Sep 14, 2010

Taiwan: Free Trade Agreement with China in Effect

The free trade agreement between Taiwan and China, signed in June 2010, has now taken effect amidst fears that Taiwan could lose its sovereignty to Beijing. However the willingness of China to make concessions signifies a better relationship across the Strait. 


Below is an article published by


China and Taiwan agreed to a free trade agreement in June 2010 which is now taking effect allowing both countries to exchange goods without the imposition of import tariffs.

Both countries have a long history of political disagreements since the civil war broke them apart in 1949 but 60 years later, such political differences do not seem to stand in their way to seek closer economic ties.

The Economic Cooperation Framework Agreement (ECFA) passed unanimously in the Taiwan parliament but does not seem to have the support of the opposition Democratic Progressive Party.

The DPP warns that once the agreement is in effect that Taiwan will become a new Hong Kong or Macau and will lose its sovereignty. Both are now Special Administrative regions since the handover to China in 1997 and 1999 respectively.

The agreement consists of more Chinese concessions than Taiwanese. Taiwan already exports $14 billion to China annually and most of the goods are now fully or partially exempt from import tariffs.

Chinese exports to Taiwan are worth $3 billion on an annual basis.

The question remains whether the new trade agreement will also result in China pegging its currency, the yuan-renminbi, to the Taiwan dollar.

This would be similar to the recent decision by the Chinese Finance Ministry to peg its currency to the Malaysian Ringgit and would alleviate any foreign exchange exposure as well as further stimulate the trade activity in the East.

It would then also allow Taiwanese companies to invest directly in Chinese Government Bonds, something China has quietly been encouraging other trading partners to do.

Whether or not the newly implemented ECFA will lead to this remains to be seen.

One thing is certain, the new agreement is a giant step closer towards easing the political tensions between the two countries and is also a sign that China is willing to make concessions in order to continue to grow its economy, primarily in the Asia-Pacific region.