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ECFA:alongwaytogo

2020-08-14
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ECFA:alongwaytogo

<>After a serious debate between the ruling party, KMT, and the opposition party, DPP, the Cross-Straits Economic Cooperation Framework Agreementhas finally been signed by Straits Exchange Foundation and Association for Relations Across the Taiwan Straits on June 29, 2010, in the fifth Chinag-Chen Talks and officially in force on September 12, 2010. ECFA has not only a high economic meaning for Taiwan, but also has a crucial political meaning for the future development of the cross-strait relationship.And therefore, it has drawn a huge attention both domestically and internationally for Taiwan.

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<><> As most negotiation of bilateral FTAs, the process of negotiation of ECFA between Taiwan and mainland China is not as easy as it looks. It is until Mr. Wang Yi, the president of the Central Office of Taiwan Affairs, mainland China, has literally announced that mainland China will take “a giving benefit position” that the both sides finally reached as agreement.In the giving benefit position, Mr. Wang Yi said that:The items and amounts for tax reduction on the Early Harvest Planfor mainland China will be less than that for Taiwan.The items in the EHP for Taiwan exporting to mainland China will benefit the public as much as possible.The items in the EHP for Taiwan exporting to mainland China will benefit the weak industries in Taiwan.Mainland China will not ask Taiwan to open more items in agriculture products.Mainland China has no intention to ask Taiwan to open labor market for Chinese labor.

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<><> It turns out that in the EHP mainland China did keep its promise in that Taiwan enjoys 539 items of exporting goods to mainland China with zero tariff, which counts for US$13.8 billions and for 16.1% of total exporting items from Taiwan to mainland China.Meanwhile, Taiwan could save US$0.91 billions in tariff reduction immediately. On the other hand, mainland China enjoys 267 items of exporting goods to Taiwan, which counts for US$2.8 billions and for 10.5% of total exporting items to Taiwan, while mainland China could save US$0.11 billions in tariff reduction.Moreover, according to the estimation by the Ministry of Economic Affairs , Taiwan, the EHP could induce total output by US$20 billions, which counts about 0.4% of GDP in Taiwan and could create 60,000 job opportunities.

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<><> Though both sides had reached a great deal in the EHP, the ECFA itself is still far from complete.For instance, it is not mentioned that how many items which will be listed in tariff reduction, which is against the comprehensive principle in WTO that most of items should be included in tariff reduction in a bilateral FTA.Secondly, itis not mentioned that how long the process of tariff reduction will be complete. Third, it is not mentioned about the conditions for the termination clause. It means that, under the current situation, both sides could require negotiation for termination without any condition, which makes the agreement kind of vulnerable.

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<><> Though Taiwan and mainland China agree that the talks after singing ECFA will be held every half an year, the process of negotiation will be long and painful in many ways. In general, there should have four types of agreements that have to be completed, including the agreement on trade in goods, the agreement on goods in services, the investment agreement, and the economic cooperation agreement.

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<><> For the agreement on trade in goods, there are more then 10 thousands items by HS six digit codes.In addition to large number of items to be negotiated, the reduction process for each item is also crucial, too.Moreover, certain items in Taiwan are very sensitive, such as agriculture products and other traditional and weak industries as shoes and clothes.It is no doubt that it will take a long process to complete the negotiation for tariff reduction for goods.

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<><> For the agreement on services, the resistance from domestic industries in Taiwan might be even larger than that of the goods agreement.For instance, the banking industry in Taiwan worries that the four giant state-owned banks in mainland China might come to Taiwan and buyout all banks in Taiwan, if Taiwan opens the banking industry for mainland China and without any restriction.Therefore, Taiwan insists that scale factor should be considered when both sides open their banking industry for the other.The similar situation is for insurance industry, telecommunication industry, logistic industry, and so on.The telecommunication industry has a similar situation with the scale problem.

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<><> There are two major parts in the investment agreement, one is on investment protection and the other is on investment enhance. On the investment protection, one major potential problem is on dispute settlement and commercial arbitration. Usually, when the two parties of any FTA have dispute, they will look for the third party for arbitration, both for two countries or for two companies in question. However, when both sides look for the third party it implies that the dispute will be an international affair, which against the so-called “one China policy”.Therefore, mainland China for sure will prefer to choose a place like Hong Kong for dispute settlement or for commercial arbitration.However, since Honk Kong is part of mainland China, it is difficult for Taiwan government or Taiwanese people to make sure that Hong Kong court will provide a fair trial.Anyway, the relationship between Taiwan and mainland China is a “domestic” fair or an “international” fair will always be a sensitive issue across the Taiwan Strait and it will be very difficult to solve in the near future.

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<><> On the part of investment enhance, there are some potential problems, too. For instance, Taiwan, as an advanced country when it became a member of WTO, should open its banking industry without any restriction for foreign banks to invest in Taiwan.On the contrary, mainland China, as a developing country when it became a member of WTO, could set up more restrictions when it opens its banking industry for the foreign banks to invest in mainland China.But, the truth is that the size of any one of the big four state-owned banks in mainland China is much larger than every bank in Taiwan.For example, the total employment of Bank of China is over 600,000 employees, which is more than the total number of employees in the banking industry for Taiwan as a whole.Therefore, when both sides negotiate the openness of banking industry, Taiwan government is very cautious because it is very easy for the big four SOE banks to buyout all banks in Taiwan, if there is no restriction for mainland China’s banks to invest in Taiwan.

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<><> Finally, for the economic cooperation agreement, the talk on the taxation agreement was failed on the fourth Chiang-Chen talk, since it is related to sovereignty problem.The other important agreement is the foreign exchange clearing agreement, which is related to sovereignty, too, and will be difficult to negotiate.Some other types of cooperation might be easier to negotiate, such as trade promotion and facilitation, e-commerce cooperation, and small and mediate enterprises cooperation.

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<><> In conclusion, ECFA is greatly improving the bilateral relationship across the Taiwan Strait, both economically and politically.Moreover, it does help Taiwan to expand its foreign market, both in mainland China and in other foreign countries.The EHP also provides some immediately benefits for certain industries in Taiwan. Though, ECFA looks very helpful for Taiwan, the future negotiation might not be as easy as the negotiation process for the ECFA itself.Just like Mr. Wang Yi said that the negotiation will follow the rule as “the easy things go first, and then the difficult parts follow.”Therefore, in order to smooth the negotiation process, the both sides have to be more considering for the other part, since it is obvious that the domestic resistance will be more and more severe for the both sides when the domestic market opens gradually.

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