Taiwan’s new opportunity with Mainland China

After signing “Economic Corporation Framework Agreement”(ECFA) which is used to standardize trade and other economic aspects between Mainland China and Taiwan, Chinese government is seeking for a new opportunity to upgrade the agreement. On 28th February, a senior Chinese negotiator arranged a three-day visit to Taiwan to discuss the agreement on sharing weather and earthquake data and to further look for a chance of cross-strait trade in goods wrapped up within the year.

屏幕快照 2014-03-10 上午10.47.12

    Mainland China and Taiwan have been separated for more than 60 years. When they established own government, both of them treated the other as enemy. Therefore, in the first several decades, they almost had no trade with each other. However, as time goes and both regions are in the process of development. They released some restrictions on trade policy and got large benefits from it. In 2010, Mainland China and Taiwan signed ECFA. This agreement makes Taiwan to be less likely separated from Asian economic zone. And after this agreement, Taiwan’s economic growth increased to 1.65%-1.72%. And the employment increased by 257-263 thousands.

However, the agreement is still in the first period, which means Mainland China mainly offers better conditions for Taiwan. Mainland China lows the tariff on almost 13.84 billion products and services. It also permits that Taiwan itself doesn’t open trade of agriculture to Mainland China. Additionally, Taiwan doesn’t allow the labor force of Mainland China to come into Taiwan’s market. Although the agreement has already accelerated the pace of development for both regions, assuming the agreement is upgraded into a higher level, it must bring an enormous effect on the economics of both sides.

Therefore, the visit made by Chinese official this time will have an important effect on the trade agreement between two regions. And it will definitely affect the economic growth in the long term for Mainland China and Taiwan.

First, suppose Mainland China lowers more or even eliminate the tariff, then there will be more goods traded. And if Taiwan has some comparative advantages in some goods, it will benefit from the trade of this kind of good and increase the wages of labor in this industry.  Second, after the new agreement, Mainland China and Taiwan can form a group in trading zones to gain more advantages in trading goods with other countries like U.S. and Japan. For example, since Mainland China and Taiwan’s agricultural goods are of great quality, they can use this advantage to trade agricultural good to gain more profits. Last but not least, if Mainland China and Taiwan eliminate all the restrictions on trade, both zones will attract more foreign investments and facilitate the economic structures on the development process. And all the people can share this economic development benefit. Besides that, the elimination of restriction will make the skills and technology communication more frequently, which is also good to trade.

Now the meeting is still in process and the agreement could not be signed within a few conferences. If Mainland China and Taiwan really want to increase their trade with each side, they should place a large portion on the discussion of this new agreement. And if the agreement comes into effect in those two years, it will make Mainland China and Taiwan’s trade more competitive and attractive for foreign investments.

Reference:

http://forex.cnfol.com/100630/134,1385,7939673,00.shtml

http://wwwycj.blog.163.com/blog/static/6989319201052911831854/

http://ecfa.taiwandao.org

http://www.globalpost.com/dispatch/news/kyodo-news-international/140228/china-negotiator-wraps-taiwan-trip-eyes-new-trade-ag-0

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