Taiwan and China agree terms of landmark trade deal

TAIPEI (Reuters) - A landmark trade deal between Taiwan and China will cut tariffs on more than 800 products and open up service industries, officials and sources said on Thursday, giving a major boost to around $100 billion in annual two-way trade.

The most significant deal between the former political foes in 60 years will be signed on June 29 in Chongqing, once briefly the capital of China under the rule of the Nationalists, who are now Taiwan's ruling party after losing the civil war to Mao Zedong's Communists in 1949 and retreating to the island.

Taiwan's government has been heavily pushing the deal, fearing the country's $390 billion export-led economy will lose out to rivals in the booming Chinese market.

"In all free-trade agreement negotiations, there are bound to be winners and losers," said Tony Phoo, an economist with HSBC in Taipei.

"I think, looking at what we have so far, the list covers most of the top export categories for what Taiwan ships to China, so it's not too bad of a deal.

The economic cooperation framework agreement (ECFA) would see tariffs cut on 539 Taiwanese products bound for China and 267 Chinese products exported to Taiwan, Premier Wu Den-yih told reporters at parliament.

The cuts on the Taiwan items are valued at $13.84 billion and those from China $2.86 billion. A private research body in Taiwan has previously estimated that ECFA could create some 260,000 jobs in Taiwan and lift GDP by around 1.7 percentage points a year.

China is Taiwan's biggest trade partner and top foreign investor.

OPENING FOR TAIWAN SERVICE INDUSTRIES

The deal will also open up to Chinese investment some of Taiwan's service industries, including movies and business services, while the mainland's computer services, airline maintenance and medical sectors would be opened to Taiwanese investment.

Taiwan banks operating in China would be allowed to conduct business in China's renminbi currency a year earlier than current rules allow. Chinese banks will be able to convert their representative offices in Taiwan into branches after one year.

The tariff cuts will cover about 15 percent of Taiwan's exports to China, and include petrochemicals and plastics, cars and parts, textiles, machines tools and medical equipment. But the list left out PVC products, one of Taiwan's top exports.

Taiwan will in turn cut tariffs on Chinese products, including toothbrushes and wristwatches, bicycle tires, light bulbs and some industrial oils.

The imbalance in the number and type of items in favor of Taiwan reflects China's view that the deal is a sweetener aimed at advancing China's charm offensive toward the island it hopes one day to incorporate.

The deal could also boost the chances of Taiwan's ruling party at tough local elections due at the end of the year, with a tough challenge expected from an opposition fearful of ECFA's economic and political consequences.

With a message that ECFA will flood Taiwan with cheap goods, creating massive unemployment, and is a first step toward a Chinese political takeover, the opposition is looking to score big in the local elections to give it chance of ousting pro-China President Ma Ying-jeou in 2012 presidential polls.

"(The deal) gives Ma a beautiful list of scores he can deliver at the next elections," said Lin Chong-pin, strategic studies professor at Tamkang University in Taipei.

"It's a political decision made by Beijing, not economic. It's Beijing's high-level strategic political decision to win the hearts and minds of the Taiwan people and pre-empt the pro-independence opposition party."

The opposition, which has called for any trade deal to be concluded under the auspices of the World Trade Organization, plans to hold a protest rally against ECFA in Taipei on Saturday.

(Additional reporting by Ralph Jennings and Argin Chang, writing by Jonathan Standing; Editing by Chris Lewis and Ron Popeski)