China, Taiwan ink pact on trade in services

Taiwan and China signed an agreement on trade in services in Shanghai on Friday, moving a step closer to trade liberalization across the Taiwan Strait.

Critics also pointed out the pact furthered China's political agenda of economic integration. The agreement is a follow-up pact under the landmark Economic Cooperation Framework Agreement signed in June 2010.

Pacts on investment protection and customs cooperation were signed in August 2012. The two sides are still negotiating pacts on commodity trade and dispute resolution, hoping to conclude those negotiations by the end of this year.

Lin Join-sane, chairman of Taiwan's quasi-official Straits Exchange Foundation which handles negotiations with China in the absence of formal ties, told Chen Deming, chairman of SEF's counterpart in China, before their formal talks that the benefits of the agreement on trade in services are "multiple."

"It helps both sides open their respective markets, create a favorable foundation for their sectors, upgrade each other's competitiveness, advance trade exchanges and cooperation, upgrade the effects of ECFA and speed-up the signing of ECFA's follow-up pacts," he said.

Most importantly, the pact will help not only Taiwan sign free trade agreements with other countries, but also both sides join such regional blocs such as the Trans-Pacific Partnership and Regional Comprehensive Economic Partnership, he said.

Chen, who heads the quasi-official Association for Relations Across the Taiwan Strait, said the extent of liberalization that China accords to Taiwan is "unprecedented" and that the pact is mutually beneficial and creates a win-win scenario.

"This is an agreement that embodies the bonds of our fellow countrymen," he said. "In terms of our commitment on market access, the number of sectors we open and the extent are unprecedented."

The services industry accounts for about 70 percent of Taiwan's gross domestic product and nearly 45 percent of China's GDP.

Citing a study conducted by the Chung-hua Institution for Economic Research in 2009, Taiwan's economic ministry said full liberalization of the island's services industry would boost Taiwan's GDP by 0.57 percent.

Under the agreement on trade in services, both sides agreed to open 11 categories of sectors to each other, including construction and related engineering, transport and financial services.

Taiwan will open 64 sub-sectors to Chinese investors, while China will open 80.

For those sectors still banned or partially liberalized, both sides agreed to progressively extend market access in line with their development situation.

Both sides agreed to give each other national treatment, which means foreign and local services and service providers receive equal treatment; and most-favored nation treatment, meaning foreign services and service providers receive treatment in a no less favorable manner than domestic ones.

While Taiwan has imposed more restrictions on Chinese services and service suppliers, the island agreed to gradually eliminate them, without setting any timetable.

Among the issues Lin and Chen will address in their next meeting is the establishment of reciprocal representative offices of SEF and ARATS.

Taiwan President Ma Ying-jeou has made it clear that the cross-strait relationship is not that of state-to-state, suggesting that the representative offices will neither be government agencies nor "diplomatic consulates."

Another issue Lin and Chen will address next time is the avoidance of double taxation. Both sides had originally planned to ink an agreement in December 2009, but last-minute negotiations broke down due to "technical" problems.

The agreement on trade in services has worried Taiwan's main opposition Democratic Progressive Party and its political ally, the Taiwan Solidarity Union Taiwan, which boycotted the provisional legislative session on Friday.

The ruling Nationalist Party (KMT) and its ally, the People First Party, promised to carefully examine the deal when it proceeds to the legislature.

Analysts are worried too.

Liu Meng-chun, a research fellow of the Chung-hua Institution for Economic Research, welcomed the accord, but its success will hinge on the supplementary measures.

There is no doubt that the pact pushes cross-strait economic integration a step forward," he said. "This is just a beginning."