Taiwan Today

Two years in the making, the Cross-Strait Trade in Services Agreement recently inked by Taipei and Beijing can be considered the biggest achievement in bilateral relations since 2008, when the two sides began to normalize and liberalize trade. Although reactions to the pact have been mixed, the accord marks a key step for Taiwan businesses in addition to manufacturing, entering mainland China’s domestic market and is expected to substantially benefit the local economy.

The pact consists of the main body and two appendices on pledges to opening and service provider definitions. Of the 155 different service sectors divided into 12 major categories by the World Trade Organization, mainland China has agreed to open 80, all of which are covered by WTO+, the proposed extension of the WTO trade agreements. This number is much higher than the 52 sectors which it agreed to open under its Closer Economic Partnership Arrangement with Hong Kong.

In return, Taiwan has agreed to open up 64 service sectors, 45 of which were covered by its WTO accession agreement. The rest, though not covered by WTO accession, have in fact already been opened to foreign investment.

From these numbers it can be described that Taiwan is receiving better treatment than other foreign investors in mainland China, whereas mainland Chinese investors are at best getting the same treatment Taiwan accords others. Taiwan has achieved its goal of winning preferential treatment, while mainland China will be able to expand its presence in Taiwan, a win-win situation for both sides.

Critics complain that mainland China did not make sufficient concessions and that the accord could have a serious impact on Taiwan. Fairly speaking, although many restrictions remain, the preferential treatment means Taiwan businesses will enjoy more advantages than those from Japan, Singapore, South Korea, and even the EU or U.S.

The benefits of the agreement to e-commerce and medical services have received wide media attention, but the accord has another bright spot, which is mainland China accepting conditional investment in construction and bids on contracts by Taiwan firms. The mainland Chinese construction market is worth at least 1 trillion yuan (US$163 billion) per year, but foreign companies have participated in only a handful of projects. This has been a source of constant friction between Beijing and the EU and U.S.

The local construction industry has been in the doldrums the past few years, and breaking into the mainland Chinese market ahead of competitors would mean huge business potential. Whether Taiwan firms participate in construction or simply invest in projects on the other side of the strait, there will be strong demand for financing, logistics and management expertise, which can also help Taiwan businesses in peripheral sectors develop.

As to the agreement’s influence on Taiwan’s domestic market, the sectors that are being opened to mainland China have all already been open to international competition for the past 20 years, without any major negative impact. On the contrary, competitive innovation has spurred consumption, increasing employment and the size of the market.

By allowing mainland investment under heavy restrictions and without an influx of mainland Chinese workers, it is scarcely conceivable that investment by mainland Chinese firms in their relatively backwards service sector will present a serious threat to Taiwan. Moreover, of the service sectors covered by the accord, close to half have been open to mainland investment for the past five years. During that period, the general consensus has been a lack of Chinese investment, rather than a fear of it.

Also deserving serious attention is the actual content of the accord. Although the document is less comprehensive than the free trade agreement signed between South Korea and the U.S., it is based on WTO rules. If such matters as information provision and legal oversight can be addressed fairly and reasonably, and monopolies be restricted, the agreement will be an effective tool to dismantling the mainland’s hidden trade barriers. Article 4 of the accord also means Taiwan gets to determine the pace at which normalization proceeds.

The Cross-Strait Trade in Services Agreement is just a beginning. Both sides should continue to open up, in the spirit of Article 16. The accord should not only boost economic opportunities and investment, but give a leg up to Taiwan’s efforts to sign FTAs with Singapore and New Zealand, as well as to move further toward regional economic integration. (SDH)

(This commentary first appeared in the United Daily News, June 22, 2013.)