Suggestion for Future Cross-Strait Negotiations

Singing ECFA with China is probably the most important trade agreement ever to conclude between Taiwan and China. Although the agreement was sign by the semiofficial representatives from both Taiwan and China, ECFA is a milestone as it provides the basis for further liberalization in goods and services trade across the Taiwan Strait and signifies the start of preferential trade relation between Taiwan and China.

Over the context of ECFA, apparently, it is China that liberates more trade in goods and trade in services to Taiwan, in which China is offering Taiwan more and better preferential trade terms. Actually, Taiwan was and still bans most China made products and services from China for national security reasons. Nevertheless, with the progress of liberation of trade in good and trade in service, actually it is Taiwan offering China preferential trade terms. In this point of view, Taiwan not just reduce tariff but also has to open new territory for trade to Chinese imports, whereas China only has to reduce trade tariffs. Therefore, as reflection from the CEPA, should there are more supplements to ECFA negotiated in the future, it is likely Taiwan will ease more

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the import restrictions and tariffs on Chinese imports, and ultimately to all imports of goods and majority of services trade from China like that of the CEPA.

Even though under the ECFA, only 267 items export from China to Taiwan and 539 items export items from Taiwan to China on trade in goods were listed for tariff reduction over the three years period, majority of traded goods are still facing tariffs and restrictions. Likewise mentioned in section 3.6 that Taiwan will continue its ban on the importation of 865 Chinese agricultural products and still post did not lower tariffs on 1,377 industrial products.

Consequently, as mentioned earlier in the section 4.5.1, that the change in trade figure after ECFA went into effect is not exactly exciting or strong enough to justify that sign of ECFA with China significantly enhanced or better facilitation of trade with China. Therefore the initial influence of ECFA to Taiwan economy cannot be evaluated overly positively for Taiwan export or negatively for import. The long term influence is worth observing.

Another issue in ECFA is the Rule of Origin under the Early Harvest of Trade in Goods.

It is questionable how much industry in Taiwan or China maybe benefited from it. The Regional Value Content from Annex II, Article 6, require that VNM, the value of all non-originating materials, adjusted based on CIF, may not exceed ten percent (X ≤ 10%) of the FOB value of the given good to consider local content. Consequently, it is a form of discouragement of foreign direct investments to invest either in Taiwan or China to become as gateway to access other side’s market, as it takes more time and resource to satisfy the above 90% requirement on rule of origin. Thus, the rule of origin is not necessary beneficial to industries in Taiwan and even install a road block on foreign direct investments that wish to produce goods in China and export their products to Taiwan and vice versa. Also the subsequent effect of foreign direct investments can only be measured and evaluated years after, the actual effect should be measure from the long term observation like the situation CEPA with Hong Kong.

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The liberation of trade in services trade is unprecedented in cross-strait trade relation, and the service industry in Taiwan is not as globalized or in competitive standard as to that of Hong Kong. Both sides are eager to cultivate each other’s market and learn the local tactics as Taiwan regulations as well as service industries had just begun to adjust themselves to face competition from China. ECFA initially only liberate limited number of 8 business service and one financial service sector from Taiwan and 8 business services and three financial services sectors from China.

Just like the influence of foreign direct investment, it will take some more years as bank from had just recently satisfy the local regulation requirement to noting that the one year representative office to formal establishment requirement from Taiwan side and one year

representative office and at least two years of operation with profitable operation in the preceding year before application from China side,the sector related data are yet to be released. Thus, it is still early to make a fair estimate of impact as well as implication on services industries on Taiwan over ECFA. The implications are worth observing.

Further, although the market size in Taiwan is not exactly large, and the production of industrial goods in Taiwan is usually lack of economy of scale, therefore there is an implicit danger if Chinese firms were to practice of dumping in cross-strait trade. For instance, China has been world's largest target country for global countervailing related trade disputes (Wang 2012) and already, the importation of cement and related materials from China are being imposed of anti-dumping tariffs by International Trade Commission of Ministry of Economic Affairs [35].

Therefore, the effectiveness and efficiency of trade dispute settlement mechanism under the ECFA, the Cross-Strait Economic Cooperation Committee should be closely observed.

Subsequently, ECFA related negotiations shall pay more attention to range and speed of tariff reduction on trade in goods. Until then, the better evaluation of ECFA on trade in goods may be conducted.

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Finally, it has been nearly 18 month since the ECFA being signed and in and become effective. With the current available data, the benefit is yet to be seemed and the disadvantage is also yet to be significant. By range of trade in goods and trade in service liberated, ECFA is yet to be qualify as a full range FTA; rather, it is a platform that may lead to such result if more supplements like the CEPA can be reached between Taiwan and China in the future. This framework agreement is preliminary framework that provides guild lines for future trade related negotiations as well as trade dispute settlement mechanism across the Taiwan straits. Unless there is permanent peaceful, non-aggression treaty sign in between Taiwan and China, which means the mutual recognition and therefore the possibility is faint, the sovereignty dispute is likely to continue. Perhaps trade in goods and service are none-hostile in general, nevertheless, on the basis of national security as well trade dependency diversification, there shall be a limitation on the degree of liberation of trade in both goods and service with China. It is

suggested that the scope of liberation shall limited to raw materials, ready to process or reprocess material, origin specific goods or goods that Taiwan on longer have competitive advantage to produce such as household appliances, household furniture, and ceramics products.