Would ECFA benefit Taiwan or not?

In 2010, China joined the ASEAN, which stands for Association of Southeast Asian Nations. Besides, Chile, New Zealand, Pakistan,Peru and Norway has signed a FTA with each other. South Korea, Austria, and India were trying to come to an agreement with China as well. If this association were going to be built, it would cover half the population of the whole world. Taiwan, whose economy was heavily relied on international trade, also wanted to share benefit from free trade agreement with other countries. Otherwise it would be isolated and both its exports and imports would be affected. As a result, the ECFA (Economic Cooperation Framework Agreement) was reached between the main land of China and Taiwan.

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During the period that many major trade partners of Taiwan began to establish FTA with each other, Taiwan is on the edge to be isolated. Actually, it is a major trend for all the countries in the world to have free trade with each other for development of economy. However, at the same time, this trend could be challenging for the minority countries. The importance and influence that one country such as Taiwan can have is limited. It would be isolated at the end if it cannot join other economies. Besides, once the FTA comes into effect, the expanding trading activity would affect or even put an end to the existing trading patterns in a certain country that cannot benefit the FTA. As a small economy entity, Taiwan will be less attractive for other countries to invest in. As FTA could provide many protective rules and better trading rules for the countries who is include in the agreement, there will be less foreign investment be made to Taiwan and those existing investment might be switched to other countries. Overall, it is essential for Taiwan to sign the ECFA with China mainland.

The economy of China mainland has grown very fast for the last 10 years since it joined the WTO. The living standard of people has been improved quite a lot. Actually, China has become one the most biggest countries both for production and consumption. Also, China is also a major trading partner with Taiwan and the trading surplus with China is the highest among all the countries that Taiwan trade with. If the ECFA can come into effect, the reduction in tariff or non-tariff barriers would definitely benefit Taiwan a lot. A lower price would enable the products from Taiwan be more competitive compared with the products from Euro and Japan, Korea. According to the ECFA, the tariff will be reduced on some products that Taiwan is not as competitive as the products in other countries. This could help the companies to take more market share form their competitors in the China mainland market. Besides, it is reasonable to think that there will be more products will be exported to China main land with the lower tariff. The trading cost will be lower while the trading efficiency will be higher.

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Another important reason for Taiwan to sign the ECFA with China mainland is that it can help Taiwan to gain Industrial Transfer advantage. As we have talked above, if the ECFA can come into effect, the cost of trading will be lower. Then Taiwan can transfer the products with lower value added to main land China at a lower cost than before. And this could make Taiwan be more focus on the high value added products. Take the chipset as an example: the whole production process includes raw material cutting, chipset production and packing. The first and the last process is low value added while chipset production is high value added. Once the ECFA can be settled, Taiwan can reallocate its resources more efficiently and focus on the relatively high value added products.

In general, signing the ECFA with main land China could not only benefit Taiwan with huge economic welfare, but also could help Taiwan to be a open market for trading and investment for other foreign countries.

 

 

Reference:

http://www.economist.com/blogs/newsbook/2010/06/taiwan-china_trade

 

http://news.asiaone.com/news/asia/ma-bemoans-stalling-cross-strait-pact

 

http://www.bloomberg.com/news/2013-06-21/china-taiwan-services-pact-signals-warmer-ties-after-2010-deal.html

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