The Economic Co-operation Framework Agreement (ECFA) will comprise the most significant cross-strait agreement between China and Taiwan since the Kuomintang were routed by the Communists in 1949.
The pact, due to be signed on June 29th in Chongqingsite of the Kuomintangs headquarters during the Chinese civil warwill lower tariffs immediately on more than 800 goods and services and otherwise set out ways in which the two sides will regulate and liberalise trade over the next several years.
Taiwans government says the ECFA will boost economic growth and prevent the diplomatically-isolated island from becoming marginalised economically. The economic threat comes from the influence that China wields in the worlds 270-plus free-trade agreements and in particular from an agreement between China and countries from the Association of Southeast Asian Nations (ASEAN) that started this year.
Taiwans opposition Democratic Progressive Party (DPP) says China is using the ECFA to push for unification covertly and moreover that it will lead to enormous job losses. The DPP hopes that resisting the pact will boost its results in critical municipal elections in November, a bellwether for parliamentary and presidential polls in 2012. Mr Mas Kuomintang party (KMT) has seen recent setbacks in local elections. The DPP still faces uphill battle to regain power, but if it does win the presidency in 2012 then cross-strait tensions, currently at their lowest ebb in over half a century, are sure to surge again.
The DPP said 100,000 demonstrators took part in Saturdays demonstration, but police put their numbers at a more modest 32,000, adding that the protesters ranks thinned out considerably after Taipeis humid, leaden skies broke out with a thunderstorm.
Standing in torrential rain and wearing a farmers straw hat, the DPPs chairwoman, Tsai Ing-wen, told a cheering crowd that the pact would benefit big conglomerates by victimising small businesses, thus widening the gap between rich and poor. Our relatives, friends, even the next generation will be its victims.
Mr Ma, unlike the DPPs Chen Shui-bian, who served as Taiwans president from 2000 to 2008, has avoided emphasising Taiwans separateness and instead has pushed for closer business ties with the mainland. The ECFA is the cornerstone of his China policies. Chinas willingness to co-operate with him is easy to understand.
In Beijing the thinking goes that by offering economic sweeteners to the renegade island, China can engender goodwill among the Taiwanese. Sheer economic interdependence should then help pave the way for Taiwan, which China regards as a wayward province, to return to the fold. At the very least, the rulers in Beijing, who revile expressions of Taiwans independence and have threatened to punish them with military invasion, hope that by boosting the islands economy they can encourage its voters to favour the China-friendly KMT.
Following months of secret negotiations, Chinas deputy negotiator Zheng Lizhong was all smiles June 24th. He referred to Taiwan and China as forming one family as he outlined some of the deals terms. Taiwan received especially nice treatment, better than China was given in return. China will lower tariffs immediately for 539 categories worth US$13.8 billion in trade to the Taiwanese industries that are expected to be hardest-hit from the ASEAN-China agreement, including textiles and petrochemicals.
China will also open up 11 service categories, including its banking sector. Taiwanese banks in China will be permitted to do business in renminbi a year sooner than (other) foreign banks are allowed; this is, essentially, the same treatment China gives Hong Kong's banks.
In a bid to please politically-sensitive Taiwanese farmers, the deal includes 18 categories from the farming and fishing sectors, even though China has promised it will not push Taiwan for freer trade of its own agricultural goods. Taiwan in contrast will lift tariffs for only 267 Chinese categories, worth US$2.9 billion, and open up nine service sectors. The ECFA will call for even more liberalisation later, but negotiators would not say how long the process will take nor how open their markets might ultimately become.
To soothe uneasy voters, Mr Ma has promised that the ECFA will not include language that would compromise Taiwans political status. Chiang Pin-kung, Taiwan's top negotiator for China, also told reporters before his departure for Chongqing that the ECFA would reduce barriers to signing FTAs with other countries. This will be critical to the ECFAs success, analysts say. If Mr Ma can help Taiwan overcome its pariah status in diplomatic circles and persuade countries that had been fearful of risking Chinas ire to sign FTAs, then the ECFA will be a vote-winner; otherwise he risks an angry backlash.
The DPP is betting that China will continue pressing other countries not to sign such pacts. Some analysts say that, so long as Taipei refrains from using nomenclature to describe itself as a state, China might quietly permit Taiwans third-party FTAs to go ahead while decrying them for official purposes.
One of the oppositions main demands is for a referendum on the ECFA. The DPP and its ally, the hardline pro-independence Taiwan Solidarity Union, have initiated referendums twice. Both initiatives were snuffed by a government committee, which had the effect of galvanising the DPPs supporters. Ms Tsai assured the crowd on Saturday that if the government continues to quash referendums the KMT will be taught a lesson at the polls.
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