China and Hong Kong signed a Closer Economic Partnership Arrangement (CEPA) on June 30 last year. They also signed six annexes to the CEPA on Sept. 29, finalizing the CEPA's framework and details. The agreement went into effect on Jan. 1.
The CEPA carries extraordinary significance under the current highly divergent realities of the cross-strait political situation and economic development.
From the perspective of industry, not only should they think about how to seek survival space and a niche in the new cross-strait trade and economic situation, but the ruling and opposition parties, intoxicated as they are with the election race, should also propose policy visions for the major, ongoing cross-strait trade and economic issues.
The CEPA covers three major areas: trade in goods, trade in services and trade and investment facilitation.
In the manufacturing industry, Hong Kong primarily produces labor-intensive products such as time pieces, toys, garments and hardware -- vastly different from Taiwan's emphasis on electrical devices, mechanical appliances and optical instruments. The impact is therefore small. Even in industries that overlap with Hong Kong's prime types of industry, Taiwanese businesses have long developed many products inside China and that development is maturing. These products will not be affected as the CEPA takes effect.
Manufacturing accounts for only around 5 percent of Hong Kong's economy. The service industry makes up the mainstay, accounting for 90 percent of GDP. In the "Trade in Services" section of the CEPA, China is opening up more than 60 service industries to Hong Kong businesses this year.
According to the agreement on China's WTO entry, these industries will not be fully opened up [to the rest of the world] until four or five years later. These relaxations cover controls on investment access and stock ownership arrangements. Obviously, the CEPA will add wings to Hong Kong's service industry as it goes into effect by allowing Hong Kong businesses to enter the China market two or three years earlier than the rest of the world.
The main battlefield, therefore, is in the service industry.
For Taiwanese businesses, the CEPA will increase the difficulty of their future competition with Hong Kong businesses in service industries such as legal services, medical services, banking and insurance, given the current cross-strait trade and economic framework. Hong Kong's most competitive industry also happens to be the service industry. Given that Hong Kong businesses have the same language and cultural advantages as their Taiwanese counterparts in the competition, Taiwanese businesses will predictably lose massive business opportunities in China's market. On the other hand, Taiwan's manufacturing industry accounted for 30.54 percent of GDP last year, down from 46.27 percent in 1985.
The service industry accounted for 67.67 percent last year, up from 47.94 percent in 1985. The figure is rising every year. This means that Taiwan is entering a standard "service-oriented" mode of economic development after the migration of manufacturing industries.
However, Taiwan will not accept an arrangement for closer trade and economic relations under the "one country, two systems" premise. How then to safeguard and increase the competitiveness of the service industry after the CEPA takes effect?
I believe new coordinates for Taiwan in the new cross-strait trade and economic situation can be found in these two points.
One, in terms of industrial operations, Hong Kong is a new investment destination to be considered. Banks, for example, can consider strategic alliances with Hong Kong banks by way of indirect stock holdings, or they can consider directly acquiring Hong Kong banks.
In the long run, from the perspective of the transparency of information, a cross-strait financial supervision agreement will be necessary. But there is no hope of signing such an agreement, because the cross-strait political deadlock is not yet resolved. Therefore, we should utilize Hong Kong's financial supervision mechanism and allow the Hong Kong branches of Taiwanese banks to set up branches in China.
By using Hong Kong's advantage under the CEPA, Taiwan's financial institutions can benefit from the CEPA too.
Other service industries should also think about whether they need to enter the China market via Hong Kong after the CEPA takes effect.
Two, from the perspective of separating politics from trade and economic issues, Taiwan cannot accept a CEPA model under "one country, two systems."
Vincent Siew (
It is true that the cross-strait political situation and economic and industrial development have diverged seriously. For example, when it comes to the literal meanings of "arrangement" and "agreement," some contend that "arrangement" is a product of "one country, two systems" and that "agreement" should be used on grounds of equality and dignity.
I have no intention of refuting this idea, but from the perspective of industrial development, negotiations on the cross-strait division of labor and trade-economic cooperation should be treated as more important than formal nomenclature.
It is worth thinking twice about whether seeking a correct name for everything will hinder economic development and business opportunities.
Hong Chi-chang is a Democratic Progressive Party legislator.
Translated by Francis Huang
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