86 billion.
Separately, a source with direct knowledge of the deal told Reuters it would also open up to Chinese investment Taiwan industries, including movies and business services, while the mainland’s computer service, airline maintenance and medical sectors would be opened to Taiwanese investment.
The source, who could not be identified as the information has not yet been made public, added that Taiwan banks operating in China would be allowed to conduct business in China’s renminbi currency a year earlier than current rules allow.
Chinese banks will be able to convert their representative offices in Taiwan into branches after one year.
Full details of the deal are due to be announced later on Thursday.
STRONGEST EVER TIE-UP
Markets will welcome the deal as the strongest ever tie-up between export-reliant Taiwan and China, Taiwan’s biggest trade partner and top foreign investor. The tariff cuts will cover about 15 percent of Taiwan’s exports to China.
A private research body in Taiwan has previously estimated that ECFA could create some 260,000 jobs in Taiwan and lift GDP by around 1.7 percentage points a year.
The deal could also boost the chances of the ruling party at tough local elections due at the end of the year, where an opposition fearful of ECFA’s economic and political consequences will be mounting a tough challenge.
With a message that ECFA will flood Taiwan with cheap goods, creating massive unemployment, and is a first step toward a Chinese political takeover, the opposition is looking to score big in the local elections to give it chance of ousting pro-China President Ma Ying-jeou in 2012 presidential polls.
“(The deal) gives Ma a beautiful list of scores he can deliver at the next elections,” said Lin Chong-pin, strategic studies professor at Tamkang University in Taipei.
“It’s a political decision made by Beijing, not economic. It’s Beijing’s high-level strategic political decision to win the hearts and minds of the Taiwan people and preempt the pro-independence opposition party.”
The opposition, which has called for any trade deal to be done under the auspices of the World Trade Organization, plans to hold a protest rally against ECFA in Taipei on Saturday.