1. 1 Chih-peng Huang Director General Bureau of Foreign Trade August 19, 2009 Political and Economic Analyses of Free Trade in the Asia Pacific

2. 2 I. Taiwan’s International Situation II. Development of the Asia Pacific free trade III. Taiwan’s Trade Situation IV. The Current cross-strait situation: Cross-Strait Economic Cooperation Framework Agreement (ECFA) V. Conclusions Outline

3. 3 1. Diplomatic Relations with 23 Nations Worldwide Countries around the world have participated in regional economic integration in addition to trade liberalization under the WTO’s multilateral structure in recent years. Particularly, the US and European countries have made rapid progress while the start of regional economic integration in Asian countries has been relatively late. Recently, there has been a climate of negotiating and signing FTAs in the Asia Pacific area. Because of its unique politic position, Taiwan has been excluded from the Asia Pacific economic integration framework. Regardless of ASEAN plus one, ASEAN plus three or any other FTAs, each will cause a definite impact on Taiwan. China, in particular, has been actively involved in signing FTAs in the Asia Pacific region, causing major economic and political influence on Taiwan. Facing thise trend of Asia Pacific free trade, we must understand Taiwan’s international situation, confront Asia Pacific economic integration cautiously and comprehend the future of Taiwan's economy and trade in order to response appropriately. 3. The Stalemate for Taiwan to Negotiate FTAs with Other Countries 2. Participation in International Economic and Trade Organizations: WTO, APEC, OECD, WSC/GAMS 2. Participation in International Economic and Trade Organizations: WTO, APEC, OECD, WSC/GAMS I. Taiwan’s International Situation Taiwan’s International Situation

4. 4 1.Diplomatic Relations with 23 Nations Worldwide

5. 5 Profiles for the 12 Diplomatic Allies in Central and South America Data source: 2009 MOFA *countries that have signed FTAs with the R.O.C. 107 23 112 21 131 76 48 0.26 0.39 0.6 28 407 Area (thousand km² )

6. 6 Profiles for the Diplomatic Allies in Africa and Europe 11.3 17 1 274 0.00044 Data source: 2009 MOFA Area (thousand km²)

7. 7 Profiles for the 6 Diplomatic Allies in the South Pacific Data source: 2009 MOFA 27.6 0.811 0.181 0.458 0.026 0.021 Area (thousand km²)

8. 8 WTO APEC WSC/GAMS OECD 2. Participation in International Economic and Trade Organizations Objectives: 1. Upgrade of Taiwan’s trade rank 2. Strive for Taiwan’s trade benefits

9. 9 WTO Rounds of Trade Negotiations under the Auspices of the GATT/WTO WTO Rounds of Trade Negotiations under the Auspices of the GATT/WTO

10. 10 AgricultureNAMAServicesRules Intellectual Property EnvironmentDevelopment Trade Facilitation Dispute Settlement Mandate ： Nov. 2001 the Doha Ministerial Declaration set the Doha Development Agenda (DDA). Objective ： Promoting global economic development through international trade liberalization. Timeframe ： Has not to set because of several setbacks. Problem ： Developed members (EU,US) are not willing to substantially reduce the tariffs in agricultural goods and domestic support while developing members (Brazil, India) are not willing to expand market access in NAMA and Services. Progress ： The chairs of Ag and NAMA issued texts on modalities in July 2007 to launch a horizontal negotiation and subsequently issued 4 revised texts in February, May, July, and December 2008. However, the chance to conclude the negotiation was lost because of major differences in agriculture special safeguard mechanism (SSM) between main members. Thus, WTO Director-General Pascal Lamy cancelled the ministerial meeting which had originally been planned. WTO WTO Doha Negotiation : 9 issues WTO WTO Doha Negotiation : 9 issues

11. 11 APEC Introduction Date of establishment ： 1989 Number of economies ： 21 （ Large scale differences in economic development exist among member economies; developing countries are the majority within APEC. Chinese Taipei’s accession to APEC, as well as that of both China and Hong Kong, took place in 1991. ） Scale of Economic background ：  Population of more than 2.7 billion  Occupies 44% of the world trade  Holds 54% of global GDP Participating in Asia Pacific Economic Cooperation (APEC)

12. 12 Senior Officials Meeting (SOM) APEC Secretariat APEC Structure Leaders’ Meeting Ministerial Meeting SOM Steering Committee on ECOTECH (SCE) Committee on Trade and Investment (CTI) Budget and Management Committee (BMC) Economic Committee( EC) SOM Special Task Groups Working Groups (WG) Sectoral Ministerial Meetings APEC Business Advisory Council Working level Policy level

13. 13 MOEA’s Participation in APEC 1.APEC Economic Leader ’ s Meeting (2009/11/14-15) 2.Annual Ministerial Meeting (2009/11/11-12) 3.Ministers Responsible for Trade (2009/7/21-22) 4.Senior Official Meeting (3-4 times/year) 5.Committee on Trade and Investment (3 times/year) 6.Sub committee meetings (1-3 times/year) 7.Sectoral Ministerial meetings on SME, Energy and mining （ once every 2 years ）

14. 14 OECD Since 1989, Taiwan has been invited to participate in the OECD’s Dynamic Non-Member Economies （ DNMEs ） policy dialogues, seminars and other activities. Taiwan has been granted observer status in the ：  Competition Committee （ since 2002 ）  Steel Committee （ since 2005 ）  Fisheries Committee （ since 2006 ） OECD observer status is renewable every 2 years. Taiwan’s observer status to the above committees has continuously been renewed and is currently still valid. As of the end of July 2009, Taiwan has participated in 279 OECD meetings and seminars.

15. 15 WSC/GAMS "Governments/Authorities Meeting on Semiconductors" (GAMS) acts as a dialogue mechanism between the World Semiconductor Council (WSC) members of the semiconductor industry and governments. The Director General of the BOFT has represented our government in recent years. Taiwan successfully held the WSC annual meeting in May 2008, which reinforced our importance in the global semi-conductor industry. I believe international cooperation and exchanges in the semiconductor industry will become even closer in the future, and the BOFT will continue to contribute in this regard. We signed the Agreement on Duty-Free Treatment of Multi-Chip Integrated Circuits (MCPs), which went into effect on April 1, 2006. This helps promote our related products in the international market. We will work with other signatories to promote the expansion of product coverage and memberships in the future.

16. 16 PANAMA GUATEMALA NICARAGUA SINGAPOREJAPANNEW ZEALANDUNITED STATESAUSTRALIA DOMINICAN REPUBLIC HONDURAS EL SALVADOR EU Signing Free Trade Agreements (FTAs) Taiwan ’ s Response to RTAs/FTAs Signing Free Trade Agreements (FTAs) Taiwan ’ s Response to RTAs/FTAs Signed and in forceUnder negotiation: Diplomatic AlliesMajor Trading Partners

17. 17 n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n nn n n Currently ： 1.Signed and in force: Panama, Guatemala, Nicaragua, Honduras and El Salvador. 2.Export to these five countries is only 0.187% of Taiwan’s total export. China P4 The Stalemate for Taiwan to Negotiate FTAs with Other Countries

18. 18 1.The Trend and Present State of Acceleration of Asia Pacific Economic Integration The current trend in international trade development is to seek the goals of trade liberalization, trade facilitation and trade security. However, delay in concluding the WTO Doha Round has caused the spread of international bilateral FTAs and accelerated the deepening of regional economic integration in the world. The global economic blocs are shifting from the European and US blocs to the Asian bloc. The software industry in India, the world's manufacturing center in China, and the management techniques of Japan, Hong Kong and Singapore are attracting multinational corporations to Asia. The Asia Pacific has become the world's fastest growing intra-regional trade area. Starting in 2010, the countries of the Association of Southeast Asian Nations (ASEAN) and China will establish a free trade region (ASEAN plus one), wherein each party will be exempted from tariffs on the vast majority of goods from each party. Hence, as the largest free trade region, with a population of nearly 2 billion, it will not only surpass the US and EU but affect the development of the global economy and trade. 3. Development and Response of the Asia Pacific in the Post-Global Financial Tsunami 3. Development and Response of the Asia Pacific in the Post-Global Financial Tsunami 2. Efforts toward Liberalization and Economic Integration in the Asia Pacific Region 2. Efforts toward Liberalization and Economic Integration in the Asia Pacific Region II. Development of the Asia Pacific Free Trade The Trend of Asia Pacific Development

19. 19 Southern Common Market (MERCOSUR) North American Free Trade Area （ NAFTA ） Establishing Free Trade Area of the Americas (FTAA) EU-Mexico Free Trade Area European Union (EU) ASEAN-Japan Comprehensive Economic Partnership Agreement (set to lower tariffs on most goods to 0% in 2018) ASEAN-South Korea Free Trade Area (set to lower tariffs on most goods to 0% in 2010) Japan-Singapore New Age Economic Partnership Agreement ASEAN-India ASEAN-Australia + New Zealand Free Trade Area Signed Feb. 27, 2009 Enter into force July 1, 2009 China-Hong Kong-Macao Closer Economic Partnership Arrangement (CEPA) ASEAN Free Trade Area (AFTA) US-South Korea FTA CAFTA － DR Delay in concluding WTO Doha Round has caused the spread of international bilateral FTAs and accelerated the deepening of regional economic integration in the world. EU-South Korea ASEAN-China Free Trade Area (set to lower tariffs on most goods to 0% in 2010) 1. The Trend and Present State of Acceleration of Asia Pacific Economic Integration

20. 20 As of 2008, the population of the Asia Pacific region accounted for approximately one third of the world; more than half of the countries attained over US$7000 GDP per capita; exports and imports accounted for about one-fourth of the world value. Thus, the future potential of Asia Pacific trade and economic development is limitless. Profile of Asia Pacific Economy and Trade

21. 21 Global intra-regional trade prevailed from 2002 to 2007. The European region represented the highest intra- regional trade value with US$1.7874 trillion in 2002 and increasing to US$ 4.2436 trillion in 2007; the Asian region represented the second highest intra-regional trade value with US$792.3 billion in 2002 and increasing to US$ 1.8898 trillion in 2007; next was the North American region with an intra-regional trade value of US$381.7 billion in 2002 and increasing to US$ 951.2 billion in 2007. As for growth rate between 2002 and 2007, the Asian region has been the world's fastest overall growing intra-regional trade area except in 2004 when its growth was lower than Europe and North America and in 2007 when it was lower than Europe. Unit: US$ billion ; % Data Source : WTO International trade statistics 5.8% 19.2% 19.8% 83.8% 39.6% 26.5% 7.7% 18.6% 14.1% 9.8% 15.1% -2.4% 6.6% 9.7% 11.1% The Asia Pacific has become the world's fastest growing intra-regional trade area 5.1% 15.3% 16.2%

22. 22 RankingCountry Export Value (US$ Billion) 1(1)Germany1,465 2(2)China1,428 3(3)US1,301 4(4)Japan782 5(6)Netherlands634 6(5)France609 12(11)South Korea422 13(13)Hong Kong370 14(14)Singapore338 18(16)Taiwan256 1. Data source ： WTO Press Release (March 23, 2009) 2. ( ) indicates the ranking in 2007 2008 Ranking of Global Exporters in Merchandise Trade

23. 23 230 FTAs submitted to the WTO and have become effective Current development of FTAs in the Asia Pacific region 120 FTAs signed in the Asia Pacific, 35 bilateral FTAs and 6 plurilateral agreements exist among APEC member economies. Continuous development of ASEAN+1,3,6, but the U.S. has not taken part in any of these. Trade coverage in the Asia Pacific agreements currently occupies 45% of that within APEC, in another words, there is still more than 50% trade coverage not covered in the FTAs. Effects Positive Effects ： Reinforce domestic system advancement to prepare domestic liberalization for both WTO and APEC. Negative Effects ： Causes trade diversion to non FTA members, which creates unfair competition. Spaghetti Bowl Effect—divergent rules of origins causes extra administrative costs among exporters and importers, which particularly influences small and medium enterprises. Due to more than 50% regional trade not covered in the FTAs, a possible trade relation cleavage might be caused between Asia Pacific markets. Acceleration of Asia Pacific Economic Integration —Development and Effects of FTAs in Asia Pacific

24. 24 Development of Asia Pacific Economic Integration-1

25. 25 Development of Asia Pacific Economic Integration-2

26. 26 APEC Pillars Trade & Investment Liberalization Facilitation ECOTECH 1994 AELM Declaration (Bogor, Indonesia) — Leaders committed to the Bogor Goals of free and open trade and investment in the region. These goals to be attained in 2010 for industrialized economies and 2020 for developing economies. 2. Efforts toward Liberalization and Economic Integration in the Asia Pacific Region —a brief example of APEC 2. Efforts toward Liberalization and Economic Integration in the Asia Pacific Region —a brief example of APEC

27. 27 Shanghai Accord(2001) APEC’s First Trade Facilitation Action Plan, TFAPІ(2002-2006) Liberalization Facilitation ECOTECH APEC Pillars Busan Roadmap(2005) Hanoi Action Plan(2006) APEC’s Second Trade Facilitation Action Plan, TFAP Ⅱ (2007-2010) Establishment of measure indicators of key performance(2008) Improving supply chain connectivity(2009) Bogor Goals- to achieve free and open trade and investment Help enhance the capabilities of developing economies( eg. the initiative of 「 APEC Digital Opportunity Center, ADOC 」 ) Free and open trade and investment no later than 2010 for industrialized economies and 2020 for developing economies Common Action Plan, CAP- by CTI and sub committees Individual Action Plan, IAP- by individual economies Three Pillars

28. 28 Before 2006, APEC promoted cooperation among member economies. In 2006 AELM, it was first mentioned that APEC would go toward economic integration. The establishment of FTAAP as a long-term prospect under the regional economic integration strategy report in 2007 Since FTAAP is a long-term prospect, it will not be easy to reach consensus in the short term. The issues related to the FTAAP FTAAPP4 Model Measures APEC economies gave no response to ABAC ’ s recommendation that Transpac be one of the possible options to the enlargement of regional economic integration or FTAAP. Therefore, P4 has developed bilaterally, instead of under the framework of APEC. The model measures have been submitted since 2005. 15 Chapters have been endorsed except 5(Service Trade, Investment, Anti-dumping, Subsidies, Countervailing Duty and Labor Cooperation). Though the model measures have no legal effect, few ASEAN countries doubt the possibilities of model measures transformed into the Chapters of FTAAP. APEC’s Efforts toward Liberalization and Economic Integration in the Asia Pacific Region

29. 29 Many countries in the Asia Pacific believe that an FTAAP ought to be consistent with and complementary to the Bogor Goals and its content overruns the framework of WTO. The approaches of promoting FTAAP would be concurrent and multi-optional. However, countries like China, and other members like Indonesia in the ASEAN believe that FTAAP involves negotiation, and this might have violated the non-binding essence of APEC. Currently, it is suggested to focus on the Bogor Goals. Lack of consensus on when to commence negotiating FTAAP still exists among APEC economies. May 2008, APEC economies declined to respond to the ABAC ’ s suggestion of Transpac (or called P-4, members are Singapore, New Zealand, Chile and Brunei) to be the foundation for expanding FTAAP and APEC REI ’ s possible options. Thus, the promotion of P4 appears in bilateral form, and it has not been promoted under the APEC Structure yet. US, Australia and Peru scheduled consultation with P4 members in March, 2009, however, Obama ’ s administration decided to procrastinate to review its FTA policies. The US already has bilateral FTAs with both Chile and Singapore, thus, for the US, acceding to P-4 focuses mainly on liberalizing trade and investment across the Asia Pacific region and allows P-4 to be one of the Economic Integration tools. FTAAP—Long Term Prospect, Hard to Reach Consensus in Short Term

30. 30 The Relationship to the Multilateral Trading System An FTAAP would need to be comprehensive in WTO terms and all core areas would need to be “WTO plus”. The Relationship between FTAAP and the 2010 / 2020 Bogor Goals An FTAAP could be regarded as one possible tangible expression of the Bogor Goals, but it ’ s orderly implementation should be clearly elaborated. How to converge and prioritize all core area of works? (Should coverage area include trade and investment only or the whole APEC agenda?) The Relationship to the Existing and Planned RTAs and FTAs Further study into existing RTA/FTAs in the region as well as into the rationales behind the lack of RTA/FTAs between some economies, including for example the major economies in the region, would help us understand better the feasibility of an FTAAP. The Relationship to the APEC Operational Framework It should be examined whether it is necessary to modify the existing APEC non- binding structure and the possible impact that an FTAAP might bring. Capacity Building If an FTAAP eventuates, it would be necessary to assess in a strategic way how the capacity-building needs associated with an FTAAP negotiation would be addressed. FTAAP—Involves Complicated Issues

31. 31 The Impact of the Global Financial Tsunami on the Asia Pacific Economy Addressing the Global Economic Crisis/ Support the Multilateral Trading System Taiwan’s Viewpoint on Asia Pacific Economic Integration 3. Development and Response of the Asia Pacific in the Post-Global Financial Tsunami

32. 32 The export-oriented APEC economies have all experienced the severe impact of the global financial tsunami in 2008. Taiwan’s export growth of 3.6% lies behind China’s 17.3%, the 5 economies in ASEAN’s 15.7%, Korea’s 13.6% and Japan’s 9.5%. Taiwan’s 4th quarter exports in 2008 and January through May in 2009 fell 24.8% and 35.1% respectively. Taiwan’s total export amount in December 2008 fell 41.9%, the main items affected were: electronic products (-43.7%); information and communication products (- 19.0%); electrical products (-59.7%) and optical, measuring and medical devices (-69.2%). The Impact of the Global Financial Tsunami on the Asia Pacific Economy

33. 33 Development and Response of Asia Pacific in the Post-Global Financial Tsunami 2008 APEC Leader’s Statement on the Global Economy: We welcome the Washington Declaration of the leaders of the Group of Twenty at their Summit on Financial Markets and the World Economy and strongly support the common principles that will guide the Action Plan for financial market reform. We seek an ambitious and balanced conclusion to the Doha Development Agenda negotiations and hope to reach agreement on modalities next month on the basis of progress made to date. We strongly support the Washington Declaration and will refrain within the next 12 months from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organization (WTO) inconsistent measures in all areas, including those that stimulate exports.

34. 34 Many of the export-oriented economies in the Asia Pacific have experienced the impact of global financial tsunami. Thus, addressing the crisis, Asia Pacific would focus its concerns on the following: Economic crisis and the possible occurrence of trade protectionism Cooperation to facilitate the capacity building of trade financing and social resilience ( labor retraining, tax reduction and minority assistance) Experience sharing on stimulus packages and enterprise assistance Discuss whether to establish surveillance mechanism on reviewing protectionism and stimulus packages Asia Pacific countries should reinforce cooperation on rejecting protectionism, improving domestic structures, assisting small and medium enterprises and stimulating regional trade and consumption in order to advance the global economy Addressing the Global Economic Crisis/ Support the Multilateral Trading System

35. 35 Taiwan’s Viewpoint on the Asia Pacific Economic Integration APEC ’ s reinforcement on economic integration, market expansion and efficiency advancement will help enterprises to gain the benefit of cost-down in order to address the financial crisis and counter the challenges of economic recession Reinforce cooperation between government agencies and academic institutions to advance study and proposal capacity in order to establish concrete strategy references and comments on integration. Any economic integration should comply with the basic principles of APEC, e.g. fairness, open regionalism and equal participation, in order to avoid the deterioration of the Spaghetti bowl effect to influence the effect of economic integration that might bring market cleavage. Continuous cooperation on cross strait relations under bilateral and APEC structures. FTAAP mainly meets the businessmen’s essential needs. Triggering any negotiations in the short term brings little possibility. However, in the long term, it complies with all economies’ interests and developmental benefits. Thus, Taiwan supports the progressive approach to continuously analyze any possible approaches, and to promote REI with economies that carry the same ideal.

36. 36 1.The Development of Taiwan’s Economy and Trade 2.Taiwan’s Trade Performance over the Years 3.Taiwan’s Trade Performance since the Global Financial Tsunami 4.Export Promotion Plan ( New Cheng Ho Plan) III. Taiwan’s Trade Situation

37. 37 1980s 1970s 1960s 1950s Import Replacement Policy (light industry) Export Expansion Policy (light industry) Liberalization, Internationalization, and Systematization Policies (strategic industries) Globalized Operations (developing knowledge- based economy) 1. The Development of Taiwan’s Economy and Trade Era of Import Replacement and Export Expansion (heavy industry) Era of High-tech Industry (10 major emerging industries) 1990s 2000 ～ present

38. 38 Trade Milestones in Taiwan: Taiwan’s foreign trade turned a surplus for the first time in 1971; Taiwan’s foreign trade value exceeded US$100 billion in 1988 and exceeded US$200 billion in 1995. Total trade value has continued to grow rapidly since 2003, exceeding US$300 billion in 2004, exceeding US$400 billion in 2006 and exceeding US$496 billion in 2008, which was more than 120 times greater than in 1971, thus becoming the 18 th leading exporter in the world. Rapid Growth on Trade Data Source : DGBAS, R.O.C. ;WTO TAIWAN TOTAL TRADE VALUE 1971 3.9 2. Taiwan’s trade performance over the years 2008 496.1 1988 110.2 1995 217.3 2004 351.1 2006 426.7 2007 465.9 2009 371.7 (f) (Unit: US$ Billion)

39. 39 Data Source: DGBAS, R.O.C. Taiwan’s trade dependence in recent years Unit :%

40. 40 Taiwan’s Trade Performance from 1998 to 2008 In viewing Taiwan’s import and export value between 1998 and 2008, exports increased an average of 7.4%, from US$112.6 billion to US$ 255.6 billion; imports grew 7.9% in average, from US$105.2 billion to US$240.4 billion, with an accumulated surplus of US$187.5 billion from 1998 to 2008, thus, representing rapid growth in the past 11 years. Data source: Taiwan Directorate General of Customs; Compiled by the BOFT Unit: US$ Billion -9.3% 10.0% 22.8%-16.9%7.1%11.3% 21.1% 8.8%12.9% 10.1%3.6%

41. 41 1989 US$66.3 billion Data source: Taiwan Directorate General of Customs; Compiled by the BOFT 1998 US$110.6 billion Emerging countries: Mainland China, Russia, Brazil, India, the Middle East, ASEAN (Vietnam, Malaysia, Indonesia) Mainland China 10.7% Mainland China 23.5% Mainland China 39.0% Taiwan’s major export destinations have shifted to China and emerging markets 2008 US$255.7 billion

42. 42 Formation and Evolution of the Global Financial Tsunami Taiwan’s Trade Performance since 2008  Severe Plunge in Taiwan’s Exports since Sep. 2008  Sharp Decline in Export Orders since June 2008  Sluggish exports of electronic products and electrical machinery products  Declines in imports of electronic products, machinery, electrical machinery products, organic chemicals, optical instruments, and transport equipment  Definite results gained from efforts to enhance export promotion to 10 target markets Taiwan's Economy is Expected to Lead the Rebound in the Second Half of 2009 Formation and Evolution of the Global Financial Tsunami Taiwan’s Trade Performance since 2008  Severe Plunge in Taiwan’s Exports since Sep. 2008  Sharp Decline in Export Orders since June 2008  Sluggish exports of electronic products and electrical machinery products  Declines in imports of electronic products, machinery, electrical machinery products, organic chemicals, optical instruments, and transport equipment  Definite results gained from efforts to enhance export promotion to 10 target markets Taiwan's Economy is Expected to Lead the Rebound in the Second Half of 2009 3. Taiwan’s Trade Performance since 2008

43. 43 After the collapse of the dot-com bubble and the 911 attacks, the US Fed lowers interest rates from 6% to 2% in 2001; the market becomes awash in capital. Easy money seeking higher returns flows into global stocks, real estate, and commodities, causing rapid increases in prices for real estate, energy, and grain, as well as high inflationary pressure worldwide. The US Fed is forced to impose large increases in interest rates. As the subprime default rate climbs, the underwriting banks face serious losses and pressure from asset devaluations. After Lehman Bros. collapse in September, credit risk spreads to other banks and financial institutions. This causes financial turbulence, the US dollar declines in value, and the subprime mortgage crisis erupts. Many US homeowners default on mortgages, go bankrupt, or sharply reduce consumer spending to avoid defaulting. Because bonds issued by subprime underwriters, Fannie Mae and Freddie Mac were sold around the world, international finance and the global economy were also seriously affected. 1 2 3 4 5 6 The Global Financial Tsunami: Its Formation

44. 44 The Global Financial Tsunami: Its Evolution Weakening economy, stock markets and real estate drop together Prices for REITs and structured notes fall Insufficient bank capital leads to the first line of bank collapses Crisis of confidence in capital markets When credit is tight, cash is king Banks tighten business credit Low turnover causes businesses to close or lay off employees Insufficient domestic demand, economic decline Unemployment rises Low consumer confidence, cutbacks on spending 1 2 3 4 5 6 7 8 9 10

45. 45 Due to the rapid slowdown in the international economy caused by the global financial tsunami, Taiwan’s exports have declined for eleven consecutive months since Sep. 2008. According to the latest export performance, a new high was reached with July exports amounting to US$17.3 billion, the first since November 2008; although July exports fell 24.4% compared with the same period last year, it was the smallest drop so far this year. Severe plunge in Taiwan’s exports since Sep. 2008 Unit: US$ billion; % Data source: Taiwan Directorate General of Customs

46. 46 As for the performance of Taiwan export orders in 2008, although export orders showed a two-digit growth from Jan. to May, the growth rate has slowed down significantly since June. Export orders showed the deepest decline in Jan. 2009 (-41.7%), reflecting the serious impact resulted from the global financial tsunami. However, the rate of decline was smaller in Feb.(-22.3%) and Mar. (-24.3%) due to urgent orders from China; furthermore, Taiwan’s export orders in June 2009 declined the least in eight months, signaling the worst may be over for Taiwan’s trade. Sharp Decline in Export Orders since June 2008 Unit: US$ Billion ; %(YoY)

47. 47 Because of soaring raw material and crude oil prices in the first half of 2008, chemical exports grew 16.0% for the entire year. Owing to the global financial tsunami in the second half of 2008, exports of electronics and electrical machinery decreased 3.2% and 8.1% respectively for the entire year. Sluggish exports of electronic products and electrical machinery products Unit ： % Data source: Taiwan Directorate General of Customs Electronic products Optical instru- ments Chemicals Iron & steel and articles thereof Machinery Electrical machinery products Information and communi- ction products Transport equipment

48. 48 Declines in imports of electronic products, machinery, electrical machinery products, organic chemicals, optical instruments, and transport equipment Because of soaring raw material and crude oil prices in the first half of 2008, imports of crude oil shot up 35.1% for the entire year. Owing to the global financial crisis in the second half of 2008, imports of electronic products, machinery, organic chemicals, optical instruments, and electrical machinery products decreased 3.4%, 0.2%, 1.8%, 8.8% and 4.4% respectively for the entire year. Imports of transport equipment plunged 18.7% because of drops in demand for rail transportation and aircraft equipment. Electronic products Crude oil Machinery Iron & steel and articles thereof Organic chemi- cals Optical instru- ments unit ： % Electrical machinery products Transport equipment Information and communi- ction products Data source: Taiwan Directorate General of Customs

49. 49 Although Taiwan’s exports were severely impacted in 2008, its exports to the ten targeted promotion countries showed a 17.5% growth on average for the whole year of 2008, which was 3.8 times greater than Taiwan’s overall export growth rate (3.6%) during the same period. Brazil Japan Turkey India VietnamMalaysia Russia Indo- nesia South Korea Red: The actual growth rate Black: The targeted growth rate Unit: % Spain Definite results gained from efforts to enhance export promotion to 10 target markets Data source: Taiwan Directorate General of Customs

50. 50 Data source ： World Overview, Global Insight Inc., February 14, 2009 Unit ： % （ YoY ） According to data issued by Global Insight Inc., Asian countries showed a remarkable slowdown in economic growth in 2008; the Asian Tigers, in particular, fell into the realm of negative growth in Q4 2008. However, Taiwan and Hong Kong are expected to take lead in rebounding to positive growth in the second half of 2009. Taiwan's Economy is Expected to Lead the Rebound in the Second Half of 2009

51. 51 New Cheng Ho Plan Strengthening export finance and export insurance Strengthening export finance and export insurance Shaping the trade financial environment Shaping the trade financial environment 4. Export Promotion Plan ( New Cheng Ho Plan) — Framework of the New Cheng Ho Plan Pursuing global government procurement opportunities Pursuing global government procurement opportunities Expansion of marketing strategies Expansion of marketing strategies Expanding throughout the emerging markets Expanding throughout the emerging markets Attracting procurements from foreign buyers Attracting procurements from foreign buyers Expanding markets in mainland China Expanding markets in mainland China 2008.09-2012 2009-2010 2009 2009-2010 Years 2008.9 ~ 2012 Creation of new procurement domain Creation of new procurement domain Expansion throughout the emerging markets Expansion throughout the emerging markets Expansion of the mainland China market Expansion of the mainland China market

52. 52 Increase the value of exports to NT$50 billion, with 70% of exports to emerging markets. Expected Benefits Expansion to include all exporting industries and exporting districts Initiate a series of plans to strengthen export finance and export insurance from 2009 to 2010, with a budget of NT$ 5.58 billion:  Favorable export financing plan: Support EXIM bank to provide export insurance on favorable terms.  Export promotion through re-lending plan Increase cooperation with global relending banks and extend relending credit on favorable terms.  Export insurance plan: Offer favorable terms for credit verification and insurance fees, and provide comprehensive compensation. Strengthening of export finance and export insurance

53. 53  Increase support to industrial associations to promote exports  Provide market research and business intelligence  Create Marketing Strategies  Enhance Internet promotion  Provide consultation on branding  Increase service points and human resources  Increase support to industrial associations to promote exports  Provide market research and business intelligence  Create Marketing Strategies  Enhance Internet promotion  Provide consultation on branding  Increase service points and human resources  Build marketing channels 1.hold Taiwan food festivals 2.Set-up Taiwan food sections  Invite foreign buyers to purchase in Taiwan  Organize trade missions  Participate in important international food exhibitions  Organize Taiwan food Promotion Plan  Build marketing channels 1.hold Taiwan food festivals 2.Set-up Taiwan food sections  Invite foreign buyers to purchase in Taiwan  Organize trade missions  Participate in important international food exhibitions  Organize Taiwan food Promotion Plan Expanding Mainland China’s markets Promote exports of Taiwan food to Mainland China Pursue Mainland China’s domestic market

54. 54 Expanding throughout the emerging markets General strategies Increase allowances for emerging markets Expand exports of 3 niche industries － Auto parts and accessories － Textiles － Machine tools and accessories Establish overseas business pioneer training program Promote exports with high-level trade missions to emerging markets Specific strategies for different markets India Brazil ASEAN Middle East Russia Including Saudi Arabia, UAE and other 12 countries Focus on Malaysia, Indonesia and Vietnam

55. 55 Initiate a series of activities to invite foreign buyers to purchase in Taiwan, focusing on large and emerging market buyers:  Sourcing Taiwan(2009.03.30~04.02) Signed Letters of Intent, organized product displays, setting up industry discussion areas  Organize Reverse Shows (2009) Offer customized procurement services to international buyers.  Invite emerging market buyers to purchase in Taiwan(2009) Encourage emerging market buyers to organize trade missions to purchase in Taiwan  Invite foreign buyers to participate in 14,500 trade discussion meetings with 5,200 domestic firms  Facilitate procurements worth up to NT$180 billion Expected Benefits Attracting procurements from foreign buyers

56. 56 Assist firms to participate in government procurement opportunities Pursuing global government procurement opportunities Enhance bidding capabilities for tenders  Screen for competitive industries  Organize government procurement trainings and professional consultants Invite foreign business who won GP tenders to purchase in Taiwan  Act as intermediary between foreign businesses and domestic suppliers  Provide air-fare and accommodations  Invite bid-winners to hold business opportunity meetings Set-up a business opportunities website  Provide links to WTO member government procurement websites  Provide potential business opportunities  Create a professional counseling atabase  Develop a business opportunity handbook Hold series of seminars  Hold seminars for foreign government purchases  Hold seminars for business opportunities

57. 57 1.Cross-Strait Trade Status 2.Cross-Strait Investment Status 3.Cross-Strait Economic Cooperation Framework Agreement (ECFA) IV. Cross-Strait Economic and Trade Situation

58. 58  Mainland China is Taiwan’s largest trading partner, export market, trade surplus source and second largest import source.  For the ten months since the financial tsunami of Sep. ’08, Taiwan exports to China (including Hong Kong) have continued to decrease; as well as, since Aug. ’08, orders from China have also continued to decline.  Statistics from China’s Ministry of Commerce show that in 2008, Taiwan was China’s 7 th largest trading partner, 9 th largest export market and its 5 th largest source of imports. Data source: Ministry of Finance Customs Statistics 1. Cross-Strait Trade Status

59. 59 Structure of Taiwan Products Exported to Mainland China  Textiles, footwear material and semi-finished goods constituted the bulk of exports to China early on, but now there is a high degree of concentration on electronic information, petrochemicals, steel and other capital-intensive technology products.  Although Taiwan’s IT industry has rather recently moved its production base to the China Mainland, reducing shipments from Taiwan, imports will increase because, for one, upstream raw materials for production are still imported from Taiwan, and in particular because electrical machinery, optical products (especially semiconductors and LCD panels) and petrochemicals, as well as some other industries, can continue increased production, offsetting the adverse effects of the relocation of manufacturing. Export volume reached US$27.4 billion in 1996 Export volume reached US$73.98 billion in 2008 Changes in the Structure of Taiwan Exports to China Data source: Ministry of Finance Customs Statistics

60. 60 Status of Opening Taiwan to Mainland China Products Product Category Open Items （ Percentage of Total Goods ） Items Yet To Open Total Agricultural Products （ Section 1-24 ） 1,414 (13.08%) 834 (7.71%) 2,248 Industrial Products （ Section 25-97 ） 7,186 (66.45%) 1,380 (12.76%) 8,566 Total 8,600 (79.53%) 2,214 (20.47%) 10,814 As of 2009/7/9

61. 61  According to MOEA Investment Commission statistics, as of the end of June 2009, after receiving approval to invest in Mainland China, cumulative investment has reached US$77.78 billion; Mainland China is now Taiwan’s largest overseas investment destination.  Taiwan is now China’s 5 th largest source of foreign investment. 2. Cross-Strait Investment Status Note: These totals do not include cases that have re-submitted for permission to invest Data source : MOEA Investment Commission

62. 62 Breakdown of Taiwan Investment in China by Region and Industry  As of the end of June 2009, Taiwanese investment in China has been primarily in Jiangsu Province （ 33.38% ）, Guangdong Province （ 23.87%) and Shanghai （ 14.84%); investment by industry has been primarily in electronic components manufacturing （ 16.61%), computers and optical products manufacturing （ 15.61% ） and electrical equipment （ 9.31% ）. 資料來源：經濟部投審會 Investment by RegionInvestment by Industry

63. 63 Overview of the Cross-Strait Economic Cooperation Framework Agreement (ECFA) Impact of the ECFA Vision for the ECFA Appendix Overview of the Cross-Strait Economic Cooperation Framework Agreement (ECFA) Impact of the ECFA Vision for the ECFA Appendix 3. Cross-Strait Economic Cooperation Framework Agreement (ECFA)

64. Overview of the Cross-Strait Economic Cooperation Framework Agreement  Title  Objectives  Positions  Guiding Principles  Meaning of the Framework Agreement  Reasons for Choosing the Framework Agreement  Main Content  Measures for Vulnerable Industries  Steps toward Signing the Agreement  Negotiating Principles  Immediate Impact of Not Advancing the Agreement  Public Involvement and National Assembly Oversight

65. 65  The tentative title is “Cross-Strait Economic Cooperation Framework Agreement” (or simply “Cross-Strait Economic Agreement”).  The English title ECFA (Economic Cooperation Framework Agreement) may be used temporarily. Title

66. 66 Objectives  Normalization of cross-strait economic and trade relations  While both parties are members of the WTO, there are still many economic and trade restrictions.  Avoidance of being marginalized from regional economic integration schemes  Currently, there are over 230 FTAs globally with mutual duty-free arrangements. If we do not participate, we will face the threat of being marginalized and losing our competitive edge in the important markets.  Internationalization of our economy, trade and investments  By signing the Framework Agreement, the cross-strait economic and trade relations will be more predictable and benefit Taiwanese business to make worldwide arrangements and attract foreign business to Taiwan, thus enabling Taiwan to become a trading hub in the Asia-Pacific.

67. 67 Cross-Strait Economy and Trade is Still Not Fully Normalized Goods  Taiwan restricts 2,214 agricultural and industrial products from being imported from China. Investments  Taiwan is still not open to investments from China.  Taiwan still restricts some investments in China.

68. 68 Cross-strait links will ease the bottleneck of participating in regional cooperation Promote dynamic modifications in cross-strait economic and trade relations Integration of business opportunities in global and mainland markets Bridging cross-strait projects, cross-strait industry exchanges Cross-strait direct flights Open Taiwan’s production enterprises to Chinese investments Loosen the 40% ceiling on investments in China and other industry restrictions Shanghai Silicon Valley Taipei Dual Golden Triangles of High- Tech Industries Tokyo Shanghai Taipei Promote the ECFA Sign FTAs ASEAN + N Promoting Internationalization of Taiwan’s Economy, Trade and Investments

69. 69  We do not adopt the model of Hong Kong and Macao, and the ECFA is not an ordinary free trade agreement (FTA); it is an economic cooperation agreement with a distinctive cross-strait quality and one that does not violate the spirit of the World Trade Organization (WTO).  It will cover matters pertaining to economic cooperation and will not touch on unification, independence, and political issues. Positions

70. 70  Principle of reciprocity: There will be no mention of one country, two systems.  From simple to complex: Thread together a complete picture from one starting point by means of a phased, step-by-step progression. Advance normalization and bilateral cooperation simultaneously.  A time for progress: Utilize a high level of reciprocity regarding urgent matters and building consensus to progress in an orderly way toward dealing with issues concerning sensitive industries.  The Early Harvest Program together with a period of adjustment can help to take care of short, medium and long term needs.  By advancing along a dual track of liberalizing items on one hand and keeping a reservation list on the other, flexibility in policy adjustment is maintained.  Establishment of risk management mechanisms: Strengthen the monitoring mechanism for imports from China, set up a cross-strait trade relief system, and build a notification mechanism for unsafe products. Guiding Principles

71. 71  A comprehensive FTA cannot be achieved in one step. There will be more flexibility in dealing with it only by pre-determining the framework and goals and through future consultations on specific content.  The “Early Harvest” provisions will meet the urgent needs of the project and provide early realization of favorable benefits. Examples: ASEAN + China  The ASEAN-China Comprehensive Economic Cooperation Agreement was signed in Nov. 2002 (“Early Harvest”: HS Chapters 1-8 for agriculture and fishery products) and went into effect in Jan. 2004.  Signed a framework agreement for Agreement on Trade in Goods in Nov. 2004.  Signed a framework agreement for Agreement on Trade in Services in Dec. 2006. Meaning of the Framework Agreement

72. 72  Gradual liberalization of the framework content will help resolve the pressure from general FTAs for immediate and total liberalization.  Once the agreement is signed, it is expected to alleviate the problem of Taiwan’s marginalization.  An open agenda and clear timetable will improve predictability of our business environment and help attract foreign investment.  An “Early Harvest” approach in conjunction with an adjustment period will, on the one hand, meet our urgent needs and, on the other hand, take into account our short, medium and long term economic development needs.  It will provide time and flexibility to form a national consensus and adjust policies. Reasons for Choosing the Framework Agreement

73. 73  Investment  Trade in goods  Trade in services  Economic cooperation tariff non-tariff  Early Harvest Program  Excluded and retained items and measures  Timetable Liberalization  Dispute settlement mechanism  Structure Makes reference to the development of the “ASEAN-China Comprehensive Economic Cooperation Framework Agreement” Main Content (1/4) Sectors Disputes open negotiable

74. 74 Main Content (2/4)  Scope  Agreement Title  Trade in Goods:  Early Harvest Program: Both sides propose commodity tariff reduction list and schedule for early harvest.  Market Access: a. Agree to proceed with future negotiations on market access for trade in goods and formulate a timetable for future negotiations. b. Goods will be divided into general and sensitive, with the sensitive goods further differentiated into high level and low level in accordance with the reduction schedule. c. Consider the question of normalization of cross-strait trade in goods and retaining items.  Others: Rules of Origin, trade relief measures, non-tariff measures (technical barriers to trade, SPS measures).

75. 75  Scope (cont.)  Trade in Services:  Agree to proceed with future negotiations on market access for trade in services and formulate a timetable for future negotiations.  Do not rule out trade in services as part of the Early Harvest Program. Investment:  Gradually achieve liberalization of investment mechanisms through negotiations.  Strengthen cooperation to facilitate investments and improve investment regulations and transparency of laws and regulations.  Establish investment protection mechanisms. Main Content (3/4)

76. 76  Scope (cont.)  Other Sectors for Economic Cooperation: Intellectual property protection, dispute settlement mechanism, customs cooperation, e-commerce, trade facilitation, and avoidance of double taxation.  Administrative and Systemic Arrangement: The Agreement’s entry into force; its implementation and management. Main Content (4/4)

77. 77  Not included in the Early Harvest Program  Adjustment period for liberalizing  Government Guidance Measures  At this stage, various relevant guidance measures will continue to apply for all types of industries.  Trade Relief Measures  Import relief, anti-dumping, countervailing duties. Measures for Vulnerable Industries

78. 78  Both sides consider individually Both sides consider jointly Negotiate Sign Send to governing bodies for approval Take effect  During the stage of individual consideration stage, public opinion will be broadly canvassed in order to reach consensus. Steps Toward Signing the Agreement

79. 79 Negotiation Principles:  Our side will adhere to the principles of equality, dignity, and fairness; we will absolutely not humble ourselves.  President Ma’s campaign pledges of “not further opening our market to Mainland China’s agricultural exports” and “not permitting Mainland China’s laborers to come to Taiwan” will be maintained. Negotiation Principles (1/2)

80. 80 Negotiation Principles (cont.):  Three No’s: No belittlement; No opening of Taiwan to Mainland China’s laborers; and No opening up of new agricultural products.  Three Needs: Need to reach consensus; Need to proceed gradually; and Need to form good relations. (President Ma made this statement on Mar. 12 in an exclusive interview with the United Daily News) Negotiation Principles (2/2)

81. 81 In 2010, when the ten countries of ASEAN and Mainland China implement a majority of tariff exemptions based on their FTA, our businesses will be forced out as a result of higher tariff barriers, and this will seriously affect employment opportunities for our laborers. Immediate Impact of Not Advancing the Agreement (1/3)

82. 82  The Process of ASEAN + X Free Trade AreaEntry into ForceScheduled Commitments ASEAN + China (Agreement on Trade in Goods) July 2005 2010: most products  0% ASEAN + South Korea (Agreement on Trade in Goods) July 2007 2010: 90% of products  0% ASEAN + Japan EPADec. 2008 2018: 91% of products  0% ASEAN + Australia and New Zealand FTA Scheduled for July 2009 2020: 96% of products  0% Immediate Impact of Not Advancing the Agreement (2/3)

83. 83  Comparison of tariffs for main products from Taiwan and ASEAN countries in the Chinese market Tariffs Products Taiwan’s Applied Tariff Rates (average nominal rate) Under the ASEAN + 1 Framework the MFN Rate China Gave ASEAN (average nominal tariff rate) Taiwan’s Exports to China in 2007 Total Amount of Taiwan’s Global Exports in 2007 Employed Workforce in Taiwan 20092005200720092010 Total China Global % Petrochemical products 6.496.015.530.980.2513,405.6843.3430,929.6357,000 Machine Products 8.236.975.842.080.074,098.3227.0415,154.43327,480 Motor Vehicles and Parts 14.9213.5911.427.044.31504.705.40*9,353.3480,000 The amount of exports for the above 3 products totaled US$55.437 billion, accounting for 23.6% of exports. Unit: US$ million; % Note: The ratio, 5.4%, is insignificant because Taiwan’s motor vehicles and parts mainly exported to North America in 2007. However, the potential market in Mainland China is great. Source: China’s Customs Statistics; Taiwan’s Customs Statistics Immediate Impact of Not Advancing the Agreement (3/3)

84. 84 Before formal negotiation of the ECFA with Mainland China, symposia and public hearings will be organized to collect public opinions and build consensus. After the negotiations finish, a draft of the agreement will be sent to the Legislative Yuan for review, and it will go into effect after the Legislative Yuan approves it. Public Involvement and National Assembly Oversight

85. 85 Detrimental Impact: The market positions of Taiwan and China’s products are separated, so the detrimental impact will not be very great. Room for Adjustment: Regarding sensitive commodities, liberalization may be limited or the timeframe for liberalization may be extended so as to give industries room for adjustment. Strengthening the Relief System: Utilizing anti-dumping and safeguard measures can prevent the short-term dumping of large quantities of Chinese products in Taiwan, thus reducing the impact on local industries. Providing Counseling and Assistance: To help industries adjust and upgrade in the face of any detrimental impact, counseling and assistance will be provided. The Impact of Signing the “Cross-Strait Economic Cooperation Framework Agreement”

86. 86 Promote Taiwan in becoming a global center of innovation, an Asia-Pacific hub of economy and trade, and the headquarters for Taiwanese businesses Establish a stable cross- strait economic and trade cooperation framework; open a favorable cross- strait interaction mechanism. Improve the basis of promoting Taiwan’s opportunities to enter into bilateral FTAs with other countries and participate in regional economic and trade cooperation. Vision for Cross-Strait Economic and Trade Cooperation

87. 87 Note: Bangkok Agreement was changed into Asia Pacific Trade Agreement (APTA) in 2005, including Bangladesh, India, South Korea, China, Laos, Sri Lanka, in total 6 countries.

88. 88

89. 89 Appendix 2-1: Cases of Industries under Impact Petrochemical Rate Goods Rate Applied to Taiwan (Average Nominal Rate) Rate Applied to ASEAN by China under ASEAN+1 Framework (Average Nominal Rate) Taiwan’s Export to China in 2007 (Mainland China / Global, %) Taiwan’s Global Export in 2007 2009200520072009 1 2010 2 291736 Terephthalic Acid And Its Salts (PTA) 6.58.16.73.50 1,573.83 (87.6) 1,796.30 390330 Acrylonitrile- Butadiene-Styrene (Abs) Copolymers 6.59.77.65.30 872.94 (40.3) 2,167.46 390810 Polyamide-6,-11,-12,- 6,6,-6,9,-6,10 Or -6,12 6.59.17.13.50 637.75 (80.0) 797.07 390210 Polypropylene 6.59.77.65.30 371.14 (43.3) 856.54 290723 Bisphenol A, Diphenylolpropane And Its Salts 5.5 5.01.10 303.89 (58.9) 515.76 Unit: US$ million; % Sources: Customs Tariff Schedules; Taiwan’s Customs Statistics. Note 1: China’s Customs Tariff Schedules from 2005 to 2009 are different, to a certain extent, from Tariff Reduction Commitment in Agreement on Trade in Goods of ASEAN+China Note 2: Forecast based on Tariff Reduction Commitment in Agreement on Trade in Goods of ASEAN+China

90. 90 Rate Goods Rate Applied to Taiwan (Average Nominal Rate) Rate Applied to ASEAN by China under ASEAN+1 Framework (Average Nominal Rate) Taiwan’s Export to China in 2007 (Mainland China / Global, %) Taiwan’s Global Export in 2007 2009200520072009 1 2010 2 845710 Machining Centers For Working Metal 9.7 51.90 221.44 (19.5) 1,134.09 846210 Forging/Die-Stamp Mach Press and Hammers For Work Met 10.9 6.54.20 155.80 (64.3) 242.37 841490 Air/Gas Pump, Compressor And Fan Etc Parts 8.8 5.82.30 111.14 (46.0) 241.80 848340 Gears; Ball Or Roller Screws; Gear Boxes, Etc 885.92.10 75.45 (29.5) 256.13 843999 Pts For Machy Mkg Or Finishing Paper Or Paperboard 6651.20 64.34 (73.7) 87.31 Appendix 2-2: Cases of Industries under Impact Machinery Sources: Customs Tariff Schedules; Taiwan’s Customs Statistics. Note 1: China’s Customs Tariff Schedules from 2005 to 2009 are different, to a certain extent, from Tariff Reduction Commitment in Agreement on Trade in Goods of ASEAN+China Note 2: Forecast based on Tariff Reduction Commitment in Agreement on Trade in Goods of ASEAN+China Unit: US$ million; %

91. 91 DurationTotalIndustrial Goods Agricultural Goods Up to 2000.05.205,6895,210479 Up to 2008.05.208,7237,3101,413 Appendix 3-1: Accumulated Items Allowed to Import from China

92. 92 Appendix 3-2: Accumulated China-bound Investment DurationInvestment Amount Investment Cases Up to 2000.0515.3022,390 Up to 2008.0568.9736,850 Unit: US$ billion

93. 93 Appendix 3-3: Trade surplus Year Trade Surplus from China Trade Surplus from Hong Kong Trade Surplus from China + Hong Kong Total Trade Surplus by Taiwan 2000-1.8430.3828.5411.22 200835.4731.2066.6714.84 Unit: US$ billion

94. 94

95. 95 Rate Goods Rate Applied to Taiwan (Average Nominal Rate) Rate Applied to ASEAN by China under ASEAN+1 Framework (Average Nominal Rate) Taiwan’s Export to China in 2007 (Mainland China / Global, %) Taiwan’s Global Export in 2007 2009200520072009 1 2010 2 870899 Parts And Accessories Of Motor Vehicles 14.115.011.46.20 174.27 (10.2) 1,705.15 871499 Parts And Accessories Of Bicycles Etc 12.0 10.06.40 64.47 (8.9) 721.29 870829 Pts & Access Of Bodies Of Motor Vehicles 10.013.58.86.33.0 13.99 (3.7) 382.02 870870 Road Wheels & Pts & Accessories For Motor Vehicles 8.910.27.75.10 12.41 (3.2) 383.43 Appendix 4-2: Cases of Industries under Impact Vehicles Parts and Assembly Sources: Customs Tariff Schedules; Taiwan’s Customs Statistics. Note 1: China’s Customs Tariff Schedules from 2005 to 2009 are different, to a certain extent, from Tariff Reduction Commitment in Agreement on Trade in Goods of ASEAN+China Note 2: Forecast based on Tariff Reduction Commitment in Agreement on Trade in Goods of ASEAN+China Unit: US$ million, %

96. 96

97. 97 V. Conclusions Delay in concluding the WTO Doha Round has caused the spread of international bilateral FTAs and accelerated the deepening of regional economic integration in the world. The difficult diplomatic situation and reduction of areas for fair trade have had a great impact on Taiwan’s economic development. To prevent Taiwan from becoming “marginalized”, Taiwan can not afford to be excluded from this integrated regional economic system; hence, Taiwan shall pursue any chance to sign FTA or RTA. The starting point is from ECFA. If Taiwan falls behind the trend of signing FTAs, it shall aim at promoting globalization to reduce the impact of other countries signing FTAs. Also, if Taiwan can not sign FTAs with major trading partners, the entire island must ultimately be opened as a free trade island to maintain sustainable economic development, just like Hong Kong or Singapore, by exchanging zero-tariffs for global economic trade space. In order to promote ECFA, communication mechanisms between industries shall be established and educating citizens shall be strengthened. In accordance with opening free trade, related safeguard measures toward affected industries shall be set up.

98. 98 Our strategies for integrating into the Free Trade Area of the Asia Pacific: Making good use of our technological edge to play an active role in the transmission of technology in the Asia Pacific. Strengthening the vertical division of industries to form the “CHIWAN supply chain”. Initially signing ECFA with Mainland China in order to make use of the ECFA platform to help us sign FTAs with other countries. Utilizing our hub position to capture the Chinese market niche in the Asia Pacific area.

99. 99 Thank You For Your Attention and welcome to the Q&A