Bureau of Foreign Trade, MOEA

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Challenge vs Opportunity -- Tasks and Prospects
in Signing ECFA

• Bureau of Foreign Trade, MOEA
• Mar.16, 2010

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Outline
I. Preface II. Possible Effects of Signing
ECFA III. Most Recent Progress in Promoting
ECFA IV. Early Harvest Program and Government
Measures for Vulnerable Industries
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I. Preface
1. Change of Cross-Strait Relations before
after May 20, 2008 2. Challenges to Taiwans
Trade Development 3. What We Confronted / will
Confront
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I. Preface
1. Change of Cross-Strait Relations before
after May 20, 2008 From divergence to
convergence From confrontation to
negotiation From antagonism to cooperation
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I. Preface
1. Change of Cross-Strait Relations before
after May 20, 2008 Look squarely at
reality, Build mutual trust, Put aside
disputes, Create a win-win situation
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Results of the Chiang-Chen talks
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I. Preface
2. Challenges to Taiwans Trade Development
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2. Challenges to Taiwans Trade Development
Taiwans trade performance over the years
Trade Milestones in Taiwan Taiwans foreign
trade turned a surplus for the first time in
1971 Taiwans foreign trade value exceeded
US100 billion in 1988 and exceeded US200
billion in 1995. Total trade value has continued
to grow rapidly since 2003, exceeding US300
billion in 2004, exceeding US400 billion in 2006
and exceeding US496 billion in 2008, which was
more than 120 times greater than in 1971, thus
becoming the 18th leading exporter in the world.
TAIWAN TOTAL TRADE VALUE
2008 496.1
Rapid Growth in Trade
2007 465.9
2006 426.7
(Unit US billion)
2009 378.4
2004 351.1
1995 217.3
1988 110.2
1971 3.9
Data Source DGBAS, R.O.C. WTO
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2. Challenges to Taiwans Trade Development
Severe plunge in Taiwans exports since Sep. 2008
Due to the rapid slowdown in the
international economy caused by the global
financial tsunami, Taiwans exports have declined
for eleven consecutive months since Sep. 2008.
According to the latest export performance, the
worst situation ended in the 4th quarter of 2009
with exports amounting to US59.8 billion, an
increase of 8 compared with the previous 3
quarters of consecutive growth though it hasnt
fallen back to the 2008 level .
Unit US billion
Data source Taiwan Directorate General of Customs
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Taiwans major export destinations have shifted
to China
1985 US30.8 billion
1998 US110.6 billion
2009 US203.7 billion
Data source Taiwan Directorate General of
Customs Compiled by the BOFT
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2. Challenges to Taiwans Trade Development
Unit
Data Source DGBAS, R.O.C.
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2. Challenges to Taiwans Trade Development
Trade contribution to Taiwan's economic growth
Taiwan is an export-oriented economy and foreign
trade has played a vital role in Taiwan's
economic development over the past years.
Taiwans trade contribution has accounted for
around 60-70 in recent years, showing the
importance of trade in Taiwan's economic
development.
Data sourceDirectorate General of
Budget, Accounting and Statistics, Executive Yuan
Note The economic growth rate in 2001
and 2009 are negative, hence the contribution can
not be calculated.
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I. Preface
3. What We Confronted / will Confront
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I. Preface

• 3. What We Confronted / will Confront
• Taiwan acceded to WTO as a formal full member
  on Jan. 1, 2002
• WTO Rules
• Standstill
• MFN
• National Treatment
• Transparency

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I. Preface

• 3. What We Confronted / will Confront
• Turbulence
• FTAs/RTAs Exceptions to MFN Rules
• 266 FTAs/RTAs are currently in effect, of which
  41 are signed by Asian countries.
• Taiwan has signed 4 FTAs with 5 countries, which
  account for only 0.187 of our global exports.

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The Trend and Present State of Acceleration of
Economic Integration

• Delay in concluding WTO Doha Round has caused the
  spread of international bilateral FTAs and
  accelerated the deepening of regional economic
  integration in the world.

US-South Korea FTA
EU-Mexico Free Trade Area
ASEAN-South Korea Free Trade Area (set to lower
tariffs on most goods to 0 in 2010)
North American Free Trade Area(NAFTA)
ASEAN-China Free Trade Area (set to lower
tariffs on most goods to 0 in 2010)
European Union (EU)
ASEAN-Japan Comprehensive Economic Partnership
Agreement (set to lower tariffs on most goods to
0 in 2018)
EU-South Korea
ASEAN-India
China-Hong Kong-Macao Closer Economic Partnership
Arrangement (CEPA)
CAFTA-DR
ASEAN Free Trade Area (AFTA)
Southern Common Market (MERCOSUR)
Establishing Free Trade Area of the Americas
(FTAA)
Japan-Singapore New Age Economic Partnership
Agreement
ASEAN-Australia New Zealand Free Trade
Area Signed Feb. 27, 2009 Entered into force July
1, 2009
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Taiwans world ranking and share of exports and
imports over this past decade
UnitUS billion
Data sourceWTO International trade statistics
annually
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I. Preface
3. What We Confronted / will Confront
Impact in 2010

• ASEAN China FTA
• 1 Jan. 2005, began implanting tariff reductions
  on goods.
• 1 Jan. 2010, zero tariff on most goods.
• ASEAN South Korea FTA
• 1 July 2007, began implementing tariff reductions
  on goods.
• 1 July 2010, zero tariff on 90 of goods.

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I. Preface
3. What We Confronted / will Confront
Impact in the next 10 years
Countries Dates Terms
ASEAN India FTA Will enter into force Mar. 2010 Between 2013 and 2016, mutual reduction of import tariffs on 80 of goods.
ASEAN Japan EPA Dec. 2008 By 2018, zero tariff on 91 of goods
Japan Vietnam EPA Oct. 2009 By 2019, zero tariff on 92 of total bilateral trade goods.
ASEAN Australia New Zealand FTA Jan. 2010 By 2020, zero tariff on 96 of goods.
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I. Preface
3. What We Confronted / will Confront

• Impact in the next 10 years

Countries Dates Terms
South Korea USA FTA Signed Jun. 2007. Pending approval of respective National Assemblies. 95 of S. Korean and USA industrial and consumer goods will be exempt from tariffs within 3 years of FTA implementation.
South Korea EU FTA To be signed in Q1 2010. (Initialed 15 Oct. 2009)
South Korea India FTA Entered into force 1 Jan. 2010. India commits to tariff cuts/exemptions for 85 of S. Korean goods. S. Korea commits to tariff cuts/exemptions for 93 of Indian goods.
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Potential effects of future East Asia FTAs/RTAs
I. Preface
3. What We Confronted / will Confront

• FTAs/RTAs currently under study
• ASEAN3 (mainland ChinaJapanKorea)
• ASEAN6 (mainland ChinaJapanKorea
  IndiaAustraliaNew Zealand)
• Mainland ChinaJapanKorea
• KoreaChina FTA (5 joint studies completed as of
  June, 2008)
• Free Trade Area of the Asia Pacific (FTAAP)

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I. Preface

• 3. What We Confronted / will Confront
• The future options
• For political reasons, we havent yet had any
  positive response from target trading partners
  to our endeavor in promoting bilateral FTAs.
• Work on the Cross-strait ECFA?

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• II. Possible Effects of Signing ECFA

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Improve Macroeconomic Scale (1/2)

• Effects of signing ECFA Macroeconomy (dynamic
  analysis)

Scenario Item Scenario 1 Scenario 2
GDP () 1.65 1.72
Exports () 4.87 4.99
Imports () 6.95 7.07
Trade condition () 1.42 1.41
Social welfare (US million) 7,710.90 7,771.00
Trade balance (US million) 1,757.90 1,779.40
Total production (US million) 28,004.73 28,884.20
Resource GTAP 7.0 database, Evaluation on the
Impact of ECFA, CIER, 2009.06 Scenario 1
Maintain current restrictions on agriculture and
industry sectors, liberalize items now open to
import, and have zero tariff for all Chinese
goods. Scenario 2 Maintain import restrictions
and do not reduce tariffs only in the agriculture
sector eliminate tariffs and fully liberalize
import of industrial items.
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Improve Total Employment (2/2)
Effects of signing ECFA employment (dynamic
analysis)
Simulated Scenario Employment (default) Scenario 1 Scenario 1 Scenario 2 Scenario 2
Simulated Scenario Employment (default) Percent change Persons Percent change Persons
10,100,720 2.6 257,286 2.6 263,100
Agriculture (1-32) 716,218 1.7 12,288 1.7 11,951
Manufactg. (33-112) 1,890,890 1.4 25,961 1.5 28,105
Services (113-161) 7,493,612 2.9 219,037 3.0 223,044
Note The employment numbers in each industry are
estimates based on employment table 2006
published by the Directorate-General of Budget,
Accounting and Statistics. Resource Evaluation
on the Impact of ECFA, CIER, 2009.06
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Gain Larger Savings Margin on Tariffs than
China(1/2)

• Possible effects of tariffs (based on 2008
  performance) (1/2)
• Currently
• China sets no special limitation on Taiwan
  products its average tariff on industrial goods
  is 9.
• Taiwans exports to China (including Hong Kong)
  have reached US100 billion (tariffs amount to
  US9 billion)
• Taiwan maintains restrictions on 1,300 industrial
  and 834 agricultural goods with the average
  tariff on industrial goods at 4.
• Chinas exports to Taiwan are valued at US35
  billion (tariffs amount to US1.4 billion)

We ran a US65 billion trade surplus Taiwans
tariff burden exceeded Chinas by US7.6 billion.
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Gain Larger Savings Margin on Tariffs than China
(2/2)

• Possible effects of tariffs (based on 2008) (2/2)
• If both sides eliminate tariffs after signing
  ECFA and exports for both sides grow by 20,
  then

Tariff elimination
Export growth
Taiwan Exports to China will increase US120
billion China Exports to Taiwan will increase
US42 billion Taiwans trade surplus will expand
US78 billion
Taiwan Will save US10.8 billion in tariff
expenditure China Will save US10.8 billion in
tariff expenditure Taiwan gains more!
We will benefit more from the export expansion
since China has larger market scale than we do.
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Deepen Relations b/w Taiwan and Major Trade
Partners Expected
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Create Taiwans Advantages in Services Trade

• In addition to trade in goods, ECFA can also
  provide numerous benefits to Taiwans services
  trade by helping foreign businesses invest in
  Taiwan as well as Taiwan businesses investing in
  China.
• In the Early Harvest List, Taiwan would like to
  request market access commitments from China in
  the financial and banking sectors for example, by
  reducing regulations on Taiwan banks setting up
  branches in China, restrictions on asset
  thresholds, and requirements for 3 consecutive
  years of profits. This will not only provide
  financial services to Taiwan businesses in China,
  but also help them resolve financial problems.
  Financially related domestic peripheral
  industries will also benefit while creating more
  employment opportunities.
• The securities industry Taiwan requests China to
  reduce restrictions on investments and investment
  advisory services by allowing Taiwan trusts to
  invest in China. This will enable China to raise
  capital for investing in Taiwans stock markets,
  increase business revenues, and enhance
  professional capabilities, which will benefit
  normal cross-strait financial business.

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Strengthen Taiwans Advantages in Terms of
International Position (1/5)

• Taiwan will enter the mainland Chinese market
  ahead of its main competitors.
• ECFA will help convert the mainland from a
  production base to a core market for businesses
  in Taiwan.
• Taiwan will become a priority cooperation partner
  and gateway for foreign businesses seeking to
  enter the mainland Chinese market.
• ECFA will accelerate Taiwans development into a
  regional industrial operations center.

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Strengthen Taiwans Advantages in Terms of
International Position(2/5)

• Taiwan will enter the mainland Chinese market
  ahead of its main competitors.
• Tariffs on most industrial products exported from
  Taiwan to China will be reduced to zero.
• By getting in ahead of competitors like South
  Korea and Japan, Taiwan will replace their
  positions in that market.
• Take petrochemical raw materials as an example.
  In 2007, China imported approximately US76.3
  billion, of which Taiwan accounted for 15, South
  Korea 20, and Japan 18. If Chinas average
  import tariff ( 6.17) were reduced to zero, that
  would help Taiwan to win over Japan and South
  Koreans combined market share (38), worth
  approximately US38 billion.

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Strengthen Taiwans Advantages in Terms of
International Position(3/5)

• ECFA will help convert the mainland from a
  production base to a core market for businesses
  in Taiwan.
• Once the mainland reduces tariffs on most
  industrial goods to zero, it will help businesses
  to keep Taiwan on their supply chains and
  continue supplying their customers through the
  three links.
• For instance, when the mainland reduces tariffs
  on scooter parts from approximately 10 to zero,
  the various satellite factories may choose to
  ship from Taiwan, since then they will benefit
  from the zero tariffs as well as the better
  quality of production in Taiwan.

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Strengthen Taiwans Advantages in Terms of
International Position(4/5)

• Taiwan will become a priority cooperation partner
  and gateway for foreign businesses seeking to
  enter the mainland Chinese market.
• Taiwan provides
  Ripple effects

Ripple effects
Taiwan provides

• Help foreign companies choose Taiwan as gateway
  into Chinas market
• Set up regional RD, production, or operation
  centers
• Taiwan will be a first-choice global innovation
  center and Asia-Pacific trading hub for
  multinationals.

• Preferential tariffs for goods exported to China
• Better IPR protections
• The three links
• Incentives for building RD centers in Taiwan

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Strengthen Taiwans Advantages in Terms of
International Position(5/5)

• ECFA will accelerate Taiwans development into a
  regional industrial operations center.
• Effects of trade liberalization (three links,
  personnel flows, lowered tariffs, removal of
  non-tariff barriers, etc.) will remake Taiwan
  into a multifunctional operations center with
  capabilities in transshipment, logistics,
  distribution, end-processing, etc.
• Coupled with the relaxation of restrictions on
  China-bound investment, measures to encourage the
  return of Taiwan businesses to the domestic
  market will make Taiwan their operational HQ.

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International Views on ECFA (1/2)

• American Chamber of Commerce 2009 Taiwan White
  Paper (May 2009)
• We would also hope that the conclusion of this
  trade agreement with China would pave the way for
  Taiwan to participate in regional trade blocs and
  enter into bilateral FTAs with additional trading
  partners.
• Japanese Chamber of Commerce Industry, Taipei
  2009 Taiwan White Paper Issue (October 2009)
• If the ECFA comes into being, it should form a
  great opportunity for Taiwan and Japan to discuss
  signing an FTA. Therefore, this Chamber sincerely
  looks forward to progress being made in the ECFA
  negotiations.

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International Views on ECFA (2/2)

• European Chamber of Commerce Taipei 2009-2010
  Position Paper Overview (October 2009)
• The sooner Taiwan signs the ECFA with China, the
  quicker political impediments to other countries
  (including the EU) signing economic agreements
  with Taiwan will be removed.
• In order to revitalize Taiwans economy and
  increase trade, the ECCT recommends that the
  government seeks to sign an Economic Cooperation
  Framework Agreement (ECFA) with China and commit
  to Trade Enhancement measures with Europe as soon
  as possible. This will help to secure Taiwans
  position as an important link between China and
  Europe and reintegrate Taiwan into the global and
  regional economy.

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Prospects for Cross-Strait Economic and Trade
Cooperation
Improve the basis of promoting Taiwans
opportunities to enter into bilateral FTAs with
other countries and participate in regional
economic and trade cooperation.
Establish a stable cross-strait economic and
trade cooperation framework open a favorable
cross-strait interaction mechanism.
Make Taiwan a global center of innovation, an
Asia-Pacific hub of economy and trade, and the
headquarters for Taiwanese businesses.
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Possible Effects of Signing ECFA Promoting
Internationalization of Taiwans Economy, Trade
and Investments
Promote dynamic modifications in cross-strait
economic and trade relations
Cross-strait links will ease the bottleneck of
participating in regional cooperation

• Facilitate cross-strait projects and cross-strait
  industry exchanges
• Expand cross-strait direct flights
• Open Taiwans production enterprises to Chinese
  investments
• Loosen the 40 ceiling on investments in China
  and other industry restrictions

• Promote the ECFA
• Sign FTAs
• Join ASEAN N

Integration of business opportunities in global
and mainland markets
Tokyo
Silicon Valley
Shanghai
Shanghai
Dual Golden Triangles of High-Tech Industries
Taipei
Taipei
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• III. Most Recent Progress in Promoting ECFA

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1.Steps Toward Signing the Agreement

• Individual studies conducted by each side
  Joint studies Negotiation
  Signing Send to
  legislatures for approval Take effect

Latest Development Joint study period is
completed, and the first formal negotiation was
held in Beijing on 26 January 2010.
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2.Achievements of the first round of formal
negotiation (1/3)

• Name of agreement
• Basic structure of ECFAs clauses
• Rules and positions of Early Harvest Lists on
  goods and services
• Arrangements for the next round of formal
  negotiation

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2. Achievements of the first round of formal
negotiation (2/3)

• Name of agreement
• Each side agreed that the tentative Chinese title
  is???????????(??)???
• The English title Economic Cooperation
  Framework Agreement (ECFA) may be used
  temporarily.
• Basic structure of ECFAs clauses
• Include market access on trade in goods, trade in
  services, rules of origin, early harvest lists,
  trade relief, dispute settlement, investment and
  economic cooperation

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2. Achievements of the first round of formal
negotiation (3/3)

• Early Harvest Lists
• The two sides further discussed rules and
  positions on the early harvest lists on trade in
  goods and services agreement not yet reached.
• Arrangements for the next round
• The two sides agreed in principle to hold the
  next round in Taiwan.
• The Taiwan side aims to have ECFA signed at the
  5th Chiang-Chen meeting in late May or early
  June.

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• IV. Early Harvest Program and Government Measures
  for Vulnerable Industries

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1. ECFAs Effects on Taiwan Industries

• Industries likely to benefit more
• Both production and export increases for the
  plastics, machinery, textiles, petroleum and coal
  products, and steel industries
• Industries likely to be more adversely affected
• Electrical machinery and electronic products the
  negative outcome is due to the low cross-strait
  tariff rates (0.71 and 0.58 respectively) for
  those sectors, but assumptions in the model do
  not necessarily reflect the reality
• Other transportation tools, and wooden products

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2. Early Harvest Program (provisional) (1/2)

• For trade in goods
• Selection process
• The Ministry of Economic Affairs (MOEA) entrusted
  CIER to compile a preliminary detailed list by
  analyzing and screening trade statistical data
  and collecting industry opinion through
  questionnaires. Then, to reconfirm the opinions
  and demands from industrial sectors, the MOEA
  commissioned the Chinese National Federation of
  Industries (CNFI) to hold a public hearing on 8
  January 2010 that was attended by its 152 member
  associations on the design of the early harvest
  list.
• Selection principles
• (1) Agricultural goods would not be included (2)
  items for which opening would be difficult would
  be excluded (3) include items for which tariff
  reduction is urgent and apply tariff deductions
  that correspond to those in the Chinese market,
  e.g. ASEAN1.
• Plan
• Provisionally, we will propose several hundred
  important product items in the petrochemical,
  textile, machinery and components, automotive,
  and other industrial sectors.

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2. Early Harvest Program (provisional) (2/2)

• For trade in services
• Four principles
• Sectors that match our commercial interests
  (opportunities) and those in which Taiwanese
  companies have expressed demand (urgency)
• Sectors that are unrestricted in FTAs between
  China and other WTO members (including the CEPAs)
  and sectors included in the service opening
  commitment list that China submitted to the WTO
  Doha round.
• Sectors that are on the first stage open list
  (late June 2009) permitting mainland Chinese
  funds to enter Taiwan.
• Sectors for which Taiwans degree of opening as
  pledged in the WTO is greater than Chinas.
• After several cross-sector discussions among
  services authorities, approximately ten service
  items are planned for proposal.
• On 6 January 2010, a public hearing on ECFAs
  Effects on Service Sector Development, was held
  by the MOEA and CNFI, during which MOEA further
  explained the above principles and solicited
  opinions, which were consulted and used to make
  revisions.

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3. Possible effects of early harvest on Taiwan

• Trade in goods
• Those listed in the early harvest program (e.g.
  petro-chemicals, textiles) enjoy tariff exemption
  ? costs down ? ? profits rise ?
• However, some less competitive industries will
  suffer, so that various government measures will
  be implemented.
• Trade in services
• Strive for better-than-WTO treatment to gain the
  advantage of market access in China

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4. Government Response Measures (1/3)

• Strive for better terms during negotiation

• Items not yet permitted for import from mainland
  China and those that primarily meet domestic
  demand will not be included on the Early Harvest
  list, or they will be included on the list of
  sensitive sectors, or the government will try in
  negotiation to exclude them from lower tariff or
  to get a longer period of adjustment for them.
  During the negotiation process, they would not be
  included on the Early Harvest list, or the
  government would try to get a more prolonged
  period of adjustment for them.
• Include anti-dumping and safeguard measures in
  the negotiations, so that when domestic
  industries are affected by imports of large
  amounts of inexpensive products, relevant relief
  measures can be taken to reduce the impact.
• Include a termination clause. If China does not
  abide by the agreement or special situations
  occur, we may notify China of termination of the
  agreement.

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4. Government response measures (2/3)

• Implement a project to support industries
  adjustment to trade liberalization

• To deal with the possible effects on industries
  and laborers, three supportive strategies will be
  adopted total budget for the next ten years will
  be NT95 billion.

• Guidance on industrial upgrading
• Provision of SME loan guarantees
• Support for SME cluster development
• Assistance in export promotion

• Guidance on industrial upgrading
• Low-interest loans for upgrading plants and
  equipment
• Employment assistance

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4. Government response measures (3/3)

• Implement a project to strengthen guidance for
  industries adjusting to trade liberalization

• MOEA has already launched this project for
  industries that are domestic demand-oriented,
  less competitive, and easily affected by impact
  of trade liberalization. It includes

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Please visit the ECFA website (www.ecfa.org.tw)
ECFA Helping people to make a living, improving
Taiwans competitiveness