Understanding conflict. Building peace.
CONTESTED BORDERS
The cases of China/Taiwan, Serbia/Kosovo and Cyprus
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The cases of China/Taiwan, Serbia/Kosovo
and Cyprus
April 2015
Editor: Natalia Mirimanova
Authors and contributors: Predrag Bjeli
ć, Kemal Baykalli, Yao-Ming Hsu, Shpend
Kursani, Leonidas Paschalides, Berat Thaqi
Contents
About the authors 3
Executive summary 5
Introduction 9
Theoretical foundation 9
China and Taiwan Economic Cooperation 13
Introduction 13
Legal framework 14
Economic cooperation 18
Conclusion: the ECFA and beyond 25
Trade between Serbia and Kosovo 26
Introduction 26
Trade flows between Serbia and Kosovo 28
Serbian trade regime towards Kosovo* 33
Kosovo–Serbia: Regulatory aspects of trade and economic relations 41 Introduction 41
Kosovo under UN administration 42
After the declaration of independence 44
Finding a model: EU-facilitated negotiations between Kosovo and Serbia 46
An agreement that would work 50
Summary 51
Cyprus: The Green Line Regulation 53
The Cyprus Chamber of Commerce 53
Cyprus Turkish Chamber of Industry 57
About the authors
Predrag Bjelić is a professor at the Faculty of Economics, University of Belgrade, where he teaches international trade, EU economics and electronic commerce. He specialises in international trade and serves as an expert at the World Trade Organization (WTO) and the United Nations Conference on Trade and Development (UNCTAD). Predrag had also worked at the National Bank of Yugoslavia and the Institute of International Politics and Economics in Belgrade. He has held lectures as a Visiting Professor at many domestic and international educational institutions, and was a Visiting Fellow at the London School of Economics and Harvard University. In addition, Predrag works as a consultant for major domestic consulting firms and is the author of several books, chapters and over 70 articles for scientific and other journals.
Kemal Baykalli is the Deputy Secretary General in charge of international relations and
communications at the Turkish Cypriot Chamber of Commerce. Since 2008, he has been coordinating work between the Chamber and EU institutions as well as bi-communal business cooperation to support the peace process on the island. He has also worked as an independent communications consultant for the Deloitte executed Tunisian chambers capacity-building programme. Before his work in the Chamber, Kemal worked for the United States Agency for International Development (USAID) within the framework of the Cyprus Partnership for Economic Growth Programme. In addition, he executed bi-communal projects funded by the United Nations Development Programme (UNDP). In 2011, Kemal worked as a polling supervisor for the parliamentary elections in Kosovo for the Organization for Security and Co-operation in Europe (OSCE).
Yao-Ming Hsu is an associate professor at the National Cheng-Chi University in Taipei. The main
focus of Yao-Ming’s research is on WTO law and regional economic integration, EU law, climate change law and private international law. Yao-Ming is the author of several articles for academic and other journals as well as book chapters, including the chapter about Kyoto Protocol and WTO in the recent international publication entitled Implementation of International Environmental
Law, published by the Hague Academy of International Law. Yao-Ming holds a Master’s degree
in law from National Taiwan University, as well as two Master’s degrees and a Doctor of Law degree from the Université Aix-Marseille in France.
Shpend Kursani is an Open Society Foundation scholar, an adjunct lecturer in the field of
international relations and diplomacy at the University College Universum in Kosovo, and a research fellow at the Kosovar Centre for Security Studies (KCSS). Shpend has also worked as a senior researcher at the Kosovar Institute for Policy Research and Development, where he published a number of policy analyses on the functioning and political development of Kosovo and its relations with Serbia and other international actors. Shpend holds an MPhil in International Relations from the University of Cambridge and has participated in a number of regional and European academic conferences.
Natalia Mirimanova is a conflict transformation scholar and practitioner who has worked in
the field of conflict research and resolution since 1993. She has extensive experience in this field throughout Russia, South Caucasus and Central Asia, Moldova, Ukraine, the Balkans and Eastern Europe. Natalia is also a director of the Brussels-based consulting company ‘Eurasia Peace Initiative’, a senior adviser for the Eurasia programme at International Alert and a consultant to various international organisations. She has carried out numerous research and practice projects under the United Nations, the OSCE, the Aga Khan Foundation, the National Democratic
Institute and other international, national and local organisations. Natalia is also the author of several books, articles and training manuals on conflict transformation, democracy building in transitional societies and mass media. She holds a PhD from the Institute for Conflict Analysis and Resolution at George Mason University, US.
Leonidas Paschalides is a Senior Director at the Cyprus Chamber of Commerce and Industry
(CCCI) and he heads the departments of the Chamber that deal with education, European programmes, and international and public relations. Leonidas is also responsible for the CCCI’s relations with the Turkish Cypriot Chamber of Commerce and more generally Turkish Cypriot issues. He represents the CCCI in a large number of committees, councils, organisations and bodies both in Cyprus and abroad. Leonidas has taught in numerous seminars and business courses, and he is also the author of many publications and guides for business that deal with issues including the accession of Cyprus to the EU, the euro, EU policies and regulations, and the promotion of Cyprus as a business centre.
Berat Thaqi is a senior researcher at the GAP Institute for Advanced Studies in Priština, Kosovo,
in the Sustainable Economic and Social Development Unit. He holds an MSc in Economics for Business Analysis from Staffordshire University, UK, which he earned through the Open Society Foundation and Chevening Scholarship. Berat has also worked as an external researcher for International Alert, focusing on the trade regulatory framework between Kosovo and Serbia. He graduated with a Bachelor’s degree in Business Administration and Management from the University for Business and Technology in Priština, where he received the Best Student of the Generation Award.
China and Taiwan Economic Cooperation
Yao-Ming Hsu
Introduction
Taiwan, officially named the ‘Republic of China’ (ROC), was established in 1911. However, since 1949, ‘China’ was divided into two parts: the former ROC was moved to Taiwan, led by the Kuomingtang (KMT) Nationalist Party; and the newly established ‘People’s Republic of China’ (PRC) controlled most of mainland China, led by the Communist Party. In 1971, the United Nations (UN) officially recognised China’s seat in the UN, represented by the PRC. Since then, the ROC, otherwise commonly known as Formosa or Taiwan, still acts as a sui generis17 entity in
the international arena and maintains a semi-official relationship with other states. For example, there is visa-free treatment for Taiwanese people by over 130 countries and Taiwan is officially a member of the World Trade Organization (WTO).
Even though, according to each side, China and Taiwan are still at the stage of ‘civil war’, some economic cooperation is still needed. Before the 1990s, there was no official interaction between both governments and just a few civic/commercial relationships existed. China introduced temporary regulations regarding opening trade with Taiwan as early as 1979 in its rather unhidden attempt to motivate Taiwanese business people to pressurise their government into reunification. For its part, Taipei kept economic exchanges limited, fearing that strengthened economic dependency on the mainland could leave Taiwan vulnerable. However, in October 1990, Taipei legally allowed Taiwanese investments on the mainland under the ‘Measures on Indirect Investment and Technical Cooperation with the Mainland’ provisions – but only through third parties (most notably, Hong Kong or Japan) and with the approval of the government.18 This initiative amended the prior policy
of no direct communication, no trade and no transport connections with China. After the 1990s, Taiwanese businesses increasingly started to invest in China because of the convenience of the shared language and lower labour cost in China. From then on, both sides of the Taiwan Strait commenced dialogue. This dialogue went through its ups and downs, but despite the political concerns of Taiwan’s leadership over being economically entrapped by China, the relationship between the two entities has been steadily developing towards greater economic liberalisation. At the time of writing in 2014, about 22% of trade in Taiwanese goods was connected to China (see Table 1).
17 Latin term meaning ‘of its own kind/genus’ or ‘unique in its characteristics’.
18 C. Chen (2012). ‘Useful adversaries: How to understand the political economy of cross-security’, in J.-M.F. Blanchard and D.V. Hickey (eds.)
Table 1: Trade in goods between Taiwan and China (January–October 2014)
Trade in goods in Taiwan January to October 2014
Trade volume
In US$ Percentage (%)
Top 10 countries Rank Volume %
China 1 107,888,809,684 21.926 United States 2 51,678,425,269 10.502 Japan 3 51,507,543,144 10.468 Hong Kong 4 36,540,419,880 7.426 Singapore 5 24,183,419,283 4.915 Republic of Korea 6 22,737,374,638 4.621 Malaysia 7 14,863,818,264 3.021 Saudi Arabia 8 13,659,032,734 2.776 Germany, Federal Republic of 9 13,053,795,627 2.653 Vietnam 10 10,475,021,965 2.129 Global All 492,060,260,686 100.00
Source: Bureau of International Trade (Taiwan)19
Legal framework
Taiwanese constitutional amendments
The possibility of official – albeit non-governmental – direct interaction between Taiwan and China was created under the constitutional revisions of 1992 in Taiwan. Under the ROC Constitution Amendments (1992),20 it is prescribed in the foreword that “to meet the requisites
of the nation prior to national unification, the following articles of the ROC Constitution are added or amended to the ROC…”. Furthermore, in Article 11, special arrangements are set out that “rights and obligations between the people of the Chinese mainland area and those of the free area, and the disposition of other related affairs, may be specified by law”.
Consequently, the ‘Act Governing Relations between the People of the Taiwan Area and the Mainland Area’,21 sometimes simplified as the Cross-Strait Relationship Act (CSRA), was also
promulgated in 1992, as authorised by ROC Constitution Amendments, Article 11. Article 1 of the CSRA states that:
“This Act is specially enacted for the purposes of ensuring the security and public welfare in the Taiwan Area, regulating dealings between the peoples of the Taiwan Area and the Mainland Area, and handling legal matters arising there from before national unification. With regard to matters not provided for in this Act, the provisions of other relevant laws and regulations shall apply.”
In addition, Article 3.1 stipulates the competent authority in charge of cross-strait affairs:
“[The] Mainland Affairs Council, Executive Yuan (Cabinet) shall coordinate the handling of all Mainland-related affairs and is designated as the competent authority of this Act.”
19 Bureau of International Trade (Taiwan), available at http://cus93.trade.gov.tw/FSCI/
20 ROC Constitution Amendments (1992). Available at http://law.moj.gov.tw/Eng/LawClass/LawContent.aspx?PCODE=A0000002
21 Act Governing Relations between the People of the Taiwan Area and the Mainland Area (2011). Available at http://law.moj.gov.tw/Eng/ LawClass/LawContent.aspx?PCODE=Q0010001
Significantly, this CSRA covers all the administrative affairs, regional private law (conflict of laws) and mutual relationship in criminal matters.
However, the Taiwan government is still reluctant to have official contact with China through governmental organs, and China has the same reservations. For this reason, a semi-non-governmental organisation (NGO) has been established in Taiwan – namely, the Straits Exchange Foundation (SEF).22 This SEF is set by official authorisation of the Mainland Affairs Council.
Article 4 of the CSRA states that:
“[The] Mainland Affairs Council, Executive Yuan may entrust the institution referred to in the preceding paragraph or any private organization meeting the following criteria to handle affairs relating to any dealings between the peoples of the Taiwan Area and the Mainland Area:
1. Upon establishment, more than half of its total assets is donated by the government; and 2. The purpose of its establishment is for handling affairs relating to any dealings between
the peoples of the Taiwan Area and the Mainland Area, and the central competent authorities for it or for its business is the Mainland Affairs Council, Executive Yuan.”
In addition, for regulating the Cross-Strait Agreements Procedure, Article 4.2 of the CSRA states that:
“ 1. The Mainland Affairs Council, Executive Yuan shall coordinate the administration of the matters related to any agreement making between the Taiwan Area and the Mainland Area; where the content of the agreement is of professional and technical nature, and suitable to be made by each competent authorities concerned, the administration may be taken charge by the referred competent authorities in conjunction with the Mainland Affairs Council, Executive Yuan upon the approval of the Executive Yuan;
2. The Mainland Affairs Council, Executive Yuan, or each competent authorities approved by the Executive Yuan in accordance with the preceding paragraph, may entrust any institution or private organization referred to in Article 4 to negotiate and execute agreements, in the name of the entrusted, with the concerned authorities of the Mainland Area or their delegated juristic person, organization, or any other institution;
3. The agreement referred to in this statute means any written document involving the exercise of governmental powers or any matter of political issues, and executed between the Taiwan Area and the Mainland Area; any additional protocol, additional provision, protocol executed, agreed minutes, annex, and any other attachment shall constitute an integral part of the agreement.”
Moreover, all these cross-strait agreements should be approved by or reported to Taiwanese Congress. Article 5 of the CSRA states that:
“1. The institution, private organization, or any other non-profit juristic person entrusted to execute an agreement in accordance with Paragraph 3 of Article 4 or Paragraph 2 of Article 4.2, shall submit the draft agreement through the entrusting authorities to the Executive Yuan for approval before its execution of the agreement.
2. Where the content of the agreement requires any amendment to laws or any new legislation, the administration authorities of the agreement shall submit the agreement through the Executive Yuan to the Legislative Yuan (Congress) for consideration within 30 days after the execution of the agreement; where its content does not require any amendment to laws or any new legislation, the administration authorities of the agreement shall submit the agreement to the Executive Yuan for approval and to the Legislative Yuan for record, with a confidential procedure if necessary.”
However, in practice at the time, agreements reported to the Congress at the approval rate by the Executive Yuan had been extraordinarily high, which sparked controversy among sections of society and eventually led to the so-called ‘Sunflower protests’.
Chinese constitution and anti-secession law
In paragraph 9 of the preamble to the Constitution of the People’s Republic of China (1982),23 it
is stated that:
“Taiwan is part of the sacred territory of the People’s Republic of China. It is the inviolable duty of all Chinese people, including our compatriots in Taiwan, to accomplish the great task of reunifying the motherland.”
Furthermore, in 2005, a special law named the Anti-Secession Law24 was announced. Article 1
solemnly states that:
“This Law is formulated, in accordance with the Constitution, for the purpose of opposing and checking Taiwan’s secession from China by secessionists in the name of ‘Taiwan independence’, promoting peaceful national reunification, maintaining peace and stability in the Taiwan Straits, preserving China’s sovereignty and territorial integrity, and safeguarding the fundamental interests of the Chinese nation.”
Regarding Taiwan’s status, Article 2 of the Anti-Secession Law stipulates:
“There is only one China in the world. Both the mainland and Taiwan belong to one China. China’s sovereignty and territorial integrity brook no division. Safeguarding China’s sovereignty and territorial integrity is the common obligation of all Chinese people, the Taiwan compatriots included. Taiwan is part of China. The state shall never allow the ‘Taiwan independence’ secessionist forces to make Taiwan secede from China under any name or by any means.”
In addition, Article 3 of the same Act excludes any possible international interference regarding Taiwan:
“The Taiwan question is one that is left over from China’s civil war of the late 1940s; solving the Taiwan question and achieving national reunification is China’s internal affair, which is subject to no interference by any outside forces.”
Article 8 reinforces the point that:
“In the event that the ‘Taiwan independence’ secessionist forces should act under any name or by any means to cause the fact of Taiwan’s secession from China, or that major incidents entailing Taiwan’s secession from China should occur, or that possibilities for a peaceful reunification should be completely exhausted, the state shall employ non-peaceful means and other necessary measures to protect China’s sovereignty and territorial integrity.”
After affirmation of Taiwan’s status, some cooperation is still necessary according to Article 6 of the Anti-Secession Law:
“The state shall take the following measures to maintain peace and stability in the Taiwan Straits and promote cross-Straits relations:
23 Constitution of the People’s Republic of China. Available at http://english.gov.cn/archive/laws_regulations/2014/08/23/ content_281474982987458.htm
1. To encourage and facilitate personnel exchanges across the Straits for greater mutual understanding and mutual trust;
2. To encourage and facilitate economic exchanges and cooperation, realise direct links of trade, mail and air and shipping services, and bring about closer economic ties between the two sides of the Straits to their mutual benefit;
3. To encourage and facilitate cross-Straits exchanges in education, science, technology, culture, health and sports, and work together to carry forward the proud Chinese cultural traditions;
4. To encourage and facilitate cross-Straits cooperation in combating crimes;
5. To encourage and facilitate other activities that are conducive to peace and stability in the Taiwan Straits and stronger cross-Straits relations;
6. The state protects the rights and interests of the Taiwan compatriots in accordance with law.”
In the long run, some prospective arena is also envisaged under Article 7:
“The two sides of the Taiwan Straits may consult and negotiate on the following matters: 1. Officially ending the state of hostility between the two sides;
2. Mapping out the development of cross-Straits relations; 3. Steps and arrangements for peaceful national reunification; 4. The political status of the Taiwan authorities;
5. The Taiwan region’s capacity of international operation that is compatible with its status; and 6. Other matters concerning the achievement of peaceful national reunification.”
Membership of the WTO
It is evident from the previous paragraphs that even though some political tensions remain between China and Taiwan, a degree of economic cooperation is essential. China used to have a greater economic interest in developing business links with Taiwan, particularly in the area of technology and innovation, as well as investment a couple of decades ago, before it became a great economic power. These days, Taiwan’s significance as an economic partner for China has diminished, although it is still important and Taiwan has its niche. Trade with China constitutes about one-fifth of Taiwan’s overall trade. However, a more important consideration has arisen regarding Taiwan’s liberalisation of economic and civic relations with China. Membership of the regional trade blocks has become crucial for Taiwan in order to lower or eliminate trade barriers with other countries. For this to happen, China’s ‘non-objection’ had to be secured.
From the perspective of international economic integration and international trade, it is also evident that the participation of China and Taiwan in a multilateral trading system is of great significance. China has been a member of the WTO since 11 December 2001 and Taiwan since 1 January 2002 (officially as a ‘Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu’, simplified as ‘Chinese Taipei’). Taiwan could accede to the WTO as the latter is an organisation of governments, not necessarily states – for example, unlike the Organisation for Economic Co-operation and Development (OECD).
However, thus far, because of political considerations, neither the Most Favoured Nation Treatment (MFN) nor National Treatment (NT) has applied in actual economic and commercial activities between China and Taiwan. Even in 2006, a trade dispute arose named the ‘Towel war’ concerning the importation of towels from China to Taiwan; in the end, both sides settled the matter politically. For this reason, special sui generis agreements between Taiwan and China are required. Consequently, the Economic Cooperation Framework Agreement (ECFA)25 was signed
and entered into force in 2010. Nevertheless, although some early harvest provisions of the ECFA
25 Cross-Straits Economic Cooperation Framework Agreement. Available at http://www.ecfa.org.tw/EcfaAttachment/ECFADoc/ECFA.pdf. See: Annexes, available at http://www.international-alert.org/resources/publications/regulations-trade-across-contested-borders-en
have been implemented, as it is merely a framework, supplementary agreements for the ECFA are still needed to accomplish detailed regulations for both sides. Due to the protest against Trade in Services Agreements for further implementing the ECFA in March 2014 (Sunflower students’ movement), no further agreements have been officially approved. Some negotiations are still ongoing.
Economic cooperation
The potential for cross-strait agreements actually commenced following the ‘1992 Consensus’,26
a political declaration between semi-official representatives from China and Taiwan. In this consensus, it was declared that there was only “one China”, but with “different (respective) interpretations”.
From 1998 until the time of writing, 21 agreements and 2 consensuses had come into force – including those concerning air and maritime transportation, postal services, food safety, mutual support and cooperation in criminal matters, financial and monetary cooperation, sanitary and phytosanitary measures, fishery, protection of intellectual property, medicine and health, nuclear safety, investment protection and promotion, and custom cooperation. In 2014, three more agreements were under negotiation – the Trade in Services Agreement, the Meteorological Cooperation Agreement and the Earthquakes Monitoring System Cooperation Agreement.27
Economic Cooperation Framework Agreement (ECFA)
For cross-strait economic cooperation, the most important legal instrument is probably the 2010 ECFA. The Straits Exchange Foundation (Taiwan) and the Association for Relations Across the Taiwan Straits (China) mutually agreed to this agreement, adhering to the principles of equality, reciprocity and progressiveness and with a view to strengthening cross-strait trade and economic relations. Even though prima facie this is an agreement between two private organisations, the ECFA has its sui generis legal binding force, according to China’s and Taiwan’s respective internal authorisation.
Because China and Taiwan are both WTO members as separate entities, in the preamble to the ECFA, it is clearly stated that both parties:
“…have agreed, in line with the basic principles of the World Trade Organization (WTO) and in consideration of the economic conditions of the two Parties, to gradually reduce or eliminate barriers to trade and investment for each other, create a fair trade and investment environment, further advance cross-Straits trade and investment relations by signing the Cross-Straits Economic Cooperation Framework Agreement.”
Moreover, Article 9 prescribes that:
“No provision in this Agreement shall be interpreted to prevent either Party from adopting or maintaining exception measures consistent with the rules of the World Trade Organization.”
The detailed introduction to the ECFA explains the different Articles as follows.
26 ‘“1992 consensus” means “different interpretations”’, China Times (editorial), 28 November 2012. Available at http://www.kmt.org.tw/ english/page.aspx?type=article&mnum=113&anum=12234
Article 1 – objectives
Article 1 of the ECFA outlines its objectives as follows:
“1. To strengthen and advance the economic, trade and investment cooperation between the two Parties;
2. To promote further liberalization of trade in goods and services between the two Parties and gradually establish fair, transparent and facilitative investment and investment protection mechanisms;
3. To expand areas of economic cooperation and establish a cooperation mechanism.”
Article 2 – cooperation measures
Article 2 of the ECFA describes the measures aimed at enhancing cross-strait cooperation:
“The two Parties have agreed, in consideration of their economic conditions, to take measures including but not limited to the following, in order to strengthen cross-Straits economic exchange and cooperation:
1. Gradually reducing or eliminating tariff and non-tariff barriers to trade in a substantial majority of goods between the two Parties;
2. Gradually reducing or eliminating restrictions on a large number of sectors in trade in services between the two Parties;
3. Providing investment protection and promoting two-way investment;
4. Promoting trade and investment facilitation and industry exchanges and cooperation.”
Article 3 – trade in goods
Article 3.1 states that:
“The two Parties have agreed, on the basis of the Early Harvest for Trade in Goods as stipulated in Article 7 of this Agreement, to conduct consultations on an agreement on trade in goods no later than six months after the entry into force of this Agreement, and expeditiously conclude such consultations.”
However, at the time of writing, no further implementation agreement had yet been passed due to a number of political considerations. Thus, the “six months” demand in this paragraph seems to be illusory.
In relation to Early Harvest for Trade in Goods, Article 7.1 of the ECFA states that:
“To accelerate the realization of the objectives of this Agreement, the two Parties have agreed to implement the Early Harvest Program with respect to the goods listed in Annex I28 titled
‘Product List and Tariff Reduction Arrangements Under the Early Harvest for Trade in Goods’.”
28 Annex I. Product List and Tariff Reduction Arrangements Under the Early Harvest for Trade in Goods. Available at http://www.ecfa.org.tw/ EcfaAttachment/ECFADoc/Annex%20I%20Product%20List%20and%20Tariff%20Reduction%20Arrangements.pdf. See: Annexes, available at http://www.international-alert.org/resources/publications/regulations-trade-across-contested-borders-en
Article 3.2 states that:
“The consultations on the agreement on trade in goods shall include, but not be limited to: 1. Modalities for tariff reduction or elimination;
2. Rules of origin;29
3. Customs procedures;
4. Non-tariff measures, including but not limited to technical barriers to trade (TBT) and sanitary and phytosanitary (SPS) measures;
5. Trade remedy measures, including measures set forth in the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994, the Agreement on Subsidies and Countervailing Measures and the Agreement on Safeguards of the World Trade Organization, and the safeguard measures between the two Parties30 applicable to
the trade in goods between the two Parties.”
Article 4 – trade in services
For regulations on trade in services, Article 4.1 of the ECFA states that:
“The two Parties have agreed, on the basis of the Early Harvest for Trade in Services as stipulated in Article 8, to conduct consultations on an agreement on trade in services no later than six months after the entry into force of this Agreement, and expeditiously conclude such consultations.”
The Early Harvest Program for Services is set out under Article 8.1 as follows:
“To accelerate the realization of the objectives of this Agreement, the two Parties have agreed to implement the Early Harvest Program on the sectors and liberalization measures listed in Annex IV. The Early Harvest Program shall be implemented expeditiously after the entry into force of this Agreement.”
Annex IV of the ECFA is entitled ‘Sectors and Liberalization Measures under the Early Harvest for Trade in Services’.31
Nevertheless, similar to the situation regarding trade in goods, no further agreements for trade in services had been set six months after the entry into force of the ECFA. Moreover, the economic scale in the Early Harvest Program for trade in services is much smaller than the one for trade in goods.
“The consultations on the agreement on trade in services shall seek to (Article 4.2):
1. Gradually reduce or eliminate restrictions on a large number of sectors in trade in services between the two Parties;
2. Further increase the breadth and depth of trade in services;
3. Enhance cooperation in trade in services between the two Parties.”
29 Annex II. Provisional Rules of Origin Applicable to Products. Available at http://www.ecfa.org.tw/EcfaAttachment/ECFADoc/Annex%20 II%20Provisional%20Rules%20of%20Origin%20Applicable%20to%20Products.pdf. See: Annexes, available at http://www.international-alert.org/resources/publications/regulations-trade-across-contested-borders-en
30 Annex III. Safeguard Measures Between the Two Parties Applicable to Products Under the Early Harvest for Trade in Goods. Available at http://www.ecfa.org.tw/EcfaAttachment/ECFADoc/Annex%20III%20Safeguard%20Measures%20Between%20the%20Two%20Parties.pdf. See: Annexes, available at http://www.international-alert.org/resources/publications/regulations-trade-across-contested-borders-en 31 Annex IV. Sectors and Liberalization Measures Under the Early Harvest for Trade in Services. Available at http://www.ecfa.org.tw/
EcfaAttachment/ECFADoc/Annex%20IV%20Sectors%20and%20Liberalization%20Measures.pdf. See: Annexes, available at http://www. international-alert.org/resources/publications/regulations-trade-across-contested-borders-en
Article 6 – possible further economic cooperation
As well as trade in goods and in services, there has been agreement to strengthen economic cooperation in areas including, but not limited to, the following:
“1. Intellectual property rights protection and cooperation; 2. Financial cooperation;
3. Trade promotion and facilitation; 4. Customs cooperation;
5. E-commerce cooperation;
6. Discussion on the overall arrangements and key areas for industrial cooperation, promotion of cooperation in major projects, and coordination of the resolution of issues that may arise in the course of industrial cooperation between the two Parties;
7. Promotion of small and medium-sized enterprises’ cooperation between the two Parties, and enhancement of the competitiveness of these enterprises;
8. Promotion of the mutual establishment of offices by economic and trade bodies of the two Parties.”
Article 10 – dispute settlement
According to the first paragraph of this article:
“The two Parties shall engage in consultations on the establishment of appropriate dispute settlement procedures no later than six months after the entry into force of this Agreement, and expeditiously reach an agreement in order to settle any dispute arising from the interpretation, implementation and application of this Agreement.”
At the point of writing, however, there has been no negotiation about these special dispute settlement procedures. Therefore, in practice, only the second paragraph of this article currently applies:
“Any dispute over the interpretation, implementation and application of this Agreement prior to the date the dispute settlement agreement mentioned in paragraph 1 of this Article enters into force shall be resolved through consultations by the two Parties or in an appropriate manner by the Cross-Straits Economic Cooperation Committee, to be established in accordance with Article 11 of this Agreement.”
In fact, the Cross-Straits Economic Cooperation Committee was already established on 6 January 2011.
Article 11 – Cross-Straits Economic Cooperation Committee
The responsibilities of this committee include the following:
“1. Concluding consultations necessary for the attainment of the objectives of this Agreement; 2. Monitoring and evaluating the implementation of this Agreement;
3. Interpreting the provisions of this Agreement;
4. Notifying important economic and trade information;
5. Settling any dispute over the interpretation, implementation and application of this Agreement in accordance with Article 10 of this Agreement.”
Article 16 – termination of the ECFA
Regarding its termination, Article 16 of the ECFA states that:
“1. The Party terminating this Agreement shall notify the other Party in writing. The two Parties shall start consultations within 30 days from the date the termination notice is issued. In case the consultations fail to reach a consensus, this Agreement shall be terminated on the 180th day from the date the termination notice is issued by the notifying Party.
2. Within 30 days from the date of termination of this Agreement, the two Parties shall engage in consultations on issues arising from the termination.”
Investment protection
Taiwanese investment in China reached around US$110 billion in September 2013. Moreover, around two million Taiwanese now reside in China.
According to Article 5.1 of the ECFA:
“The two Parties have agreed to conduct consultations on the matters referred to in paragraph 2 of this Article within six months after the entry into force of this Agreement, and expeditiously reach an agreement.”
Concretely, based on Article 5.2, such an agreement shall include, but not be limited to, the following:
“1. Establishing an investment protection mechanism;
2. Increasing transparency on investment-related regulations;
3. Gradually reducing restrictions on mutual investments between the two Parties; 4. Promoting investment facilitation.”
For implementing this task, a Cross-Strait Bilateral Investment Protection and Promotion Agreement32 (BIPPA) was also signed in August 2012 between China and Taiwan.
The preamble of the BIPPA declared the following:
“In order to protect the rights and interests of investors across the Taiwan Straits, promote mutual investments, create an impartial investment environment, and enhance cross-strait economic prosperity, in accordance with Article 5 of the ECFA, the Straits Exchange Foundation and the Association for Relations Across the Taiwan Straits reached an agreement as follows upon equal negotiations…”
For actual application, Article 2.1 sets the scope and prescribes that:
“This Agreement applies to the measures adopted or maintained by a Party toward investors of the other Party and their investments.”
With regard to implementation of the BIPPA (Article 2.4):
“A Party may adopt, maintain, or enforce any measure it considers necessary to protect its essential security interests.”
32 Cross-Strait Bilateral Investment Protection and Promotion Agreement (BIPPA). Available at http://www.mac.gov.tw/public/ Attachment/210417181458.pdf (only in Chinese, so all the translations of the Agreement’s texts below are the author’s own, not an official translation).
Article 2.7 also excludes the application to public procurement and subsidies or grants provided by a Party. Finally, except as expressly provided in other articles, this Agreement does not apply to taxation measures of either Party (Article 2.8).
Adopting similar logic as that in Article XX of the General Agreement on Tariffs and Trade (GATT), Article 2.5 of the BIPPA defines the possible exceptions and prescribes that:
“ Party may adopt or maintain the following restrictive measures on investments based on the principle of non-arbitrary and non-unjustifiable discrimination, and provided that such measures do not constitute a disguised restriction on trade or investments:
1. Measures necessary to secure compliance with laws or regulations that are not inconsistent with this Agreement;
2. Measures necessary to protect the life or health of humans, animals or plants; 3. Measures necessary to protect exhaustible natural resources.”
In consideration of investment protection, Article 3.1 of the BIPPA sets the standards of protection:
“Each Party shall ensure fair and equitable treatment to investors of the other Party and their investments, and shall provide full protection and security:
1. Fair and equitable treatment means that the measures adopted by a Party shall be in accordance with the principle of due process and shall not deny justice and fair trial to investors of the other Party, and that obviously discriminatory or arbitrary measures may not be implemented.
2. Full protection and security means that a Party shall adopt reasonable and necessary measures to protect the safety of investors of the other Party and their investments.”
In addition, for the benefit of Taiwanese investors, Article 3.2 clearly prescribes that:
“The Parties shall reinforce the protection of personal freedom and safety of investors and related personnel, fulfil the notification obligations related to personal freedom within the prescribed time limit under their respective laws and regulations, and strive to perfect the existing notification mechanism.”
However, there is only limited opportunity for dispute resolution. Article 3.6 stipulates:
“Investors of the other Party may not claim to initiate dispute resolution proceedings other than those provided in this Agreement.”
For transparency and investment facilitation, Article 4.1 of the BIPPA states that:
“A Party shall, in accordance with its laws and regulations, publish or otherwise make publicly available in a timely fashion the investment-related laws, regulations, measures, procedures, etc. that are generally applicable or are specifically applicable to the other Party.”
In addition, Article 6.2 requires that:
“The Parties agree to provide the other Party with investment facilitation.”
Regarding possible expropriation, Article 7.1 states the following:
“A Party may not expropriate the investments or returns of an investor of the other Party in the Party (including direct expropriation and indirect expropriation), unless all of the following conditions are met:
1. It is for public purpose;
2. It is in accordance with the Party’s laws and regulations, and with due process; 3. It is non-discriminatory and non-arbitrary;
4. Payment of compensation is provided in accordance with paragraph 4 of this Article.”
Article 8 also sets the standards for compensation of losses:
“If an investor of a Party suffers a loss with respect to its investments or returns in the other Party due to armed conflict, state of emergency or similar event that takes place in the other Party, the other Party shall provide restitution, compensation, or other resolution no less favourable than that accorded to its own investors or to the investors of any third party in like circumstances, whichever is most favourable to investors.”
As mentioned above, possibilities for resolution of investment disputes are limited in this context. For disputes between China and Taiwan, Article 12 of the BIPPA prescribes that:
“Disputes between the Parties concerning the interpretation, implementation or application of this Agreement shall be dealt with in accordance with Article 10 of the Cross-Strait Economic Cooperation Framework Agreement [i.e. by the Cross-Straits Economic Cooperation
Committee].”
For disputes between investors and a host party, some other possible ways for dispute resolution, similar to international investments dispute resolution methods, are still nevertheless available. For example, based on Article 13, the following ways are envisaged for the settlement of disputes between an investor and the host party:
“1. Amicable negotiation between the parties to the dispute;
2. Coordination through the coordination mechanism at the place of investment or the superior authorities thereof;
3. Resolution through the investment dispute settlement mechanism established under Article 15 of this Agreement;
4. An investor may submit an investment compensation dispute arising out of this Agreement between an investor and the host Party to a Cross-Strait Investment Dispute Settlement Institution for settlement through mediation. Every six months, the Cross-Strait Investment Dispute Settlement Institutions shall report to the investment working group referred to in Article 15 of this Agreement on the status of investment compensation disputes under disposition;
5. Recourse in accordance with the administrative remedy or judicial proceedings of the host Party.”
Article 14 of the BIPPA relates to investment-related commercial disputes. First, when an investor of a party enters into a commercial contract with a natural person, juridical person or other institutions of the other party in accordance with relevant laws and regulations and the principle of autonomy of the parties, the contracting parties may stipulate the methods and means of commercial dispute settlement. In addition, such a contract may include a provision for the arbitration of commercial disputes arising out of investments. If no arbitration provision is included, the disputing parties may consult with each other to submit a dispute to arbitration after the dispute occurs. For arbitration, the parties to a commercial dispute may designate an arbitration institution of either side of the strait and agree on the seat of arbitration. If no arbitration clause is included in a commercial contract, the disputing parties may consult with each other to submit a dispute to an arbitration institution of either side of the strait and settle the dispute at a mutually agreed seat. Finally, both China and Taiwan affirm that the parties to a commercial contract may petition for the recognition and enforcement of arbitration awards in accordance with the relevant laws and regulations.
Conclusion: the ECFA and beyond
As outlined, economic cooperation between China and Taiwan largely proceeds according to the ECFA and the BIPPA at present. Some goods and services are already covered by the Early Harvest Program, but not enough. Fortunately, Taiwanese investors and investments in China are properly protected under the BIPPA, even though Chinese investors and investments in Taiwan are still rare because of legal limitations imposed by the Taiwanese government based on political concerns. Thus, more negotiations are still needed.
The ECFA has a number of intrinsic shortcomings, and some external elements potentially hinder further negotiations.
Regarding the ECFA, as it is just a framework agreement, the terms of its text appear to be very political and ambiguous. From a legal perspective, the ECFA sometimes seems to have a soft law and non-binding nature, requiring more supplementary agreements to accomplish actual economic cooperation. The ECFA resembles the contents page of a book, in which the actual chapters are still blank.
In terms of other elements, in March 2014, during the Congress ratification process for the Cross-Strait Trade in Services Agreement, which will further strengthen cooperation in the services sector, many student protests against the approval of this agreement arose in Taiwan. The ‘Sunflower movement’,33 organised mainly by college students and some NGOs, emerged in the context of
the rising division in recent years between the rich (simplified as investors in China) and the poor (ordinary people in Taiwan), and increasing mistrust towards the ruling party (Kuomingtang). This finally culminated in the temporary occupation of the Taiwanese Congress (the Legislative Yuan) for nearly a month and forced entry of the Cabinet Office (the Administrative Yuan). The Sunflower movement asserts that all the cross-strait agreements should be examined on an article-by-article basis by the Congress, even by public referendum. As it stands, almost all the cross-strait agreements have been ratified by the Cabinet alone and are merely reported to the Congress – except in the case of the ECFA’s ratification, when lump-sum voting was held.
Alongside this movement’s concerns, many people in Taiwan have reservations regarding future possible reunification with China, either voluntary or forced. Closer economic cooperation with China creates more economic dependence. However, since China’s economic power is rising across the world, one wonders how Taiwan can choose a safer way to coexist with China – especially since actual immigration from Taiwan to China has reached about two million, mostly business people and their employees. This represents nearly one-tenth of Taiwan’s total population of 23 million people, while China has a pollution of 1.3 billion people. Moreover, in 2013, a total of 2.87 million Chinese tourists visited Taiwan, almost 5,000 a day. On the one hand, this creates tourist revenue for Taiwan and contributes towards Chinese people’s understanding of a democratic Taiwan; on the other hand, it also increases economic dependence on China. Put simply, when trade and business interests interact with national identity, such a dilemma cannot be resolved easily.
New developments in November 2014 in Taiwan show a slight reluctance regarding further economic cooperation with China. Results of the domestic elections at the end of November showed that more Taiwanese people are turning towards the Democratic Progress Party, which has tended to distance itself from mainland China. Thus, even though the existing ECFA remains effective between China and Taiwan, the pace of further negotiations may decline temporarily.
33 The ‘Sunflower movement’ refers to 2014 protest by students and civil groups to prevent the passage of an agreement allowing for freer trade in services with China.
