Seeking Truth from Facts: The Sino-Taiwanese Trade Pact

The Peoples’ Republic of China which fought a civil war with Taiwan signed the landmark Economic Cooperation Framework Agreement (ECFA) on 29 June in Chongqing. While the pact provides for preferential tariffs on 539 Taiwanese products from petrochemicals and auto parts to machinery, constituting 16 per cent of the island’s export value to China, about 267 Chinese items forming 10.5 per cent of China’s export value to Taiwan will be placed on the ‘early harvest’ list enjoying zero or falling tariffs. China had earlier inked a similar trade pact with Hong Kong in 2003.

Some sections of the media hailed the agreement as the culmination of the China-friendly policy introduced by Taiwan’s President Ma Ying-jeou, who said that the pact meant that peace and prosperity between China and Taiwan is no longer a distant dream but a reality within reach. Taiwan’s main opposition party, the Democratic Progressive Party (DPP), as expected, however, protested against the pact and organized demonstrations voicing opposition to unification with China.

Be that as it may, the trade pact is yet another example of what Joseph Nye would call China’s smart diplomacy. In fact streaks of Nye’s idea of smart diplomacy can be discerned in a different context from Deng Xiaoping’s aphorism of ‘seeking truth from fact’ and his oft-quoted axiom that ‘it doesn’t matter if the cat is black or white so long it catches mice’. China’s leaders, both before and after Deng, have adopted a very creative understanding of social and political dynamics and have avoided a doctrinaire approach to ideology except for the aberration during the ‘people’s commune’ and the ‘cultural revolution’. The fruition of the trade pact is the outcome of political contacts at different levels sidetracking political and contentious issues. It is worthwhile to recall how this has been possible.

A history of sorts was created on 27 July 2009 when Chinese President Hu Jintao sent a congratulatory message to Taiwan’s President Ma Ying-jeou following the latter’s election victory as Chief of the Kuo-Min Tang (KMT). “I hope our two parties can continue to promote peaceful cross-strait development, deepen mutual trust, bring good news to compatriots on both sides and create a revival of the great Chinese race,” said Mr. Hu in the message. Mr. Ma has been a vocal supporter of improving ties between Taiwan and China and political analysts said that his election could pave the way towards possible reconciliation and better cooperation between the estranged siblings. The congratulatory message of Chinese President Hu Jintao to his Taiwanese counterpart Ma Yin-jeou was a loaded overture towards a rapprochement between the two sides.

In order to develop some contact points, there had been efforts on both sides of the spectrum for an institutional mechanism. The Taiwan Straits Exchange Foundation (SEF) was set up in 1990 in Taiwan keeping this objective in mind. Similarly, the Association for Relations across the Taiwan Strait (ARTS) was set up in China in 1991. The two organizations enjoy semi-official status in their respective governments.

A landmark event in the relationship between China and Taiwan was the historic meeting between the General-Secretary of Chinese Communist Party and President of China Hu Jintao and the Chairman of KMT Wu Poh-hsiung at the Great Hall of the People in Beijing on 28 May 2008. During the meeting, Hu called for resuming exchanges and talks between the mainland’s ARTAS and Taiwan’s SRF as early as possible. Within a few weeks, there was a meeting between negotiators from Taiwan and their Chinese counterparts in the famous Diaoytai State Guest House, a popular venue for top-level negotiations in Beijing in 2008. While the relationship between the two sides was warming up, China’s ‘panda diplomacy’ in December 2008 added yet another interesting dimension to the cross strait relationship. Tuan Tuan and Yuan Yuan, the panda duo brought by private jet, arrived at the Taipei Zoo on 23 December 2008 symbolizing the growing friendship between the two sides. The historic changes in cross-straits relations and break-through made in negotiations and talks are attributed to Chinas’ pragmatism and astute diplomacy.

Alongside the improved political contacts, there has been greater economic linkage and engagement between mainland China and Taiwan in recent years. While earlier trade and commerce between China and Taiwan used to be conducted through third countries, particularly Hong Kong, of late there has been direct trade and commercial intercourse between the two sides. Taiwanese firms have invested billions of dollars in China and the island’s reliance on the mainland both as a market for its goods and as a supplier is likely to increase as the US, a key market for Taiwan, was in economic slump. China is also the favourite investment destination for the island’s companies due to common language, culture, and a huge market. Taiwan is China’s largest foreign investor.

The global financial crisis provided a further impetus to China for economic engagement with Taiwan particularly at a time when Taiwan witnessed some decline in its exports, the main engine of the island’s economy and growth last year. Beijing has already offered a 10-point economic aid package to help Taiwanese firms to cope with the ripple effects of the global financial crisis. The measures include support for the development of Taiwanese-funded companies on the Chinese mainland, and promotion of two-way investment. Beijing’s policies for supporting small and medium-sized enterprises also apply to Taiwanese-funded SMEs. To improve the financing of services for Taiwanese funded enterprises, the Industrial and Commerce Bank of China sometime back decided to offer $7.3 billion for financing Taiwanese funded enterprises in two to three years, including SMEs. Other moves include support for upgrading Taiwanese funded enterprises, encourage and support their self-renovation, prompt cross-straits two-way investment, and beef up industrial cooperation between the two sides. China also agreed to explore cross-straits agricultural cooperation and allow Taiwanese residents to operate as lawyers on the mainland. The idea behind all these efforts and initiatives was primarily aimed at facilitating closer cooperation and synergy between the two sides.

To give more content to the synergy between China and Taiwan, China’s State Council announced sometime back a plan to support the development of an economic zone on the western side of Taiwan to boost development in a region led by Fujian Province and promote cooperation between the region and Taiwan.

To facilitate trade, commerce, and people flow, on 15 December 2008 the Chinese mainland and Taiwan started direct air and sea transport and postal services, ending decades of practice of detour. Planes and ships had to follow a circuitous route to go to any Chinese city from Taiwan. Now it takes merely 80 minutes to fly from Taipei to Shanghai, which used to take 6 hours earlier. After the establishment of direct air link, yet another milestone was achieved when a Taiwanese company launched a cruise service to China on 28 June last year, making it the first such cross strait service in 60 years. The voyage across the Taiwan strait takes only four-and-a-half hours, but it took Taiwan and China 60 years to ease tension and for Taipei to lift the ban on sea links with the mainland.

While the economies of China and Taiwan are getting integrated and there has been increasing contact between the people across the strait, the two sides are maintaining a studied silence on unification. What can happen in future is a matter of pure conjecture and speculation. Only time will tell if Taiwan will be another Hong Kong under the political contrivance of ‘one country, two systems’. For the present, the relationship between the two estranged siblings are nuanced under the dictum ‘no unification, no independence, and no use of force under the 1992 consensus with mainland China.