Asia Sentinel

Dancing Around the WTO

By Jens Kastner

16 August 2010

Whether possessing formal statehood or not, Taiwan like all other 152 members of the World Trade Organization has to elbow its way through foreign trade disputes. Sometimes it loses, sometimes it wins. But it has to abide by WTO regulations, one of which requires the reporting of trade agreements.

Yet the Economic Cooperation Framework Agreement that China and Taiwan signed on June 29 hasn’t been reviewed by the WTO and is not going to be anytime soon. Although Taiwan’s opposition parties are demanding that the ECFA be delivered to the WTO in accordance with regulations to safeguard Taiwan’s sovereignty, President Ma Ying-jeou’s government is dragging its feet, seeking to protect hundreds of domestic items from the possible depredations of Chinese imports.

Behind Taiwan’s waiting game lies not only pressure from China but also a cool trade calculus. The WTO’s non-discriminatory principle calls for equal treatment of similar products imported from different WTO members. Theoretically, once Taiwan or China notifies the world trade body of the signing of the bilateral trade agreement, Taiwan becomes a target of Chinese exports. But so far, there has been no news of any action in this regard on Taiwan’s behalf.

And, despite the fact that the bilateral agreement is hardly a secret, the WTO doesn’t seem to be pressuring either China or Taiwan over the matter.

"It’s neither in China’s nor Taiwan’s interest to make the ECFA an international affair by reporting to the WTO," Alex Chiang, professor at Taiwan’s National Chengchi University’s Department of Diplomacy, said in an interview with Asia Sentinel. "As China and Taiwan are WTO members, they are obliged to report ECFA to the WTO. However, both governments know that the WTO normally doesn’t take action if members refrain from reporting trade agreements."

The "Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu (Chinese Taipei)," as Taiwan is officially called by the international trade body, gained membership in 2002, shortly after China did.

China’s motives for not wanting to have the WTO involved are obvious. Beijing doesn’t want its relations with Taiwan internationalized because that would imply Taiwan is a separate state. China’s President Hu Jintao favors the ECFA to be described as "an economic cooperation mechanism with cross-strait characteristics between the two sides of the Taiwan Strait and not between WTO members."

Taiwan’s perspective proceeds from protectionism. With the ’early harvest list’ which lets more than twice as many of Taiwanese export items enjoy tariff concessions as China’s side does, the ECFA is beneficial to Taiwan’s economy rather than to the Chinese one. And despite the trade pact, Taiwan still maintains an import ban on more than 2,000 Chinese products. If the ECFA were considered a free trade agreement by the WTO, the regulations would require that trade be liberalized by at least 90 percent within 10 years. The prospect of Taiwan’s opening to that many Chinese goods would certainly not go down well with the Taiwanese electorate or business community.

To Prof. Chiang, the Taiwanese government opting out of placing the ECFA under the WTO framework is justifiable. "Taiwan, just like every other country seeks to protect its economy," he says.

According to opponents of the trade agreement, the fact that the ECFA uses the title ’Straits Exchange Foundation (SEF)’ instead of Taiwan’s official WTO name ’Chinese Taipei’ for Taiwan and ’Association for Relations Across the Taiwan Straits (ARATS) for China proves that the trade agreement wasn’t meant to be in accordance with WTO regulations in the first place. SEF and ARATS are the semi-official bodies that in absence of government-level ties handle technical and business matters including ECFA negotiations and signing.

Apart from the naming, the Kuomintang’s main opposition, the Democratic Progressive Party, alleges that China and Taiwan haven’t even bothered to translate the agreement into English. Thus the trade pact can’t possibly be reported to the WTO since a review to ensure compliance with standards and rules requires documents to be written in English. So far, almost two months after the signing, only two versions of the ECFA exist, one written in traditional Chinese as it’s used in Taiwan, the other in China’s simplified version.

From the beginning, Taiwan’s government has argued that the ECFA would enable Taiwan to sign FTAs with countries other than China. A joint statement by Singapore and Taiwan made in early August on the intended start of FTA negotiations between the two was thus proudly presented by Taiwan’s government as proof of its diplomatic success. Yet, in contrast with the ECFA, the Taiwanese government this time was quick to point out that the Taiwan-Singapore pact will fall under the WTO framework.

Here, a WTO review wouldn’t be nearly as costly for Taiwan since the scale of trade between Taiwan and Singapore is so small. Singapore only accounts for 3.2 percent of Taiwan’s overall foreign trade. Although the city-state is likely to seek tariff exemptions on its machinery, petrochemical and electronics products, a significant impact on Taiwanese producers isn’t expected since Taiwan’s tariffs, e.g., on petrochemicals are already as low as 2 percent.

Beijing hasn’t objected to Taiwan’s negotiations with Singapore, even with WTO involvement, because it regards Singapore as the most trustworthy among the Association of Southeast Asian Nations (ASEAN) member states. Singapore is one of only three nations that enjoy visa-free entry for its citizens to China, and there are also ample personal ties between Chinese officials and Singaporean lawmakers.

"The Taiwan-Singapore FTA will be reported to the WTO rather quickly," Professor Alex Chiang says. "But a review of the ECFA carried out by the WTO is not likely to happen any time soon."