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Analysts: China-Taiwan Trade Deal Strengthens Ties, Challenges Remain

China's President Hu Jintao has praised a new trade agreement with Taiwan, calling it an "important achievement" in improving relations between the long-time rivals. But as trade between the two sides grows, analysts note that challenges remain and the question of whether economic cooperation will help Beijing and Taipei resolve their political differences remains unclear.

During a meeting on Monday with a Taiwan envoy, Chinese President Hu Jintao expressed hope that the trade agreement signed late last month would take effect as soon as possible to bring what he called "substantial benefits" to both sides.

China's state-run Xinhua news agency quoted Mr. Hu as saying the trade pact showed that it is possible to find ways to gradually resolve problems constraining the development of both sides.

Political scientist Chu Shulong of Beijing's Tsinghua University says that over time, the Economic Cooperation Framework Agreement, or ECFA, could pave the way for talks on sensitive political and military security issues.

"If we can implement the ECFA, then we can have long-term and stable economic and social relations, then we can also think about trying to establish a political framework through political talks," said Chu Shulong.

Chu made his remarks at a recent forum here in Washington on Taiwan-China relations sponsored by the Carnegie Endowment for International Peace.

He adds that China understands that this is a much more sensitive and challenging for Taiwan.

"I think the mainland is not sure when or even whether they can start that process of political normalization," he said.

China regards the island as part of its territory. In the past, it has threatened to use force to achieve that goal and it has an estimated 1,300 ballistic missiles positioned opposite the island along its eastern coast.

But in recent years, China has focused more on softer measures, such as building closer economic ties.

Bilateral trade between Taiwan and China is already strong, about $110 billion a year - with some $80 billion in goods flowing to China, and about $30 billion to Taiwan.

After Taiwan President Ma Ying-jeou came to office in 2008, the island started direct airline flights and cargo links to China for the first time in more than six decades.

Analysts say that last month's trade agreement is the most significant economic pact since Taiwan and China split when the communists came to power in Beijing in 1949.

The ECFA will end tariffs on hundreds of products traded across the Taiwan Strait. It also will allow Taiwanese firms to invest in Chinese service sectors, including banking, accounting, insurance and hospitals.

Speaking at the same forum on cross-strait ties, Georgetown University's Robert Sutter cautioned that although the agreement builds trust between the two sides, it gives Beijing leverage over Taipei.

"Does that limit Taiwan's room for maneuver now and in the future? I think it probably will," said Robert Sutter. "I think it's pretty likely. And so people in Taiwan need to be aware of that. Will it still lead to an acceptable agreement? Maybe, if they are moving in that direction."

According to Sutter, U.S. policy makers need to take this into account.

"Taiwan, for a long time, remained an entity that is really not in the influence of China," he said. "They are opposed to that. That went on for 60 years. That has changed. It seems to me that has fundamentally changed."

Taiwan officials say they expect lawmakers to approve the agreement and send it to President Ma next month. They say the deal will likely take effect in September.

Taiwan's opposition Democratic Progressive Party objects to the agreement, and says it fears the agreement will undermine the island's economy and self-rule. Thousands of people have already taken to the streets of Taipei in recent weeks to protest the deal.

Supporters of the pact in Taiwan say it will ensure that the island does not become marginalized as China's global economic power grows.