Cross-strait relations entered a new stage with the signing of the Economic Cooperation Framework Agreement (ECFA) between Taiwan and China on Tuesday. The ECFA is, however, just what it says — a framework agreement — not a free-trade agreement (FTA). The real challenge for Taiwan comes now that the ECFA has been signed.
China has made big concessions in Taiwan’s favor in the ECFA’s “early harvest” list of goods and services for which there will be immediate tariff reductions or exemptions, clearly outweighing concessions made by the Taiwanese side. The early harvest list of Taiwanese-made products which will see tariffs cut covers 539 items, and China, on its own initiative, added a further 18 types of agricultural and fishery products. The list of Chinese products that will see import duties cut covers 267 items, mostly raw materials or unfinished products. Finished products included on the list are those that Taiwan does not make or produce in volume. In comparison, the early harvest list agreed between China and ASEAN is rather more balanced, with 593 concessions agreed by China as against 400 by ASEAN.
For some time now Taiwan has also enjoyed a trade surplus in excess of US$40 billion a year with China. Under the terms of the ECFA, Taiwan will continue, in contravention of WTO rules, to deny China most favored nation status by imposing unilateral bans or import restrictions on 2,249 Chinese products. It was not without good reason, then, that China’s representative at the ECFA negotiations, Association for Relations Across the Taiwan Strait executive vice president Zheng Lizhong (鄭立中) publicly commented that this agreement was unprecedented and very much loaded in favor of one side.
Nevertheless, the ECFA is likely to have limited benefits for Taiwan’s economy in the short-term, while its long-term benefits depend on the results of ongoing negotiations in four areas. The ECFA’s rules of origin, as they stand, include a value-added criterion to the effect that 40 percent to 50 percent of the ex-factory price of a product must originate from materials or processing in the exporting territory for it to be certified as a product of that territory and so qualify for zero tariffs.
In ASEAN’s experience, the administrative cost of rules of origin certification can account for as much as 10 percent to 25 percent of the price of goods traded, and this disincentive means that the proportion of intra-ASEAN trade taking advantage of preferential tariffs within the free-trade area has been held below 5 percent.
However, the ECFA is not an FTA, so it won’t immediately bring Taiwan the positive effect of adding 1.72 percent to its economic growth rate, as optimistically predicted by a government evaluation report. As to overseas investment being attracted to Taiwan or Taiwanese investors in China returning home, we cannot expect instant results in either area.
Taiwan and China are scheduled to launch negotiations in four areas within the next six months. These talks are aimed at achieving agreements on free trade in goods, services, investment and dispute resolution. The first three agreements will bring about a transformation in Taiwan’s economic structure, including changes in employment patterns and a redistribution of economic interests. There will be both winners and losers, and income distribution in Taiwan may become even more unequal as a result. Above all, the effects will be felt in the service sector, which provides nearly 60 percent of jobs in Taiwan. Nearly everyone will be faced with competitive pressures and have to bear the cost of adjustments as cross-strait trade and investment open up.
RSS