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Opportunities and Challenges for Economic Development in Taiwan

under the ECFA

Dr. Chiang Pin-kungChairman, Straits Exchange Foundation

September 30, 2010

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Content1. Cross-Strait Economic Relations under

President Ma’s Administration2. Results of SEF-ARATS Negotiation3. Major Significance of ECFA4. Challenges of Cross-Strait Economic Relations5. Opportunities of Taiwan’s Economy 6. Conclusion

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1. Cross-Strait Economic Relations under President Ma’s AdministrationIn the Economic field, President Ma announced the policies for cross-strait economic exchanges

（ 1 ） Resume institutionalized negotiations on the foundation of the “1992 Consensus.”

（ 2 ） Promote the normalization of cross-strait economic and trade relations. （ 3 ） Sign cross-strait economic cooperation framework agreement (ECFA)

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President Ma announced the vision of turning Taiwan into：（ 1 ） a global innovative center（ 2 ） an Asia-Pacific trade hub（ 3 ） an operation headquarters for Taiwan businesses（ 4 ） a regional headquarters for foreign enterprises

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2. Results of SEF-ARATS NegotiationThe Straits Exchange Foundation (SEF) and the Association for Relations Across the Taiwan Straits (ARATS) have held five rounds of talk, signed 14 agreements, and reached one consensus on Chinese mainland’s investment in Taiwan.

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（ 1 ） Air transportation: 33 mainland airports offer direct flights to airports in Taiwan, with 370 flights weekly. The travel time from Taipei to Shanghai is only 82 minutes.（ 2 ） Sea transportation: the mainland has opened up 63 ports, including 15 river ports, meaning that Taiwan can ship goods directly by sea to the mainland interior.

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（ 3 ） Mainland tourist visits to Taiwan: in 2009, nearly 970,000 mainlanders visited Taiwan. In the first half of 2010, the figure topped 810,000 visitors. And the full-year figure is anticipated to exceed 1.5 million. Due to Chinese tourists, thirteen new hotels have been built in the past two years and thirty-one hotels will be completed before 2013, with the total investment of NT$ 120 billion.

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（ 4 ） Other agreements: such as cooperation in food safety, financial affairs, postal services, mutual judicial assistance, quarantine and inspection of agricultural products, fishing crew, standards, metrology, inspection and accreditation, and mainland investment in Taiwan.

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3. Major Significance of ECFAOn June 29 this year, the SEF and the ARATS signed the Cross-strait Economic Cooperation Framework Agreement (ECFA) and Cross-Strait Agreement on Intellectual Property Right (IPR) Protection and Cooperation in Chongqing. These two agreements came into effect on September 12, 2010.

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（ 1 ） The main objective of ECFA is to seek fair treatment of Taiwan products in the mainland market.

（ 2 ） The scope of the agreement includes reducing tariffs, elimination of non-tariff trade barriers, promoting trade and investment contacts, and boosting economic development and employment.

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（ 3 ） The early harvest list for Taiwan exports to the mainland includes 539 products, eight service industries, and three financial service sectors. The mainland list for exports to Taiwan covers 268 products, eight service industries, and one financial service sector.

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Industry The list for Taiwan exports to mainland China

The list for mainland exports to Taiwan

Items Export amountIn 2009US$ M.

% of the total

Taiwan’ exports to

China

Items Export amountIn 2009US$ M.

% of the total

China’s exports to Taiwan

Petrochemical 88 5,944.08 6.93 42 328.69 1.21

Machinery 107 1,143.39 1.33 69 473.97 1.75

Textile 136 1,588.34 1.85 22 116.33 0.43

Transportation 50 148.44 0.18 17 408.94 0.02

Others 140 4,997.21 5.84 167 1,529.83 5.64

Agriculture 18 16.08 0.02 0 0 0.00

Total 539 13,837.54 16.14 267(268)

2,857.76 10.53

（ 4 ） Early Harvest Plan in Goods

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（ 5 ） Early Harvest Plan in ServicesModes of service supply: (1) Cross-border supply (2) Consumption abroad (3) Commerce Presence

China give Taiwan Taiwan gives China

Business Services

1. Accounting, auditing and Bookkeeping2. Software implementation and Data

processing3. Research and Development4. Convention5. Special design6. Audiovisual services7. Hospital8. Aircraft repair and maintenance

1. Research and development 2. Convention3. Exhibition4. Special design5. Motion Picture6. Commission agent’s services7. Sporting and other

recreational services8. Computer Reservation System

FinancialSector

1. Banking and other financial services2. Insurance and related services3. Securities, futures and other related

services

Banking and other financial services

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4. Challenges of Cross-Strait Economic RelationsECFA is only a framework agreement. After ECFA comes into effect on September 12, the two sides need to begin negotiations on four follow-up agreements within six months.

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（ 1 ） Agreement on Investment ProtectionThere are about eighty thousand Taiwan businesses, with total investment of US$ 150 billion or so, and one million Taiwanese people in Chinese mainland.

The SEF received 428 investment dispute cases from Taiwanese business people in Chinese mainland last year. At the sixth Chiang-Chen Talks, we will negotiate and sign agreements on the investment protection. Besides, we will also negotiate the issue of medical and health cooperation.

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Total Items 8,726Items in the Early Harvest 268Items of Non-Tariff already 2,634

Items Needed to be negotiated 5,824Divided into three categories 1. Immediately practice zero tariff

2. Reduce tariff by phases. 3. Exception or Others

（ 2 ） Agreement on Trade in goods

If both sides can sign this agreement, Taiwan will get more benefit than the mainland, since the average tariff of Taiwan is only about 4%, but that of Chinese mainland is about 9%.

Management of import Goods of mainland China（ Eight-digit HS code）

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（ 3 ） Agreement on Trade in services

Mainland China treats Taiwan businesses as foreign companies, therefore, some service sectors in the mainland are prohibited for Taiwanese businesses to invest. Through the trade in services agreement, we can create investment opportunities for Taiwanese businesses people.

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（ 4 ） Dispute settlement agreementBoth sides will engage in consultation on the establishment of appropriate dispute settlement procedures. Besides the four agreements, we will promote comprehensive cross-strait exchanges and cooperation: This includes economic cooperation under the ECFA in such areas as industry, finance, customs, e-commerce, as well as Small and Medium enterprises.

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5. Opportunities of Taiwan’s EconomyAfter ECFA coming into effect and establishing a good external environment, Taiwan is also working hard to improve its investment environment to further attract foreign investment. （ 1 ） Improve administrative efficiency and reduce the tax burden, such as lowering the corporate tax rate from 25% to 17%, and reducing the inheritance tax from 50% to 10%, to create a competitive tax environment.

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（ 2 ） Approved the Industrial Innovative Act to improve the core competitiveness of manufacturers and labors through innovative R&D and industrial upgrading. （ 3 ） Developing “Six Key Emerging Industries”, including biotechnology, green energy, quality agriculture, tourism, health care, and cultural and creativity. This also is aimed at improving economic innovation in Taiwan.

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（ 4 ） Promoting loosening and opening policies. This has included opening up Taiwan to investment from mainland China from June 30, 2009. Since then, there have been 70 such investments in Taiwan with a total value of US$185 million. （ 5 ） The government has established an "InvesTaiwan Service Center" and held a series of activities to provide for the foreign investors.

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On September 19 this year, the U.S-based Business Environment Risk Intelligence (BERI) continued to rank Taiwan fourth globally for investment environment. IMD also ranked Taiwan at the eighth position in 2010 world competition Report.

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6. Conclusion（ 1 ） With a sound overall external environment, and through Taiwan's own efforts, we have a great opportunity to realize the President Ma‘s vision of turning Taiwan into a global innovative center, an Asia- Pacific trade hub, an operation headquarters for Taiwan businesses, and a regional headquarters for foreign enterprises.

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（ 2 ） The first two quarters of Taiwan’s economic growth rate this year reached 13.71% and 12.53% respectively, and predicted annual economic rate will reach 8.24%. Some institutions even predicted that Taiwan’s economic growth will reach double digits. This all due to ECFA bring momentum for the economic development of Taiwan.

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（ 3 ） The signing of the ECFA has set the stage for cross-strait peace and prosperity and builds a bridge for Taiwan to sign economic cooperation agreements with other countries. It’s the best time to enhance your economic relations with Taiwan.