On June 21 this year, representatives from Taiwan and mainland China met in Shanghai to sign the Cross-Strait Trade in Services Agreement, under which the two sides of the Taiwan Strait pledge to liberalize access to each other’s services markets. This is a landmark agreement for Taiwan, not only because the services industry generates 72 percent of the nation’s gross domestic product, making it the country’s largest economic sector, but also because the pact demonstrates Taiwan’s dedication to market liberalization to the world.
The services agreement, the 19th cross-strait pact signed since Republic of China (ROC) President Ma Ying-jeou (馬英九) took office in 2008, is a follow-up to the Economic Cooperation Framework Agreement (ECFA) reached by Taiwan and mainland China in September 2010. The “framework” part of ECFA’s name is instructive, as it was designed to act as a platform for entering into later agreements on specific sectors like services.
Prior to the signing of the services agreement, representatives from the ROC’s Mainland Affairs Council and Ministry of Economic Affairs briefed the president of the Legislative Yuan and two legislative committees on the pact’s contents. The agreement is also subject to further legislative review.
Taiwan’s Straits Exchange Foundation conducted negotiations on the services agreement under the principle of “maximizing benefits and minimizing impact.” In terms of maximizing benefits, the pact will not only give Taiwan’s service companies more access to the mainland Chinese market, but also open the way for more mainland Chinese investment in Taiwan, thus energizing the local market. In other words, combining the market savvy of Taiwan’s service providers with mainland China’s extensive investment capacity will create a synergy that allows both sides to gain competitiveness. As for minimizing impact, Taiwan insisted that the agreement cap mainland Chinese investment and shareholding in specific domestic industries.
The pact covers services in the cultural and creative, e-commerce, financial, health care, telecommunications, transportation and tourism industries. Among those sectors, e-commerce stands out because the agreement will allow Taiwanese companies to acquire controlling stakes in online shopping platforms in mainland China for the first time. Previously, the bar on non-mainland Chinese owning more than 50 percent of mainland Chinese online businesses left Taiwan’s e-commerce titans unwilling to launch platforms on the other side of the strait, which put them on the sidelines of a fast-growing and lucrative market.
Taiwan and mainland China are both members of the World Trade Organization (WTO) and are thus committed to upholding the organization’s free trade rules. Therefore, the Cross-Strait Trade in Services Agreement is a free trade agreement (FTA) based on the economic integration standards set out in Article V of the WTO’s General Agreement on Trade in Services.
In the bigger picture, because the services pact is an FTA drafted in accordance with WTO rules, it sends a clear message that Taiwan is committed to market liberalization in line with international norms. That is expected to help Taiwan’s efforts to ink FTAs with more countries, as well as prepare the way for the country’s membership in proposed regional trade pacts including the Trans-Pacific Partnership and Regional Comprehensive Economic Partnership. In view of those possibilities and the potential gains for Taiwan’s economy, the services agreement will maximize benefits for years to come.