ECFA to Bring Strong Boost to Taiwan's Economy
2010/09/21 | By Philip LiuThe Economic Cooperation Framework Agreement (ECFA) between Taiwan and mainland China took effect on Sept. 12, inaugurating a process that will ultimately lead to full market opening between the two sides of the Taiwan Straits.
ECFA, together with a cross-straits agreement on the protection of intellectual property rights, took effect the day following an exchange of documents by Taiwan's Straits Exchange Foundation and China's Association for Relations Across the Taiwan Straits.
In its initial period, ECFA calls for the removal of tariffs on more than 800 items on an “early-harvest” list in three stages over a two-year period. The list includes 530 items included at Taiwan's request (worth an annual US$13.8 billion in shipments to China) and 267 items included at China's request (worth an annual US$2.86 billion in shipments to Taiwan). ECFA will also further open up cross-straits financial dealings.
The early-harvest list will also pry open China's services market to Taiwanese enterprises supplying 11 types of services, including financial services, hospitals, accounting and auditing, conference services, and computer services.
Under the agreement, China promises to give “super-WTO (World Trade Organization)” treatment to Taiwanese banks, enabling them to upgrade their representative offices in China to full branches a year after establishment. After the offices have been established for two hears and have turned a profit for one year, they will also be allowed to engage in renminbi (RMB) businesses and extend loans to Taiwanese-invested enterprises one year after their establishment, so long as they make a profit during that year.
ECFA will also ease entry into the Chinese market for Taiwan's insurance, securities, and futures firms. Under the original rules, Taiwanese insurance companies have to set up representative offices in China and wait two years before upgrading them to branches. In addition, the companies are required to have a history of 30 years and a capitalization of over US$5 billion.
Taiwanese investors will be allowed to set up wholly-owned hospitals in Hainan, Fujian, Guangdong, and Jiangsu provinces, as well as the city of Shanghai. At present they can invest in hospitals only in the form of joint ventures, with a maximum shareholding of 70%.
The agreement on IP protection will help attract foreign investment to Taiwan for the purpose of developing the Chinese market.
The ECFA Effect
In the initial stage, according to government estimates, ECFA will boost Taiwan's GDP by NT$54.9 billion (US$1.7 billion at NT$32:US$1), add 0.4 of a percentage point to the island's economic growth rate, increase industrial output by NT$190 billion (US$5.9 billion), and add 60,000 jobs, while saving NT$29.5 billion (US$922 million) in tariff payments.
Tariff-free treatment will ultimately be extended to all merchandise traded between Taiwan and China, though no timetable has been set for that process.
Each side of the straits will set up an economic cooperation committee to conduct follow-up talks on further cross-straits market opening. A priority item for such talks will be an agreement on investment protection—especially important to Taiwan, which has invested US$90 billion in China since 1991. Other key items on the talks agenda will be agreements on merchandise trade, service trade, and a dispute-settlement mechanism.
Given Taiwan's growing dependence on the Chinese market, the institutionalization of economic relations across the Taiwan Straits is vital to the continued development of the island's economy,
In the first eight months of this year, China (including Hong Kong) absorbed 42.4% of Taiwan's total exports, up from just 16.4% in 1991. At the same time, the share of the United States in Taiwan's exports plunged to 11.2%, from a peak of 40%, and the share of the EU's 27 member countries as a group stood at only 9.6%.