Minister of Economic Affairs Chii-Ming Yiin April 7, 2009 Possible Content for Advancing the Cross-Strait Economic Cooperation Framework Agreement The 2009 First Joint Meeting of Heads of the Industrial Associations of 23 Counties and Cities in Taiwan

Outline 1.Overview of the Cross-Strait Economic Cooperation Framework Agreement (ECFA) 2.Impact of the ECFA 3.Vision for the ECFA Appendix 1

1. Overview of the Cross-Strait Economic Cooperation Framework Agreement 2 1.Title 2.Objectives 3.Positions 4.Guiding Principles 5.Meaning of the Framework Agreement 6.Reasons for Choosing the Framework Agreement 7.Main Content 8.Measures for Vulnerable Industries 9.Steps toward Signing the Agreement 10.Negotiating Principles 11.Immediate Impact of Not Advancing the Agreement 12.Public Involvement and National Assembly Oversight

3 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. 1. Title

4 2. Objectives 1.Normalization of cross-strait economic and trade relations  While both parties are members of the WTO, there are still many economic and trade restrictions. 2.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. 3.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.

5 (1) Cross-Strait Economy and Trade is Still Not Fully Normalized Goods  Taiwan restricts 2,194 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.

6 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 of the WTO Doha Round has caused the spread of international bilateral FTAs and accelerated the deepening of regional economic integration in the world. (2) The Present State of Development of Regional Economic Integration EU-South Korea ASEAN-China Free Trade Area (set to lower tariffs on most goods to 0% in 2010)

7 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 (3) Promoting Internationalization of Taiwan’s Economy, Trade and Investments

8 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. 3. Positions

9 1.Principle of reciprocity: There will be no mention of one country, two systems. 2.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. 3.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. 4.The Early Harvest Program together with a period of adjustment can help to take care of short, medium and long term needs. 5.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. 6.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. 4. Guiding Principles

10 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 (“Early Harvest”: HS Chapters 1-8 for agriculture and fishery products) and went into effect in Jan  Signed a framework agreement for Agreement on Trade in Goods in Nov  Signed a framework agreement for Agreement on Trade in Services in Dec Meaning of the Framework Agreement

11 1.Gradual liberalization of the framework content will help resolve the pressure from general FTAs for immediate and total liberalization. 2.Once the agreement is signed, it is expected to alleviate the problem of Taiwan’s marginalization. 3.An open agenda and clear timetable will improve predictability of our business environment and help attract foreign investment. 4.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. 5.It will provide time and flexibility to form a national consensus and adjust policies. 6. Reasons for Choosing the Framework Agreement

12  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 (1) Structure Makes reference to the development of the “ASEAN-China Comprehensive Economic Cooperation Framework Agreement” 7. Main Content (1/4) Sectors Disputes open negotiable

13 7. Main Content (2/4) (2) Scope I. Agreement Title II. Trade in Goods: (i) Early Harvest Program: Both sides propose commodity tariff reduction list and schedule for early harvest. (ii) 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. (iii) Others: Rules of Origin, trade relief measures, non-tariff measures (technical barriers to trade, SPS measures).

14 (2) Scope (cont.) III. Trade in Services: (i) Agree to proceed with future negotiations on market access for trade in services and formulate a timetable for future negotiations. (ii) Do not rule out trade in services as part of the Early Harvest Program. IV. Investment: (i) Gradually achieve liberalization of investment mechanisms through negotiations. (ii) Strengthen cooperation to facilitate investments and improve investment regulations and transparency of laws and regulations. (iii) Establish investment protection mechanisms. 7. Main Content (3/4)

15 (2) Scope (cont.) V. Other Sectors for Economic Cooperation: Intellectual property protection, dispute settlement mechanism, customs cooperation, e-commerce, trade facilitation, and avoidance of double taxation. VI. Administrative and Systemic Arrangement: The Agreement’s entry into force; its implementation and management. 7. Main Content (4/4)

16 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. 8. Measures for Vulnerable Industries

17  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. 9. Steps Toward Signing the Agreement

18 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. 10. Negotiation Principles (1/2)

19 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) 10. Negotiation Principles (2/2)

20 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. 11. Immediate Impact of Not Advancing the Agreement (1/3)

21  The Process of ASEAN + X Free Trade AreaEntry into ForceScheduled Commitments ASEAN + China (Agreement on Trade in Goods) July : most products  0% ASEAN + South Korea (Agreement on Trade in Goods) July : 90% of products  0% ASEAN + Japan EPADec : 91% of products  0% ASEAN + Australia and New Zealand FTA Scheduled for July : 96% of products  0% 11. Immediate Impact of Not Advancing the Agreement (2/3)

22  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 Total China Global % Petrochemical products , , ,000 Machine Products , , ,480 Motor Vehicles and Parts *9, ,000 The amount of exports for the above 3 products totaled US$ 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 However, the potential market in Mainland China is great. Source: China’s Customs Statistics; Taiwan’s Customs Statistics 11. Immediate Impact of Not Advancing the Agreement (3/3)

23 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. 12. Public Involvement and National Assembly Oversight

2. The Impact of Signing the “Cross-Strait Economic Cooperation Framework Agreement” 24

25 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”

3. Vision for Cross-Strait Economic and Trade Cooperation 26

27 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. 3. Vision for Cross-Strait Economic and Trade Cooperation

Appendix 28

29 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.

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31 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 Terephthalic Acid And Its Salts (PTA) , (87.6) 1, Acrylonitrile- Butadiene-Styrene (Abs) Copolymers (40.3) 2, Polyamide-6,-11,- 12,-6,6,-6,9,-6,10 Or -6, (80.0) Polypropylene (43.3) Bisphenol A, Diphenylolpropane And Its Salts (58.9) 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

32 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 Machining Centers For Working Metal (19.5) 1, Forging/Die-Stamp Mach Press and Hammers For Work Met (64.3) Air/Gas Pump, Compressor And Fan Etc Parts (46.0) Gears; Ball Or Roller Screws; Gear Boxes, Etc (29.5) Pts For Machy Mkg Or Finishing Paper Or Paperboard (73.7) 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, %

33 DurationTotalIndustrial Goods Agricultural Goods Up to ,6895, Up to ,7237,3101,413 Appendix 3-1: Accumulated Items Allowed to Import from China

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

35 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 Unit: US$ billion

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37 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 Parts And Accessories Of Motor Vehicles (10.2) 1, Parts And Accessories Of Bicycles Etc (8.9) Pts & Access Of Bodies Of Motor Vehicles (3.7) Road Wheels & Pts & Accessories For Motor Vehicles (3.2) 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, %

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