Signing of trade deal with China heralds new era for Taiwan

On June 29, Taiwan and China formally signed the Economic Cooperation Framework Agreement (ECFA) in Chongqing, China. Considered a prelude to other exchanges and trade across the Taiwan Strait, the ECFA has generated controversy in Taiwan since President Ma Ying-jeou first championed it. The agreement is expected to take effect in January 2011 with further rounds of negotiations still pending on investment protection, commodities trading and other regulatory issues.

The landmark agreement, the first between Taiwan and China since the division in 1949, will allow Taiwanese products to be more competitive in China. The speed of the negotiations and the strong official involvement has made the agreement unique, according to the Taipei-based China Times. After the implementation of more agreements and economic exchanges, both sides are expecting the agreement to strengthen mutual cooperation.

The United Daily News said in an editorial that the ECFA, the largest economic reform project since Taiwan joined the World Trade Organization (WTO) nine years ago, is of great significance to Taiwan’s economic development.

Taiwan benefits greatly in early harvest list

In the early harvest list of the ECFA, Taiwan has 539 items entering China with zero tariffs, worth US$13.83 billion, while China has 267 items entering Taiwan without tariffs with an estimated value of $2.86 billion. The main beneficiaries in Taiwan’s list are the petrochemical industry, machinery manufacturers, the textiles industry and the automotive components industry. The deal also covers products from some more traditional industries, in particular covering 17 vulnerable industrial products and 18 agricultural and fishing products, which the island will be allowed to export to China without needing to reciprocate. Taiwan will likely save US$1 billion in tariffs each year, which will significantly increase the appeal of Taiwanese products.

In the service arena, Taiwan has won six preferential market access conditions for its financial industries, and its banking industry will receive relatively more favorable conditions than the banks of Hong Kong. In addition, China will open up five locations where more Taiwanese investors can set up wholly Taiwanese-owned hospitals. Provisions of the deal will also make concessions to Taiwan’s aircraft repair and maintenance industry which is an important starting point from which to enter the Chinese aviation service market.

Not only will Taiwanese products be more appealing, but setting up business in Taiwan will be more attractive to Chinese companies according to Global View monthly. Polaris Investment Trust associate manager Chen Jun-ying said with the ECFA’s tariff reduction of Taiwanese products into Chinese markets, even some Chinese companies will consider moving their factories to Taiwan, given that shipping costs by sea are lower than by inland transportation from the factories in western China to coastal cities.

Taiwan: a springboard to China for multinationals

President Ma said at a press conference on July 1 that the signing of the ECFA is not only significant for Taiwan, but also important for cross-strait relations, the Asia-Pacific region and the whole world. First, the ECFA will help Taiwan break out of economic isolation and marginalization. Secondly, the deal is a major step toward mutually beneficial economic and trade cooperation across the Taiwan Strait, and can provide an institutionalized framework to create more business and employment opportunities in Taiwan. Thirdly, the ECFA is a big step to accelerate the integration of the Asian economy. The Asia-Pacific region and the international community will pay more attention to the value of Taiwan. And, more and more foreign enterprises will consider the island as a springboard to enter the Chinese market.

The president said, “Taiwan's development absolutely cannot, and will not depend on the Chinese mainland solely, and must diversify and control the risks to achieve the goal of global planning and positioning. We have the geographical advantage to attract foreign businesses to invest in Taiwan.” He added, “Taiwan can become a platform for multinational companies to invest in mainland China. Meanwhile, mainland China’s investment in Taiwan could also become a channel for it to enter the world market in the future.”

AmCham takes a fresh look at Taiwan

According to a survey by Global Views monthly, 87.5 percent of foreign enterprises in Taiwan said the ECFA will increase Taiwan’s competitiveness and 82.1 percent believe the ECFA will elevate Taiwan’s economy.

American Chamber of Commerce (AmCham) chairman Alan Eusden congratulated Taiwan on the signing of the ECFA with China. He credited the ECFA for providing a rare opportunity for businesses and research institutes to “take a fresh look” at Taiwan. While the ECFA might lessen Taiwan’s isolation in the global market, Eusden believes that the island's most serious challenge is in trying to maintain its competitiveness through pursuing trade talks with the US and other countries.

According to a report released on June 29 by the Taiwan branch of Credit Lyonnais Securities Asia, an investment and brokerage firm, most corporations do not believe that the signing of the ECFA will significantly impact profits, but the agreement will place Taiwan’s enterprises on an equal footing with those of the ASEAN countries, and as such is bound to be good for Taiwan’s economy as a whole. The report emphasized that the effects of signing the ECFA are expected to gradually become apparent after 12 months, or even have an impact on Taiwan’s 2012 presidential election.

In a speech on June 22, Japanese strategy master Kenichi Ohmae said Taipei enjoys three economic advantages that will help the island become an Asia-Pacific hub. This includes the current 370 direct flights a week across the Taiwan Strait, the drop of corporation tax to 17 percent, and now, the signing of the ECFA.

In a special article in Global Industry and Commerce monthly, Liu Zhen-tao and Li Yin-bo, professors at the Taiwan Institute of Tsinghua University (Taiwan), said that the current model of “placing orders in Taiwan – production in China – export to Europe and America” is disadvantageous to both sides of the strait because the dominant powers are controlled by Japan, the US and Europe. Hit by the global financial turmoil, both Taiwan and China have been impacted. Therefore, the division of labor should be changed to “placing orders in both Taiwan and China - cooperation in industry and R&D – and integration of domestic and overseas sales channels.” Based on this view point, the signing of the ECFA will have long-term strategic significance to promote mutually beneficial win-win cross-strait cooperation.