New York Times, November 18, 2009
Taipei, Taiwan -- Once China and Taiwan had agreed on the substance of the financial cooperation deal they signed this week, they still had a few details to decide: Where should they sign the pact, what names should they use to sign it, and which Chinese script should they write in?
Despite the warming trend in cross-relations, neither government officially recognizes the other. Neither wants to be seen playing second fiddle. And each insists on using its own Chinese characters — “traditional” ones for Taiwan and “simplified” script for China.
The solution the two sides arrived at was a model of diplomatic sleight of hand. The documents (three, covering banking, insurance and securities) would be signed “the Taiwan side” and “the mainland side.” Taiwan prepared a traditional Chinese version, Beijing prepared one in simplified characters.
On Monday, envoys from the two sides delivered their versions to the top financial regulators on the other side. Then, in their respective capitals, each side signed the other’s version, sealing the deal.
“We didn’t mention any official agency’s name, or use official titles,” said James Chang of the department of international affairs at the Financial Supervisory Commission, the Taiwanese regulator responsible for negotiating and signing Monday’s deal. “If we don’t need to discuss where to sign, it’s much easier for us,” he added. “We just avoided these political disputes.”
Analysts say the deal, while welcomed by financial firms and investors, is one more small step on the difficult path toward economic normalization. Many details must be ironed out. As Taiwan and China pursue ever-closer commercial relations, the elaborate signing procedure on Monday left some Taiwanese wondering whether they were slowly forfeiting their sovereignty.
“The way they signed the agreement was very significant politically,” said Tao Yi-feng, a political science professor at National Taiwan University who has researched cross-strait banking. While past agreements were handled by semiofficial organizations, this one was negotiated directly by government departments from each side, she said.
That means, she said, the deal “embodies the concept of ‘one country, two districts,’ ” — in line with Beijing’s insistence that Taiwan is part of “one China.”
“It sets up a formula for future agreements that I don’t think is so good for Taiwan,” she added. “I think it damages” Taiwanese sovereignty.
The deal includes three memorandums of understanding on financial ties. The statements cover information-sharing, inspections, protection of information and crisis management — in the event, for example, that a financial institution with interests on the other side of the strait goes bankrupt.
The most anticipated deal was on banking. Taiwanese banks have long yearned to do business on the mainland, where about one million Taiwanese live and work, and where Taiwanese firms have invested at least $150 billion, according to Taiwan government estimates. But until now, Taiwanese banks have been allowed to set up only representative offices that cannot do business.
After the new deal takes effect in January, Taiwanese banks like Mega Financial Holding and Cathay Financial Holding will eventually be able to upgrade those offices into branches, allowing them to lend to Taiwanese firms on the mainland and do other business, according to Taiwan’s Financial Supervisory Commission.
But restrictions remain. The agreement “is a precondition for the banks on two sides to set up a branch on the other side,” Ms. Tao said. “But how many they can set up and under what condition and terms will have to be determined in future negotiations.”
Grace Lin, a spokeswoman for Mega Financial, which opened a representative office in Suzhou, China, this year, said regulations still prevented them from upgrading to a branch until three years after the opening of the representative office. After that, the bank would have to wait until 2015 before it can do business in renminbi, the Chinese currency.
Ms. Lin said Taiwanese banks hoped to speed up that timetable in talks next month on an Economic Cooperation Framework Agreement. It could give Taiwanese banks a shortcut through China’s rules for non-mainland institutions. “For us, the M.O.U. was a very positive signal, but we can’t get any real benefits yet,” Ms. Lin said.
Analysts were cautious, too. The deal “will be long-term structurally positive to Taiwan’s financial sector, but material earnings impact will not arrive overnight,” Deutsche Bank wrote in a note released this week.
The memorandum of understanding on securities was also relatively narrow. It paves the way for securities firms to open branches on the opposite side of the strait. And it will permit China’s qualified domestic institutional investors to invest in Taiwanese stocks, bonds and futures, according to the island’s Financial Supervisory Commission. But it’s up to the investors whether they’ll do so, the commission said.
The agreement on insurance was mostly symbolic, and the two sides have not discussed market access, Mr. Chang said. He said there were many issues in this realm, including China’s World Trade Organization commitments. “If they offer special treatment to us, it will cause some problems for them, because the U.S. and E.U. will ask them to offer the same treatment.” Insurance firms will have to wait for more talks.
That trade deal would lower cross-strait tariffs across sectors, including petrochemicals. But the island’s independence-leaning opposition has kept up a drumbeat of criticism, saying the government of President Ma Ying-jeou is trying to ram through such deals without consulting the legislature or the public.
Opposition politicians called the Monday deal a “lightning” signing that “tricked” the legislature, saying the government reported the agreement to the legislature only a few hours before signing it, and that opposition legislators had not seen its contents.
“We believe that when signing such an important agreement, the government shouldn’t use this kind of sneaky and nontransparent method,” an opposition party statement said. “Otherwise the public won’t be able to have confidence in the government’s negotiations, and in whether it’s really safeguarding the national interest.’
The Taiwanese government has said it does not need legislative approval for most cross-strait deals. But it has agreed to seek such approval before signing a broader trade deal with Beijing, which it hopes to do next year.
The opposition doesn’t hold enough seats in the legislature to block a trade deal. But it could slow down further deals with protests on the legislative floor and in the streets.
The next opportunity: the fourth round of semiofficial cross-strait talks, slated for next month in Taichung, Taiwan.
The recent pace of cross-strait deal-making since Mr. Ma took office last year has left some Taiwanese uncomfortable.
“Some fear that further integration might be used as a weapon to blackmail Taiwan,” said Shih Cheng-feng, a political commentator from National Dong Hwa University in Hualien, Taiwan.
“We talk about a free trade area, the exchange of goods, now capital — what’s the next step?” said Mr. Shih. “Maybe free flow of labor. It’s one more step into the trap of dependency.”
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