ECFA to Safeguard Taiwan's Share in the Chinese Market
Both sides agree to downsize

2010/06/09 | By Philip Liu

Stimulated by the impact of the “ASEAN (Association of Southeast Asian Nations) Plus One (China)” agreement which took effect on Jan. 1 this year, Taiwan is stepping up the pace of talks with China on the Economic Cooperation Framework Agreement (ECFA), which is likely to be inked in mid-year. ECFA, which is similar to a free trade agreement (FTA), will help Taiwan safeguard its market share in China, the island's largest export outlet.

During the second session of cross-trait talks on the agreement, held in Taipei in early April, Chinese delegates agreed in principle to the request of their Taiwanese counterparts to include Taiwanese products vulnerable to the ASEAN Plus One agreement in the “early-harvest list” of priority items for tariff cuts.

These products include petrochemicals, up- and midstream textiles, machinery, and transportation equipment, which need tariff cuts urgently to offset the tariff-free advantage afforded their competition from Southeast Asian nations. With the full implementation of the ASEAN Plus One agreement, products from ASEAN countries have become virtually tariff-free in the Chinese market, while goods from Taiwan and other countries are still subject to an average tariff of 9.8%.

In general the Chinese delegates responded favorably to the Taiwanese request, in accordance with their leadership's pledge to grant concessions to Taiwan to alleviate the impact of the agreement. At the same time, the Chinese delegates urged Taiwan to lift the ban on most of 2,100 items that now may not be imported from China.

Both sides also agreed to downsize the early-harvest list under the principle of “quick, easy, and small” so that the agreement can be inked in the middle of the year, as both sides want.

Following the signing of ECFA, tariff cuts for items on the early-harvest list will be carried out in perhaps two years. After that Taiwan and China will sign a full-scale trade agreement containing a schedule of tariff cuts for other items, so that a free trade arrangement across the Strait can be realized in, say, 10 years. This is similar to the procedure used in the ASEAN Plus One agreement.

Avoiding Marginalization

The free trade arrangement is critical if Taiwan is to avoid the marginalization of its economy in the world market as the formation of regional economic blocks becomes more common.

In 2009, Taiwan's exports to China/Hong Kong declined 15.9% to US$87 billion, accounting for 41% of total overseas shipments (total exports dropped by 20.3%, to US$203.7 billion). Trade with China/Hong Kong left Taiwan with a trade surplus of US$58.1 billion, double the island's overall trade surplus of US$29.3 billion.

Taiwan's export to China alone dipped 18.9% to US$54.2 billion in 2009. Electrical machinery and home appliances, which made up the largest export category, slipped 9.9% to US$16.3 billion, followed by optical devices with US$11.9 billion (down 27%), plastics with US$5.7 billion (down 4.7%), organic chemicals with US$5.4 billion (down 17%), machinery equipment with US$4 billion (down 26.7%), and iron and steel with US$1.8 billion (down 14%).

Meanwhile, attracted by ASEAN's growing market along with its gradual formation into a free trade zone, Taiwanese companies have been intensifying their penetration of the area by boosting investment there, especially following the dissipation of the global financial tsunami.

The Formosa Plastics Group (FPG), Taiwan's leading manufacturing conglomerate, for instance, has decided to add another stainless-steel plant, with annual capacity of 2 million metric tons, to its steel-plant project in Ha Tinh Province, Vietnam at a cost of NT$100 billion (US$3.1 billion at NT$32:US$1). This will give the steel complex a total annual capacity of more than 50 million metric tons, which will be used to supply demand in the 10 member nations of ASEAN.

The E-United Group, after a two-year delay, finally started work on its big steel plant in Vietnam in late March. The new US$3.5 billion facility will start producing in the first half of 2013 at an annual capacity of 7 million metric tons of steel materials.

Thanks to heavy investments by Taiwanese enterprises in recent years, Vietnam has emerged as one of Taiwan's major export outlets in Southeast Asia. Taiwan's shipments to Vietnam dropped 24.7% to US$6 billion in 2009; the largest export category was fossil fuels, which plunged 54.4% to US$1.16 billion, followed by iron and steel with US$675.5 million (down 5.6%), plastics with US$506 million (down 15.6%), machinery equipment with US$465 million (down 30.4%), man-made fiber with US$379 million (down 9.5%), and organic chemicals with US$312.5 million (down 8.5%).

Overall, Taiwan shipped US$30.6 billion worth of goods to the 10 ASEAN countries in 2009, down 21.4%.

Export Promotion Plan

To alleviate Taiwan's heavy reliance on the Chinese market, the island's government has been working hard to help local exporters boost sales to other emerging markets under the auspices of the “New Zheng He Plan,” which was launched by the Ministry of Economic Affairs (MOEA) in late 2008 to counteract the impact of the global financial tsunami. (Zheng He was a renowned Chinese marine explorer (1371-1435) of the Ming Dynasty.)

The MOEA entrusted the Taiwan External Trade Development Council (TAITRA) to execute the plan, mainly by organizing sales promotion and trade-show missions to emerging market areas, as well as missions from those areas to Taiwan.

In 2009 TAITRA organized 75 sales promotion and trade show missions to emerging markets, including 19 to the Middle East. One of these, which visited Iran and Saudi Arabia in May, was headed by Deputy Economics Minister Sheng-Chung Lin and TAITRA Vice Secretary General Walter Yeh, and included representatives from 59 companies; during its 12-day tour, the delegation landed US$61 million worth of on-site and follow-up orders.

At TAITRA's invitation 12 foreign procurement delegations visited Taiwan in 2009, coming from such emerging markets as India, Brazil, Mexico, Vietnam, the United Arab Emirates, Russia, Indonesia, and Chile. Two nuts-and-bolts procurement missions from Brazil placed orders totaling US$20 million and US$34 million, respectively. Last December TAITRA organized a “Middle East Trade Week” which attracted 30 buyers from Iran, Syria, the United Arab Emirates, Yemen, and Syria to Taiwan and landed US$66 million worth of orders.

Despite all these efforts, Taiwan's exports to most emerging markets still suffered substantial declines last year because of the impact of the global financial tsunami. Taiwan's exports to South America, for instance, plunged 39.5% to US$2.7 billion in 2009, and those to Eastern Europe plummeted 34.7% to US$2.8 billion. Exports to the Near and Middle East did a bit better, shrinking “only” 19.8% to US$4.6 billion.

Exports to India did even better, slipping 15.8% to US$2.5 billion. Shipments of plastics to that country jumped 25.2% to US$459 million, making plastics the largest export category, followed by electrical machinery and home appliances with US$415 million (down 25.1%), machinery equipment with US$397.9 million (down 15%), fossil fuel with US$286 million (down 52.4%), organic chemicals with US$276.2 million (down 4.2%), and iron and steel with US$112.6 million (down 32%).

Middle East Market

Among Taiwan's major markets in the Middle East, exports to Iran chalked up the best performance, inching up 1.4% to US$571 million. Plastics was the largest export category, with US$119 million (up 2.2%), followed by machinery equipment with US$90 million (down 11.4%), man-made staple fiber with US$70 million (up 56.5%), electrical machinery and home appliances with US$48 million (down 21%), and iron and steel with US$44.3 million (down 4%).

Taiwan's exports to Turkey also did relatively well, declining just 12.8% to US$1.1 billion. The biggest category of shipments to that country was electrical machinery and home appliances, which surged 48% to US$378.6 million, followed by machinery equipment with US$158.6 million (down 55.4%), plastics with US$133 million (down 23.8%), iron and steel with US$119.7 million (down 13%), man-made staple fiber with US$38 million (up 100%), man-made filament with US$37.6 million (up 47.3%), and rubber products with US$31 million (down 22%).

Taiwan's shipment to the United Arab Emirates dropped 34.2% to US$1 billion. The largest export category was electrical machinery and home appliances, which dropped 20.4% to US$218.4 million, followed by machinery equipment with US$216 million (down 16%), plastics with US$143.6 million (down 40%), iron and steel with US$80.8 million (down 61%), and auto parts with US$71.3 million (down 0.2%).

Shipments to Saudi Arabia tumbled 32% to US$674 million. The largest category of exports to that market was machinery equipment, which slipped 11% to US$112 million, followed by plastics with US$US$91.4 million (down 22.8%), iron and steel with US$76 million (down 66.9%), electrical machinery and home appliances with US$64 million (down 13.9%), and auto parts with US$57 million (down 37.5%).

In South America, Taiwan's shipments to Brazil plummeted 48.8% to US$1.4 billion; the largest export category was electrical machinery and home appliances, which plummeted 49% to US$386 million, followed by machinery equipment with US$220 million (down 40%), plastics with US$190 million (down 13.5%), fossil fuel with US$178.7 million (down 77.6%), man-made filament with US$93.3 million (down 3.6%(, and iron and steel with US$64.3 million (down 48.8%).

Taiwan's exports to Mexico dropped 40.8% to US$1.1 billion; the largest product category was electrical machinery and home appliances, which plunged 56.7% to US$430 million, followed by machinery equipment with US$121 million (down 9.8%), plastics with US$75.4 million (down 21%), iron and steel with US$67.4 million (down 21%), man-made filament with US$57.4 million (up 7.6%), and auto parts with US$55.7 million (down 48.1%).

Exports to Poland, which was Taiwan's largest market in Eastern Europe, slipped 13% to US$623 million; the largest export category was electrical machinery and home appliances, which registered a decline of 11% to US$298.8 million, followed by machinery equipment with US$107.2 million (down 12.1%), auto parts with US$41.3 million (down 33.3%), iron and steel products with US$31.9 million (down 0.5%), iron and steel with US$25.5 million (down 2.8%), and plastics with US$17.5 million (down 18.7%).

Exports to Russia tumbled 37.4% to US$582 million; the largest category was electrical machinery and home appliances, which dropped 23.7% to US$205 million, followed by machinery equipment with US$118.4 million (down 40%), plastics with US$55.8 million (down 51%), auto parts with US$38.5 million (down 37.8%), iron and steel products with US$27.7 million (down 43.3%), iron and steel with US$27 million (down 46.8%), and hardware and tools with US$17.3 million (down 37.3%).

Taiwan's Exports to Major Emerging Markets in 2009

Unit: US$1

Market	Ranking in Overseas Markets	Export Figure	Share in Overall Export (%)
CHINA	1	54,248,101,236	26.6
HONG KONG	2	29,444,915,862	14.4
VIETNAM	7	5,987,707,371	2.94
PHILIPPINES	9	4,432,711,685	2.17
MALAYSIA	11	4,059,995,637	1.99
THAILAND	12	3,826,733,572	1.87
INDONESIA	13	3,226,178,014	1.58
INDIA	15	2,531,420,438	1.24
BRAZIL	19	1,406,511,207	0.69
MEXICO	22	1,097,099,599	0.53
TURKEY	23	1,092,613,267	0.53
UNITED ARAB EMIRATES	24	1,017,984,802	0.50
SAUDI ARABIA	26	674,150,201	0.33
POLAND	28	623,083,449	0.30
RUSSIA	30	582,116,415	0.28