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What Lessons from the EU Model for a Taiwan – China Free Trade Agreement

What Lessons from the EU Model for a Taiwan – China Free Trade Agreement. Der-Chin Horng Institute of European and American Studies, Academia Sinica. Contents. Abstract I. European Integration: Background and Significance II. Main Features and Challenges of the EU Model

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What Lessons from the EU Model for a Taiwan – China Free Trade Agreement

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  1. What Lessons from the EU Model for a Taiwan – China Free Trade Agreement Der-Chin Horng Institute of European and American Studies, Academia Sinica

  2. Contents Abstract I. European Integration: Background and Significance II. Main Features and Challenges of the EU Model III. Opportunities of the EU Model for Taiwan-China Economic Relations Ⅳ. The Roadmap of a Taiwan – China Free Trade Agreement from the EU Model V. Conclusions

  3. The EU Model • The European Union (EU) is one of the most successful examples of regional economic integration. What are the main features of EU integration model? What is the meaning and significance of the EU model for other regional economic integration processes?

  4. Core Issues of this Paper • This paper will examine both the opportunities and challenges the EU model presents for Taiwan–China economic relations. • What lessons can be drawn from the EU model for a Taiwan – China free trade agreement? • Will a FTA provide China and Taiwan with a way towards long-term peace, prosperity and stability in the cross-Strait relations?

  5. I. European Integration: Background and Significance • 1952 ECSC established by Treaty of Paris, came into force on 25 July, signed by the Six: France, Germany, Italy, Belgium, Netherlands, Luxembourg. • 1958 EEC and Euratom Treaties came into force on 1 January • 1993 The TEU enters into force on 1 November.

  6. The European Union • The original EEC Treaty aimed primarily at promoting economic and trade expansion within a common market. • The name “European Union” was formally adopted in the TEU. • The EU has developed from a sectoral common market to the European economic and monetary union (EMU).

  7. Regional Trade Agreements (RTAs) • In terms of their scope and depth, there are five types of RTAs: • Free trade areas • Customs unions • Common market • Monetary union • Economic union

  8. II. Main Features and Challenges of the EU Model • The EU has many faces. The key features of the EU are: (1) partial sovereignty (2) the supranational institutions (3) independent financial resources and budget (4) legal personality (5) the multi-subjects

  9. (1) partial sovereignty • The first major innovative feature of the EU, compared with other international organizations is that it includes the transfer partial sovereignty to the EU from its Member States.

  10. (2) the supranational institutions • The second feature is that the EU has its own institutions. The EU’s institutions are the political bodies created by the Treaties to build a supranational organization. Article 7 of the EC Treaty lists five EU institutions: • the European Parliament • the Council of the European Union • the European Commission • the Court of Justice • the Court of Auditors

  11. (3) independent financial resources and budget • The third feature is the EU’s own financial resources. There are currently four types of own resources: • agricultural duties and sugar levies; • customs duties; • the VAT resources; and • the resource based on gross national income.

  12. (4) legal personality • The fourth feature is the legal personality of the EU. Legal personality means that the EU can exercise legal rights and assume legal duties over the whole range of matters that the EC Treaty and the EU Constitution assign to it. • Legal personality also signifies the EU’s capacity to possess rights and duties in international law, particularly the right to enter into agreements, the ability to be a party to dispute settlement proceedings, and the capacity to claim or be liable for damages.

  13. (5) the multi-subjects • The fifth feature is the EU has multi-subjects including EU institutions, Member States, and European citizen. In addition to national citizenship, an individual also has European citizenship. This gives citizens a deeper and more tangible sense of belonging to the EU. • The EU model of European integration is thereby developing a deepening and widening grass-roots based European citizenry.

  14. Special Features of the EU Model (1) • All these five features are necessary for the EU to fulfill the tasks laid down in the Treaties. The success of the EU owes a lot to these special features through which it works.

  15. Special Features of the EU Model (2) • Special because the EU is not a federation likes the United States. It only possesses the partial sovereignty transferred by its Member States. • Nor is the EU simply an international organization for intergovernmental cooperation, like the United Nations. Its power and functions are much beyond international organization. • It is unique and can be seen as a sui generis supranational organization in the international system.

  16. III. Opportunities of the EU Model for Taiwan-China Economic Relations • Special experiences which will be difficult for other RTAs to copy and present challenges for cross-Strait economic relations to replicate the resulting features. However, the EU model also contains common experiences which present opportunities for other RTAs. • Common experiences possess general characters that may provide learning opportunities for other RTAs, perhaps even in Taiwan-China economic relations.

  17. Common Experiences: (1) The Peaceful Approach • Common experiences of the EU model mainly cover the objectives, strategies and results of EU integration. The general objectives of EU integration are to pursue European political peace, economic prosperity and social stability.

  18. The Objectives of the EU • The ECSC is founded upon a common market, common objectives and common institutions. Its tasks are to expand economic production, to raise the living standard and to promote the European peace.

  19. (2) The Step-by-Step Approach • The second common experience is about the gradual approach for EU integration. The EU integration has marched from sectoral steel and coal common market, to full common market, and then to EMU.

  20. (3) The Functional Approach • The third common experience concerns the functional approach for EU integration. The functional approach gave the first clear and hard impetus for EU integration. • Member States may also avoid controversies in political area and focus on economic benefits of integration. Economic benefit is the most important factor for Member States to get internal support for EU integration.

  21. Ⅳ. The Roadmap of a Taiwan – China Free Trade Agreement from the EU Model A. Three Scenarios in Taiwan-China Trade Relations (1) • There are three main scenarios for Taiwan–China trade relations including: • Status quo rival relations • Normal relations under the WTO • Cooperative relations in the future

  22. A. Three Scenarios in Taiwan-China Trade Relations (2) • The status quo in cross-Strait relations is a condition of rivalry. • Most-favored-nation (MFN) treatment to each other will represent normal relations. • The FTA will be a cooperative relationship.

  23. The Status Quo under the WTO • China and Taiwan became members of the WTO in November 2001 and January 2002 respectively. However, Taiwan retains many restrictive measures against the importation of Chinese products on some 2,200 tariff lines. • Cross-Strait trade is only permitted by indirect shipment through a third port, usually Hong Kong. On the other hand, China remains reluctant to conduct official negotiations on an equal footing with Taiwan, even under the WTO.

  24. The EU Experience for the Status Quo • From the EU experience, the process for a Taiwan–China FTA should be strongly driven by political will from governments on both sides. The first step is to re-open official talks to change the status quo/rival relations between China and Taiwan.

  25. The EU & the Cross-Strait Relations • The EU believes that consultation will be an effective means to resolve the cross-Strait question. With respect to cross-Strait relations, the EU supports the peaceful resolution of differences between China and Taiwan, rejecting the use or threat of force.

  26. The Second Scenario: The Normal Relations under the WTO • The second scenario is the normalization of relations for Taiwan and China under the WTO. That is, both sides conducting trade without discrimination, which is a foundational principle of the WTO: WTO members should not discriminate between its trading partners, but rather should give all MFN status.

  27. The Third Scenario: The FTA (1) • The third scenario is the cooperative relation with a FTA between cross-Strait entities. Both Taiwan and China set the FTA as one of their trade policy priorities after their WTO accession. The FTA goes beyond the normal MFN to a cooperative relation between the contracting parties under the WTO.

  28. The Third Scenario: The FTA (2) • From the gradual approach of EU experience, the FTA will be more feasible for cross-Strait economic integration. Article 24 of the GATT and Article 5 of the GATS contain provisions for WTO members to engage in regional economic integration.

  29. The Third Scenario: The FTA (3) • The FTA is the lowest type of regional economic integration. It will be more practical than jumping to a customs union or common market. The EU model is based on a step-by-step approach from sectoral coal and steel cooperation, to a common market.

  30. The Third Scenario: The FTA (4) • Based on the experiences of EU Treaties, the peace statement may be inserted in the preamble of Taiwan-China FTA. More precisely, a peace clause may be contained in the FTA. • If the FTA were effectively and successfully implemented, these peace statement or peace clause may be served as an interim peaceful agreement to cross-Strait.

  31. The Third Scenario: The FTA (5) • A peace provision in the FTA will also reduce political opposition from China to conclude a formal peace agreement with Taiwan due to one China policy. • Ultimately, a FTA between Taiwan and China may have spill-over effects for more secure peace and security in cross-Strait relations. • As such, a FTA may be seen as a strategy of peaceful experimentation, perhaps leading to “peaceful change and quiet revolution” in China and/or “integration or unification in installments” towards a Chinese Community or Chinese Union.

  32. B. Challenges of the Cross-Strait FTA • There are many challenges faced by Taiwan and China for a cross-Strait FTA. Attention particularly should be paid to: (1) the name of the FTA; (2) equality of the parties and (3) dispute settlement among others.

  33. (1) the name of the FTA (1) • Most FTAs are concluded in the name of an “agreement” between contracting parties. However, agreements are usually reached between sovereign states and have great diplomatic significance. • Therefore, the first FTA for both China and Hong Kong – CEPA is in the name of “Arrangement.” The national name, “China” also was replaced by the name of “Mainland” in the CEPA. These designations avoided an impression of equality between China and Hong Kong in the international trading system.

  34. (1) the name of the FTA (2) • The CEPA model of “Mainland and Taiwan”, or the commonly used names of “cross-Strait” FTA or “Chinese” FTA all may be considered as a second-best choice for both sides. • From the practical and functional experiences of EU model, no matter what’s in a name regarding the China – Taiwan FTA, it represents the cooperation between the two sides and also has legal meaning in the WTO.

  35. (2) equality of the parties (1) • The second challenge is about equality of the contracting parties in the cross-Strait FTA. • The equality of membership is a key constitutional principle in the EU. Regardless of the size of population, territory, economic strength and political power, Member States are treated equality upon their EU accession. They also enjoy a veto in some policy areas, which are vital to their national interests.

  36. (2) equality of the parties (2) • The equality of membership is also a principle for the WTO. Membership in the WTO is based on the concept of separate customs territory. Taiwan is a full membership in the WTO and should enjoy equality in the WTO. • The equality of membership in the WTO does not necessarily lead to diplomatic recognition or political equality between Taiwan and other WTO’s members. • Therefore, the equality of the parties in the cross-Strait FTA should not be objected by China. This is a precondition for Taiwan to cooperate with China.

  37. (3) dispute settlement • The third challenge is the dispute settlement mechanism in the cross-Strait FTA. Most FTAs incorporate provisions for dispute settlement. • If the EU experience is followed, an independent body for dispute settlement will be one of the crucial arrangements in the cross-Strait FTA.

  38. The EU Model for Challenges • To resolve the above mentioned challenges will not be easy due to a shortage of mutual trust in cross-Strait relations over the last five decades. • The EU model, based on the cooperation of Franco-German axis, could provide some models for the implementation of a cross-Strait FTA. • If traditionally hostile countries such as France and Germany could initiate their cooperation through functional integration approach, then why could the two side in cross-Strait not learn from them.

  39. V. Conclusion (1) • Taiwan and China could learn from the lessons offered by the EU model to change political confrontation, or even to pursue economic cooperation. • From the functional and pragmatic approaches of EU model, the FTA will provide an opportunity for mutual benefit in cross-Strait relations. • Through the FTA, will Taiwan and China gradually integrate into one economic union or even one Chinese Union?

  40. V. Conclusion (2) • The EU experience also suggests that European integration has always influenced by political will of its Member States. The process towards a cross-Strait FTA therefore requires a great political will and a commitment to peace and common interests from both Taiwan and China. • This process will be a politically difficult venture for both sides. The success of cross-Strait FTA, however, will facilitate further economic integration and have the potential to create a new Chinese Golden Age in the 21st century.

  41. Thanks for your Attention

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