China, Taiwan sign ECFA agreement

By Huai-Chun Yu

The ECFA is a preferential agreement between the government of the Republic of China (Taiwan) and People’s Republic of China (Mainland China), it also named The Economic Cooperation Framework Agreement. The trade agreement is designed to cut the tariffs on the number of trade products also promote cross-strait investment. It signed on June 29, 2010 in Chongqing, the pact would boost the current U.S110 billion on the cross strait (Phrase to discussing relations between mainland China).

The prospective of Mainland China to have the agreement with Taiwan is to prevent them to have similar trade agreement with other countries such as Free-Trade Agreement (FTA) based on complicated political issues. On the other hand, the motivation for Taiwan to sign the ECFA is partly hope not to be marginalized from other countries under the pressures by Mainland China. Also if Taiwan cannot success to have agreement with China, Taiwan might have big chance to lose out on economic in Asia because China has signed or will sign very soon on the FTA with other trade partners such as Korea and Japan.

ECFA agreement was under the 16-article agreement; both Mainland China and Taiwan agreed to remove and reduce the barriers of trade and investment to create a fair environment in the cross strait and most importantly to provide protection for investments and two-way capital flows. The mainly framework of ECFA is focusing on four agreements on dispute settlement, goods, investment protection and services.

The negotiation process took several rounds. The beginning of the process was the “early harvest” list, which was the beginning of the ECFA, covers 539 Taiwanese products and 267 Mainland Chinese goods for the tariffs reduction. The products covered in early harvest program are mostly Taiwan’s medium and upper-stream industries supply to Mainland China’s lower and medium-stream such as auto parts or textile raw materials would be first be manufactured on Mainland China then be exported in the local market.

There are several controversies in Taiwan over the ECFA, including over potential impact on local Taiwanese businesses. Also it might reduce manufacturing jobs, technology expertise accelerate, capital outflow, and allowing Chinese professionals to work in Taiwan might put job security at risks.

Even thought the concerns by opposition Party in Taiwan might be true, but as economic perspective I would see the agreement more positive impact to Taiwan. As the data in the Table 1-2 I provided, the Chinese market is extremely important to Taiwan. Taiwanese are afraid of FTA agreement will marginalized them is because China had established the ASEAN- China Free Trade Area in 2003. Once the ASEAN increase a larger free trade zone it will bring the Taiwanese products face more intense competition in China. As the ASEAN brought Taiwanese items to more competitive condition. Once the FTA agreement established without Taiwan, it would bring Taiwanese products to an uncompetitive condition.

The table 1-3 will show how important the ECFA is to Taiwan. In the table we could see that Taiwan is the third largest source of imports behind Japan and South Korea. Also we could see the China’s total imports accounted import from Taiwan has fallen from around 10-11% in the period prior to 2007, to 8.3% in 2010. The decline is attributable to the rise in international oil prices, which caused the imports price falling, but tariff increased. According to the data, even we eliminating the tariff for products, the Taiwanese products still decline 2.04 percent total imports to China. As Taiwan could not join any significant export advantage with these products, the import to China will keep falling.

Reference:

http://en.wikipedia.org/wiki/Economic_Cooperation_Framework_Agreement

http://english.peopledaily.com.cn/90001/90778/90861/7050462.html

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