ECFA Opens China to Taiwan Goods

Agreement marks a big step in developing trade with booming emerging markets

With the implementation of the cross-strait Economic Cooperation Framework Agreement (ECFA), a quasi free trade agreement between Taiwan and China, on Jan. 1, 2011, Taiwan exporters of high-quality but lower-cost goods will be able to make major inroads into the vast Chinese market, while also providing an ideal market to nurture own brands before expanding to other emerging markets.

When the ECFA comes into effect, the two sides will introduce tariff concessions on more than 800 items under the "early harvest lists," in three stages over a two-year period. The list includes 530 items at Taiwan's request and 267 items at China's request.

The ECFA also will further open up cross-strait financial dealings and pry open China's services market to Taiwanese enterprises supplying 11 types of services, including financial service, hospital, accounting and auditing, conference, and computer services.

Alongside the ECFA, a cross-strait agreement on intellectual property right (IPR) protection also will take effect on January 1, 2011, helping to attract foreign investment to Taiwan for the purpose of developing the Chinese market.

Bumper Harvest

The 530 items selected by the Taiwan side on the early-harvest list are in six major categories, including agricultural products, petrochemical, machinery, textile, transportation equipment, and others, with a total shipment value for the Chinese market reaching US$13.8 billion in 2009, compared with the shipment value of US$2.86 billion for the 267 Chinese-selected items for the Taiwanese market.

Of the six categories, transportation equipment will benefit to the tune of US$2.584 billion, representing 72.15% of Taiwan's shipment value to the China market in 2009. The textile sector will be the second biggest beneficiary of the pact, with 69% of its 2009 shipment value to China, or US$1.874 billion, covered.

The petrochemical sector will receive less support, with only 10% of its export value covered under the early harvest list, including materials such as VCM and SAN.

In the machinery sector, computerized numerically controlled (CNC) lathes, CNC drilling machines, CNC grinding machines, and presses are included in the early-harvest list. However, some mainstream Taiwan-made machinery equipment, such as CNC machining centers, electric discharge machines, and wire electric discharge machines, didn't make the list.

The implementation of ECFA will help Taiwan ward off serious competition from ASEAN member nations, whose products enjoy free-tariff treatment in the Chinese market under the ASEAN Plus One free trade agreement, which came into effect on January 1, 2010. The challenge is especially serious in the seven categories of electrical machinery, plastic products, organic chemicals, steel, copper products, man-made fiber, and mineral fuel. ASEAN members have enjoyed higher export growth to China in these sectors than has Taiwan in recent years.

Thanks to the phasing in of the free-tariff treatment in recent years, the share of the 10 member nations of ASEAN in China's import market rose to 10.58% in 2009, while the share of Taiwan slipped to 8.5%, two percentage points lower than two years ago. In the same period, the share of South Korea advanced to 10.2%, while that of Japan dropped to 10.58%, one percentage point lower than two years ago.

In the first half 2010, ASEAN exports to China jumped 65.1% year-on-year to US$71.7 billion, compared with 60.1% growth for Taiwan exports to China (to US$55.6 billion), 49.5% for South Korea (US$65.3 billion), and 45.9% for Japan (US$81.1 billion).

The ECFA will pry open China's domestic market to Taiwanese suppliers at a time when China is transforming from the world's factory to the world's market and when demand in industrially developed nations is stagnating. Moreover, China offers an ideal market for Taiwanese firms to develop their own brands, thanks to its vast scale and diverse makeup, before expanding these brands into other markets around the world.

TAITRA Leading the Charge
The semi-official Taiwan External Trade Development Council (TAITRA) is spearheading the effort to tap the fast developing business opportunities in China.

TAITRA held five highly successful Taiwan product exhibitions in China in 2010, in Dongguan, Tianjin, Nanjing, Jinan, and Chongqing. The Nanjing exhibition encouraged the Nanjing City government to quickly approve the construction of a permanent "Taiwan Trade Mart," which opened in September 2010 and is operated by a contracted management firm. The exhibition in Tianjin this year turned out to be another hit, with over 2,000 booths attracting 509,000 visitors and bringing in revenues totaling NT$800 million (US$25.8 million, at US$1=NT$31) for the exhibitors.

TAITRA hopes to hold five Taiwan product exhibitions in China each year over the next four years, for a total of 20 events. It also would like to establish permanent exhibition outlets afterwards, similar to the one in Nanjing, to serve as footholds for Taiwan's small and medium enterprises in China's domestic market.

Alongside its marketing initiative, TAITRA has been endeavoring to polish the image of "MIT" (Made in Taiwan) products to spur consumer demand. One example of this effort is the Taiwan pavilion at the Shanghai Expo 2010, which highlighted the high-tech and cultural aspects of Taiwan in an attempt to encourage Chinese residents to visit Taiwan. The pavilion was ranked first by several Japanese magazines and in an online survey by China's Baidu website.

TAITRA also has invited Chinese procurement missions to visit Taiwan. A total of 13 such missions visited the island in 2010, placing orders worth more than US$15 billion. (This figure does not include procurement sponsored by the private sector.)

The government procurement mission program started in 2009, when eight missions invited by TAITRA completed procurement worth US$14.98 billion.

The shopping lists of the missions in 2010 covered a wide range of commodities, including agricultural products, daily necessities, electronic apparatus, textile machinery, information-technology products, chemical materials, light emitting diodes (LEDs), and flat panel displays (FPDs).

During a visit by a Sichuan mission in May, the Changhong Group placed orders for US$800 million worth of LEDs and FPDs with AU Optronics and Chimei-Innolux Corp., accounting for 70% of that mission's total procurement.

A mission led by Bai Weimin, secretary general of the China Video Industry Association, came to Taiwan in July to fulfill a pledge to procure US$5.3 billion worth of Taiwan-made FPDs in 2010.

At the same time, under the commission of the Ministry of Economic Affairs, TAITRA also is helping Taiwanese firms to promote their high-quality but lower-cost products in such emerging markets as India, Vietnam, and Indonesia, where rapid economic development is giving rise to a burgeoning middle-class.

In late September and early October 2010, a trade promotion delegation, organized by the TAITRA, visited Vietnam, Indonesia, the Philippines, and Malaysia, landing some orders worth US$79 million at exhibitions attended by 2,430 buyers. The delegation consisted of 80 members from 63 companies, the largest ever for such a delegation, in the fields of green energy, environmental protection, sophisticated daily necessities, information electronics, auto parts, building materials, and health foods.

TAITRA organized a fourth annual Taiwanese industrial show in Chennai, India, on September 8 to 10. Formerly known as "TRONICS India," the 2010 show was renamed as "EMMA Expo India," reflecting the expanded scope of the show, which now covers electronics, machinery, molds, and auto parts, rather than just electronics, as in the past. A total of 166 exhibitors, occupying 260 booths, attended the show, up 8% from the 2009 figure. The show attracted 5,406 buyers, 24% more than its predecessor. On-site orders amounted to US$18.2 million, more than triple 2009's US$5.5 million. The show has become an important platform for Taiwan's small and medium enterprises to tap the India market, whose peculiar features make it very difficult for SMEs to market their products there by themselves. A "lower-cost quality Taiwanese products" area was earmarked in the show, to push Taiwanese branded products.

In addition, TAITRA invited 12 procurement missions from emerging markets to visit Taiwan in 2010. The missions placed orders worth US$360 million during their stay.

Eyes on Emerging Markets
Robust shipments to emerging markets have enabled Taiwan to rack up strong upturn in overseas sales in 2010, which jumped 47.4% to US$155.8 billion in the first seven months compared with the same period the year before.

Shipments to China (including Hong Kong) soared 57.8% year-on-year to US$66.5 billion during the January to July period, and exports to the 10 ASEAN members amounted to US$24 billion, up 54.3%. Similarly impressive gains were seen in exports to South America (US$2 billion, up 50.6%), Eastern Europe (US$2.2 billion, up 64.6%) and the Near and Middle East (US$3.5 billion, up 45%).

During the January to July period, shipments to China skyrocketed 65.2% to US$44.8 billion, with exports in the electrical machinery and home appliance sectors rising 55.7% to US$12.5 billion, the largest item. Other big gainers were optical products and precision equipment (US$11 billion, up 112%), organic chemicals (US$4.7 billion, up 60.6%), plastics (US$4.3 billion, up 43%), machinery (US$3.8 billion, up 93.7%), copper products (US$1.2 billion, up 84.2%), and iron and steel (US$1.1 billion, up 3.6%.)

Exports to Vietnam advanced 26.9% to US$4.2 billion in the first seven months, with mineral fuels increasing 21.7% to US$902 million, the largest item. Other risers were plastic products (US$390 million, up 46%), machinery (US$330 million, up 49%), iron and steel (US$306 million, down 22.7%), man-made filaments (US$254 million, up 18.4%), electric machinery and home appliances (US$194 million, up 130%).

A major portion of Taiwan's exports to Vietnam is related to Taiwanese investment in the country, which picked up again this year due to soaring labor costs in China, following stagnant growth in 2008 and 2009 amid the global financial crisis.

The Hon Hai Group, Taiwan's largest manufacturing conglomerate, is accelerating a US$5 billion investment project in Vietnam. Two new factories for camera modules, motherboards, and connectors in Bac Ninh Province, northern Vietnam, kicked off operation in late June 2010. The company has an ambitious plan to develop a sprawling 700-hectare manufacturing complex in self-developed industrial zones in northern Vietnam.

Compal also inaugurated a factory for NB PC components in Tinh Vinh province, northern Vietnam, at the end of 2010. Feng Tay Group started 15 production lines at its Dona standard footwear factory, adding to its existing production base in Vietnam, which accounted for 51% of its total footwear sales in 2009.

A Taiwanese-invested steel manufacturing network is forming in Vietnam. Formosa Plastics Group is building a steel blast furnace in Ha Tinh province, central Vietnam, at cost of US$2.7 billion. The furnace will supply billets and hot-rolled semi-finished products to US$1.15 billion cold-rolled steel plant being built by China Steel and Sumitomo Metal, with an annual capacity of 1.6 million tons, in southern Vietnam.

Taiwan's export to India rose 33.2% to US$1.9 billion during the January to July period, with that of plastics advancing 39.2% to US$324 million, the largest item. Following were machinery (US$321.6 million, up 64.8%), electrical machinery (US$303.5 million, up 45.4%), organic chemicals (US$262.7 million, up 78.2%), natural or cultured pearls and other jewelries (US$135.7 million, up 547.4%), and iron and steel (US$99.8 million, up 39%).

Growing numbers of Taiwanese firms are setting sight on the Indian market, whose 1.1 billion population, half of them aged under 25, has much higher purchasing power following years of rapid economic development.

Rechi Precision Co., Ltd., the leading Taiwanese air-conditioner compressor maker, for instance, has successfully forayed into the Indian market, via cooperation with a local home-appliances firm. It began delivering shipments to the market in the third quarter of 2010. Shipment volume is expected to top several hundreds of thousands of units in 2011.

Johnson Health Tech Co., Ltd., Taiwan's leading fitness-equipment maker, signed a contract with Talkwalkers, India's leading fitness-club chain on June 30, to supply all the equipment needed by the Indian company over the next three years. The deal is worth an estimated US$1 million a year. Before it signed the new contract, Johnson was already chalking up sales of US$2 million a year in India, mainly to Snap and Goldgyms, the country's second and third biggest fitness-club chains.

Feng Tay Group will further expand the capacity of its footwear factory in India, which now boasts 15 production lines, with its output accounting for 10% of the group's total revenue in 2010, up from 5% in 2009. The company will sink another US$20 million into its Indian production base, on top of the accumulated investment of US$40 million so far.

Taiwan's shipments to Brazil in the first seven months of 2010 shot up 61% to US$1.05 billion, with that of electrical machinery and home appliances rising 35.1% to US$244.9 million, the largest item, followed by machinery (US$224.7 million, up 112.6%), plastics (US$127.5 million, up 25.6%), iron and steel (US$87.4 million, up 209.7%), man-made filaments (US$70 million, up 67.4%), mineral fuels (US$57.9 million, down 14.4%), articles of iron and steel (US$47 million, up 132.5%), rubber products (US$35.6 million, up 114.8%), and auto parts (US$18.2 million, up 65.5%).

Shipments to Mexico leapt 58.9% to US$835.8 million, with that of electric machinery and home appliances rocketing 80% to US$331.5 million, the largest item, followed by machinery (US$72.8 million, up 36.2%), iron and steel (US$68.7 million, up 85.6%), auto parts (US$45.6 million, up 46.4%), plastics (US$44.7 million, up 3.7%), man-made filaments (US$41.7 million, up 22.6%), articles of iron and steel (US$35.4 million, up 96.8%), and mineral fuel (US$25 million, up 27,128%).

Exports to Russia soared 109% to US$581.5 million, with that of electric machinery and home appliances skyrocketing 179.8% to US$233 million, the largest item, followed by machinery (US$98.6 million, up 63%), plastics (US$49 million, up 81.6%), iron and steel (US$46.3 million, up 351.6%), auto parts (US$33.3 million, up 29.5%), articles of iron and steel (US$25 million, up 64.7%), and tools, implements, and cutlery (US$20 million, up 146%).

Shipments to Saudi Arabia rose 36.6% to US$520.7 million, with that of iron and steel jumping 90% to US$75.1 million, the largest item, followed by plastics (US$71.5 million, up 40.3%), machinery (US$64.9 million, down 2.8%), auto parts to US$54.4 million, up 58.3%), electric machinery and home appliances (US$42.5 million, up 4.6%), and mineral fuel (US$41.4 million, up 74.2%).

Exports to United Arab Emirates leapt 43.4% to US$776.9 million, and that of electric machinery and home appliances advanced 51.6% to US$167.7 million, the largest item, followed by machinery (US$161.6 million, up 43%), plastics (US$113.3 million, up 35.6%), auto parts (US$79.8%, up 99.2%), iron and steel (US$60.2 million, up 56.4%), and organic chemicals (US$31.8 million, up 16.9%).

Shipments to Turkey jumped 63.7% to US$862.5 million, with that of electric machinery and home appliances rising 30.3% to US$253.9 million, the largest item, followed by machinery (US$170.8 million, up 123.6%), iron and steel (US$107.3 million, up 147%), plastics (US$72.1 million, down 2.6%), optical and precision equipment (US$43.4 million, up 358.9%), and man-made staple fiber (US$29.3 million, up 198.2%).

Exports to Iran jumped 81% to US$466.5 million, and that of plastics leapt 71% to US$97.4 million, the largest item, followed by machinery (US$70.4 million, up 51.6%), organic chemicals (US$50.9 million, up 231.3%), iron and steel (US$50.4 million, up 194.2%), man-made staple fiber (US$47.5 million, up 165.6%), and electric machinery and home appliances (US$38.8 million, up 45.1%).

Shipments to Poland leapt 98.5% to US$486.6 million, with that of electric machinery and home appliances soaring 176.4% to US$256.4 million, the largest item, followed by machinery (US$69.5 million, up 86.5%), auto parts (US$26.2 million, down 0.5%), articles of iron and steel (US$26.2 million, up 60.3%), iron and steel (US$17.1 million, up 47.6%), and plastics (US$13.5 million, up 31.9%).

Taiwan's Exports to Major Emerging Markets 2010/01 - 2010/07

Unit: US$1