On July 8, President Ma Ying-jeou said the newly signed cross-strait Service Trade Agreement is very important to Taiwan because it will serve as an example for other countries as they look to trade with Taiwan in the future. The international community will see how determined Taiwan is to promote free trade and its willingness to maintain high quality commitments, reported the United Daily News. The president was responding to the agreement signed between Taiwan and China on June 21, the first free trade pact between the two sides since executing the FTA-like Economic Cooperation Framework Agreement (ECFA) three years ago.
Marginal benefits now, bigger rewards down the line
President Ma pointed out that mainland China is Taiwan’s largest trading partner. Chinese capital has amounted to almost US$800 million since it was permitted, and has created 6,700 job opportunities in Taiwan so far. So this should allay concerns expressed by people in Taiwan about the risks of closer business ties with the mainland.
The cross-strait service trade agreement was negotiated based on the fourth article of the ECFA. Under the agreement, the mainland will open 80 service sectors to Taiwanese firms, while Taiwan will open 64 sectors to mainland businesses. The sectors to be opened relate to commerce, telecommunications, construction, the environment, health, society, tourism, entertainment, ransportation and finance.
However, according to analysis by the Chung-Hua Institution for Economic Research in Taipei, GDP is projected to increase by US$97 million to US$134 million, translating into about 0.025 percent to 0.034 percent of Taiwan’s GDP, reported the Central News Agency. Furthermore, Taiwan’s service sector export value is projected to increase by US$378 million, and the total import value will go up from US$61 million to US$63 million, showing that the open market pact will increase exports of Taiwan’s service sector industries. Also, employment in the service sector is predicted to increase up to 11,923 people, translating into a 0.15 percent to 0.16 percent hike in Taiwan’s total employment.
The Taipei-based China Times reported that the opposition Democratic Progressive Party (DPP) caucus whip Ker Chien-ming criticized the pact by saying it will only increase Taiwan’s GDP by a marginal 0.025 to 0.034 percent. However, Economics Minister Chang Jia-juch believes that even though the benefits of signing the pact are not immediately apparent, the cross-strait economic agreement is an important step toward Taiwan’s continuing liberalization and internationalization. “If trade between Taiwan and China is not normalized, it is impossible for Taiwan to become an active member of the global community, much less to sign free trade agreements with other countries, or to join the regional economic integration such as the Trans-Pacific Partnership (TPP),” he said.
Need not worry about competition from the mainland
The Economic Daily News said in an editorial that at a time of rapid global economic integration, Taiwan has to be active in joining the ranks, and the signing of the cross-strait pact is an important step in this process. Generally speaking, the signing of the service trade pact will do more good than harm to Taiwan’s national interests, according to the commentary.
The paper said in an analysis that it is worth noting that some areas opened to China in the pact are significant, including the fact that Taiwanese banking firms will be allowed to set up local branches in China. Depending on the type of businesses, Taiwanese companies may now hold a majority stake of between 51 to 75 percent of their business in China. The agreement permits Taiwanese stock brokerage firms to achieve a 51 percent stake, and to further broaden their businesses. E-commerce companies are allowed to set up outlets in China with 55 percent majority ownership, allowing Taiwan’s PC Home, an opportunity to compete directly with China’s Taobao. Large retail chain stores from Taiwan can also acquire 75 percent ownership, allow them better control and a greater return on their investment. Furthermore, Taiwan’s movie industry can enter the Chinese market without restrictions, as can the medical industry, by opening privately owned hospitals in more provinces in China.
All these measures are far more extensive than concessions given to foreign enterprises from other countries, allowing Taiwanese service firms greater opportunities in China. On the other hand, Taiwan is also opening some service industries to Chinese investors, a move that will bring competition for Taiwanese firms. However, the maturity and competitiveness of Taiwan’s service sector is more advanced than those of their Chinese counterparts. The targeted capital and investors are from high-level Chinese executives, not from low-paid laborers. Taiwanese workers need not worry about losing their jobs to their Chinese counterparts, noted the Economic Daily News.
Inconvenient hidden facts
Business Weekly commented by saying China seems to give Taiwan special treatment on the surface, but the cross-strait service trade pact hides some “tricks” in its contents.
First, the pact gives Taiwan access to the Chinese market and special privileges, but the final say is still controlled by China. For example, China allows Taiwanese operators to set up privately owned hospitals, but approval is needed from different levels of the Health Ministry, from the central government to ranking officials of the provincial health authorities.
How difficult can this be? An actual case involves a Taiwanese application to set up a hospital specializing in handling test tube babies, one of Taiwan’s medical strengths. Approval from the central government was obtained in 2008, but it was blocked at the city and provincial level. The local level finally approved it in 2011, but a license was issued for in-patient care, not allowing the company to engage in actually creating test tube babies. In the end, this process was a waste of five years for those involved.
Furthermore, more lead-time and strategic planning is required to enter China’s domestic market. Another example involves the travel business. The pact allows Taiwanese people to run travel agencies in China, but they are required to limit their operations by only planning domestic trips for their travelers at first. The Chinese government will judge them on this first before allowing them to apply to run an international travel agency.
Also, another key stipulation is that the service trade pact only allows businesses to operate in certain locations and provinces. As a result, China’s e-commerce market is open only to those Taiwanese who have invested in Fujian, the coastal province close to Taiwan. Taiwanese banks can set up branches in Fujian only. With the exception of those Taiwanese who want to invest in the nursing home business can do this in Fujian and Guangdong provinces in the South only, although three licenses are needed for stock brokerage firms setting up in Shanghai, Shenzhen (Guangdong) and Fujian.
The ECFA is an economic contest for both Taiwan and China. The next five years will take the competitors to half time, giving benefits to Taiwan on the one hand, while also attracting more Taiwanese talent, capital and businesses to work and invest in China. In another five years, the second half of the game will take place, Taiwan’s agricultural products will be thrown into the mix, and the complete opening of the service market will be achieved. At that time weaker industries needing protection will also be put on the bargaining table with China. Will Taiwan be ready then, Business Weekly asked.