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  • Print publication year: 2016
  • Online publication date: December 2015

5 - China–Taiwan Free Trade Agreement

Summary

Introduction

The China–Taiwan Free Trade Agreement (FTA) consists of the Cross-Straits Economic Cooperation Framework Agreement (ECFA) and its supplemental agreements. China and Taiwan signed the landmark ECFA in Chongqing in 2010 and, in the following year, notified the World Trade Organization (WTO) of the agreement as an early announcement. To implement the obligations under the ECFA, the two governments concluded the Cross-Straits Bilateral Investment Protection and Promotion Agreement (BIPPA) in 2012 and the Cross-Straits Trade in Services Agreement (TSA) in 2013. The negotiations for the Cross-Straits Trade in Goods Agreement (TGA) and the Cross-Straits Agreement on Dispute Settlement Mechanism (ADSM) are ongoing. The ECFA, along with these enabling agreements, constitutes the legal basis for a cross-straits FTA.

The ECFA marked the most important agreement between these two rival countries since the end of the Chinese civil war in 1949 by legally transforming the cross-straits economic link. The ECFA was also significant from the WTO's perspective because it served as the world's first bilateral trade pact concluded between WTO members with long-lasting sovereign disputes. For nearly two decades, the political animosity between the People's Republic of China (PRC) in Mainland China and the Republic of China (ROC) in Taiwan prevented the two sides from developing normal trade relations. Nonetheless, trade volume across the Taiwan Strait has grown rapidly since the 1980s. The main change occurred because China attempted to attract Taiwanese investments, and Taiwan gradually liberalized restrictions on trade with China. Bilateral economic ties accelerated after China and Taiwan joined the WTO in 2001 and 2002, respectively. From 2002 to 2012, cross-straits trade soared from US$44.6 billion to US$169 billion. China is now Taiwan's number one trade partner, and Taiwan is China's seventh largest trade partner. In addition, more than 70% of Taiwanese capital outflows to the Mainland make Taiwan China's third largest source of foreign direct investments.

When Taiwan's pro-independence Democratic Progress Party (DPP) held office from 2000 to 2008, the PRC fiercely opposed Taiwan's FTA efforts. Beijing once declared that under its “one-China principle,” any countries that signed FTAs with Taiwan would “bring political trouble to themselves.” China was concerned that any official agreements with Taiwan would constitute implied recognition of the island. However, China faced a dilemma. Its isolation policy damaged ties with Taipei and strengthened Taiwan's hostile attitude toward Beijing.