Historic China Meeting Won’t Ease Taiwan’s Trade Woes

 
 

The meeting between the leaders of China and Taiwan in early November is undoubtedly one for the history books. While intrigue about how and why such a significant meeting took place when it did continues, the real question is what the future holds for Taipei’s relations with Beijing, and whether the summit can be seen as the first step to greater stability between the two sides. When it comes to economic relations, though, whether or not the historic meeting can benefit both Taiwan and China, or whether it would be for the bigger gain of one side, remains to be seen.

To be sure, enhanced economic cooperation in recent years can be cited as a concrete example of improved relations between Taipei and Beijing, and indeed, China has quickly grown to become Taiwan’s single biggest trading partner since the Cross-Strait Economic Framework Agreement was signed in 2010. Yet critics have argued that ECFA has actually made Taiwan more vulnerable to Chinese rule in a way that no missile launch ever could: Taiwan is now more dependent on Chinese trade than ever, which in turns means that it is more susceptible to Beijing’s economic directives. So while one of Taiwanese President Ma Ying-jeou’s biggest achievements in office is to ensure that cross-strait relations are no longer the biggest threat to stability in the Asia-Pacific region, as they once were, the dynamic between the Republic of China and the People’s Republic of China has actually become more complex in the economic sphere.

Taipei has made clear that in order to remain an economic force, Taiwan must diversify its trading pattern and increase exports beyond China, while enhancing its appeal as a destination for foreign investment. Diversification is needed not just to maintain political independence, but perhaps more importantly because China’s economy itself is showing signs of weakness. With exports accounting for almost 60 percent of GDP, nearly one-third goes to China, followed by Hong Kong. One proposal to boost growth has been to expand ECFA to include services, which could boost trade opportunities by allowing Taiwan to focus on exporting beyond goods on the one hand, but could also make Taipei more dependent on Beijing economically on the other. In fact, during the spring of 2014, so great was opposition to expanding ECFA into the services sector that students launched a protest, ultimately taking over the Taiwanese parliament for several days to voice their opposition.

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The solution, of course, is for Taiwan to diversify not only its export portfolio, but also its export destinations. For that, being part of the growing network of multilateral trade deals in the region is critical. Ma made clear Taiwan’s eagerness to join the Trans-Pacific Partnership agreement well before the pact was concluded by its 12 member countries. Indeed, Taiwan has made a concerted effort to show that it is already looking to implement many of the TPP’s regulations, including in the politically sensitive agricultural sector, so that it can qualify to be one of the first countries to request to join should the agreement be ratified by member states.

But the problem is that this could be 2001 all over again, when Taiwan had to wait for nearly a decade so that China was ready to accede to the World Trade Organization, and the two sides joined the WTO together, adhering to the One China policy. Given that reformists in Beijing are interested in joining the TPP in the longer term, the political obstacles for Taiwan to join the TPP before China are formidable. At the same time, Taiwan could gain tremendously by being part of a multilateral trade framework. According to Peter Petri of Brandeis University, Taiwan’s GDP would slip by 0.1 percent by not joining the TPP with the current members, but it would falter by 0.8 percent if the TPP add new member countries, namely South Korea, Thailand, the Philippines and Indonesia, and Taiwan is left outside. Meanwhile, if Taiwan is left out of the Regional Comprehensive Economic Partnership Agreement trade deal, which excludes the United States as well as Taiwan but includes China and ASEAN countries among others, Taiwan’s GDP would drop by 1.9 percent. Currently, the only open trade framework for Taiwan is the Beijing-led Free Trade Agreement of the Asia-Pacific. This agreement could give Taiwan a 10 percent GDP boost, but FTAAP negotiations are currently considerably behind those of TPP and RCEP.

Taiwan’s economic challenge therefore remains its ambiguous status, which prevents it from joining key economic initiatives. However, one exception may be the Asian Infrastructure Investment Bank. While its application to be a founding member of the new development bank was rejected this spring, Chinese President Xi Jinping stated following the summit meeting with Ma that “Chinese Taiwan” could indeed be eligible to join the China-led AIIB.

Taiwan joining the AIIB would certainly be to Beijing’s gain, given that China’s seemingly unstoppable growth engine is showing signs of vulnerability. In fact, China has been stepping up its campaign to expand AIIB membership since its financial markets took a tumble over the summer, with the head of the development bank courting both the United States and Japan. But even if Taiwan were to join the bank, it would not open the way for Beijing to accept the fact that Taipei could be part of the TPP without China first being a member.

The dilemma for Taiwanese voters thus remains as they prepare for elections in January. A victory for the opposition Democratic Progressive Party is most likely, and Tsai Ing-wen has already made clear that she would be pressing for the status quo in bilateral relations, which is to say that a DPP government would not overturn any of the trade deals made with China to date. That said, prospects for a further deepening of commercial relations between the two sides are unclear, and how Beijing will respond to a new government is also still an unknown. What is clear is that so long as Taiwan is cut off from multilateral trade relations and overly dependent on ties with the mainland, its own economic outlook will be in jeopardy.

Shihoko Goto is the senior Northeast Asia associate with the Woodrow Wilson International Center for Scholars’ Asia Program based in Washington D.C.

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