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China, Taiwan sign trade pact

Chen Yunlin, Chairman of China's Association for Relations Across the Taiwan Strait, center, speaks at a cross strait meeting for the Economic Cooperation Framework Agreement, in Chongqing city, China, Tuesday, June 29, 2010. Representatives from China and Taiwan met Tuesday before they were to sign the broad trade deal drawing their economies closer, which Beijing hopes could lead to political accommodation six decades after the rivals split amid civil war. (AP Photo/Peng Peng)
Chen Yunlin, Chairman of China's Association for Relations Across the Taiwan Strait, center, speaks at a cross strait meeting for the Economic Cooperation Framework Agreement, in Chongqing city, China, Tuesday, June 29, 2010. Representatives from China and Taiwan met Tuesday before they were to sign the broad trade deal drawing their economies closer, which Beijing hopes could lead to political accommodation six decades after the rivals split amid civil war. (AP Photo/Peng Peng) (Peng Peng - AP)

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By Keith B. Richburg
Wednesday, June 30, 2010

BEIJING -- China and Taiwan, political rivals separated by 60 years of history and hostility, highlighted their growing economic links Tuesday by signing a trade cooperation agreement that could dramatically increase the flow of goods across the narrow Taiwan Strait.

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The pact, which was under negotiation for years, marks a victory for Taiwan's President Ma Ying-jeou, who took office two years ago with a promise of pursuing rapprochement with the mainland and reversing the pro-independence policies of his predecessor, Chen Shui-bian.

The economic cooperation framework agreement follows the opening of air, sea and mail links in late 2008, and builds on strong economic relations that began in the 1980s. Since then, Taiwanese businesses have invested more than $100 billion in China and hundreds of thousands of Taiwanese live in China today.

The trade pact will give favorable tariffs for more than 500 types of Taiwanese goods coming to China, while Chinese companies will get preferential tax breaks on about 260 goods. Negotiators for the two sides signed the pact in the southwestern Chinese city of Chongqing, which was Generalissimo Chiang Kai-shek's provincial capital during World War II and one of the last cities evacuated by the Nationalist forces after they were routed by the Communists in 1949.

The free-trade deal is also significant to the United States, which under U.S. law is obligated to provide for Taiwan's defense. U.S. officials have said they view the deal as a sign of improving relations between Beijing and Taipei, and another sign that China appears less likely to use force in an attempt to unite with the island.

U.S. officials, however, have predicted that the trade pact will not remove the issue of U.S. arms sales to Taiwan from a list of problems bedeviling Washington's relations with Beijing. The Obama administration in January announced that it would sell $6.4 billion of weapons to Taiwan, a move that prompted a withering response from China and a freezing of military ties with the United States.

More broadly, the deal underscores the growing gravitational pull of China's economic juggernaut. It constitutes another major step toward the economic integration of China and Taiwan, accelerating their already close trade ties and linking Taiwan's fate to the gross domestic product and buying power of its behemoth neighbor.

As reported by Xinhua, China's state-run news agency, China and Taiwan agreed in the 16-part pact to "gradually reduce and remove trade and investment barriers and create a fair environment." The two sides also agreed to respect each other's intellectual property.

Analysis by Taiwan's semi-official Chung-Hua Institution for Economic Research said the agreement could create 260,000 jobs and add 1.7 percent to Taiwan's economic growth. Other analysts, such as Daniel Rosen and Wang Zhi, writing for the Peterson Institute for International Economics, have estimated that the deal would be even bigger for Taiwan -- adding 5.3 percent to its economy within the decade.

Negotiations for the trade pact were tough, with each side for now preserving barriers to trade of some products. China was concerned about allowing in Taiwanese petrochemical products because the mainland market is already saturated. And Taiwan was worried about being flooded with cheap Chinese agricultural products, which would hurt Taiwanese farmers, and also about being inundated by Chinese labor. The pact does not open Taiwan to Chinese labor.

The two sides agreed to continue talks about deepening their trade ties.

Taiwan needed this trade deal far more than China. The mainland has signed similar free-trade agreements with the 10 member-nations of ASEAN, the Association of Southeast Asian Nations, and Beijing is in talks for similar deals with South Korea and Japan. None of those countries would negotiate similar arrangements with Taiwan -- which is diplomatically isolated in the region -- unless it had first reached its own deal with China.


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