Q+A: What to expect from the next China-Taiwan talks

TAIPEI (Reuters) - Taiwan and China, political rivals for six decades, will hold formal talks on a free trade pact next week, extending a dialogue that analysts say will build trust for talks on sensitive political issues eventually.

The two sides hope to sign the proposed Economic Cooperation Framework Agreement (ECFA) in early 2010, dropping trade barriers between export-reliant Taiwan and economic powerhouse China. Taiwan's anti-Beijing opposition has planned protests through the week.

WHAT'S THE IMPACT ON OVERALL CHINA-TAIWAN RELATIONS?

Any meeting between the two governments that once stood at the brink of war builds trust, which both sides expect will eventually lead to dialogue on sensitive issues such as China's military threat and Taiwan's role in international bodies.

Washington, which backs Beijing diplomatically but at the same time is obligated to help defend Taiwan if China attacks it, has said it strongly supports the negotiations.

Negotiators have met three times already since mid-2008 when China-friendly Taiwan President Ma Ying-jeou took office. They signed agreements to start direct flights, open shipping links and join forces to fight the global economic downturn.

WHY WILL THE TALKS DRAW PROTESTS IN TAIWAN?

Demonstrations expected to draw tens of thousands from Sunday through Wednesday near the heavily guarded venue of the talks, in the central Taiwan city of Taichung, stem from historic distrust of China fueled by Ma's efforts to do business with Beijing.

Hardliners want Taiwan to declare formal independence from China, which they see as a threat to the island's democratic self-rule. Other protesters back economic ties with Beijing but suspect that the negotiators are secretly discussing unification.

Some Taiwan merchants in traditional industries fear that ECFA will lead to a flood of competing goods from China.

HOW WILL THE TALKS AFFECT MARKETS?

Taiwan's stock and currency markets may get a modest boost from the talks as investors see the meeting as a sign that Taiwan will benefit from China's massive economy.

But as investors square positions toward year's end, shying away from riskier assets, neither market is seen posting huge gains until ECFA is signed later.

"There will continue to be a positive reaction to the warming of cross-Strait relations, but I think there wouldn't be much impact because ECFA won't be finalized," said Joanna Tan, an analyst with Forecast Ltd.

Listed companies from China's Fujian province, which is geographically closest to Taiwan and enjoys strong transit links, would get a boost in Chinese markets. Those firms could include Fujian Cement and Industrial Bank.

WHAT'S ON THE NEGOTIATION AGENDA?

Negotiators will exchange their first formal words about the free-trade pact before negotiating the details and signing it at a round of talks in China early next year, Taiwan officials say. Taiwan legislators must also agree to it.

Also on the agenda is a deal to avoid double taxation while lowering both corporate and personal income taxes, incentives for Taiwan investors in China as well as foreign firms based on one side but active on the other.

About 800,000 Taiwan business people are stationed in China, where the island's investment has totaled $80.5 billion over the past 18 years, the island government says.

Other agenda items are deals to protect the rights of Chinese crew on Taiwan fishing boats, identify joint import-export inspection standards and cooperate on agricultural quarantines.

(Additional reporting by Lin Miao-jung; Editing by Sanjeev Miglani)