China and Taiwan's trade pact is a big deal

After some years of rapprochement, boosted by the Beijing-friendly policy instituted by Taiwanese President Ma Ying-jeou after he came to power in 2008, China and Taiwan have today signed a trade pact, which recognises the undoubted economic links between the two territories.

Some 60 years ago a civil war in China ended with the Nationalists scuttling off across the Taiwan Straits, allegedly with their trousers stuffed with loot. Since then the island of Taiwan has been transformed into an economic and industrial powerhouse, benefitting from its status as capitalist-leaning outpost of greater China.

But the Economic Cooperation Framework Agreement, signed today in the southwest Chinese city of Chongqing, marks a formal declaration that recognises the growing importance of cross-strait links between the two entities.

The agreement, which cuts hundreds of export tarrifs on products and services flowing across the Strait into mainland China undoubtedly favours Taiwan economically. Politically, it reinforces China's hold on the island, which likes to think of itself as independent but in reality is anything but.

The historic pact comes about largely as a result of the integration of the IT industry between the two territories. Taiwanese firms first began by copying technologies from the West, then they began innovating. Now they've cottoned on to the idea of branding and outsourcing manufacturing. Largely the manufacturing has been outsourced to huge industrial complexes in mainland China. The most infamous of these is currently Foxconn, thanks to its employees' unfortunate penchant for jumping off its roofs as an effective way of shuffling off this mortal coil.

Healing of the rifts between China and Taiwan has become evident at the Computex IT trade show held annually in the Taiwanese capital Taipei. A China pavilion was added to the expo for the first time in 2009 in a move made possible - organisers said - by the resumption of direct flights between China and Taiwan. The implications of the move, however, ran much deeper.

Under the terms of today's trade deal, 539 items from Taiwan will have export tariffs cut or removed, affecting some $14 billion worth of goods. These will officially go into effect on January 1, 2011.

Taiwanese Premier Wu Den-yih welcomed the deal, saying: "The world is still feeling the residues of the global economic tsunami. But the act helps to remove many hurdles such as the unfair terms of tariff and thus increasing Taiwan’s competitiveness.”

Taiwan's envoy in China, Chiang Pin-kung said the agreement was "a critical moment in the development of long-term relations," adding, "It's also a huge step forward for the two amid the trend of regional economic integration and globalisation."