China: ECFA Makes Taiwan a New Gateway to China

On June 29, 2010, Taiwan and China signed the Economic Cooperation Framework Agreement ("ECFA"), a landmark bilateral trade agreement that will make Taiwan a new gateway to China. The ECFA, which came into effect on September 12, 2010, is the latest, and the most significant, installment in a series of cross-strait agreements signed between Taiwan and China over the past few years to foster closer economic relationships between the two sides of the Taiwan Strait.

What is the ECFA?

The ECFA seeks to provide a framework for Taiwan and China to gradually reduce tariffs on goods, remove non-tariff trade barriers, open up service sectors, and lift investment restrictions, thereby promoting closer cross-strait economic cooperation and interaction. The ECFA is essentially a free trade agreement ("FTA"), encouraged by the World Trade Organization ("WTO") to be entered into among its members.

The ECFA is prompted by many reasons. Politics plays a part, especially from China's perspective, as this could be seen as another effort to bring Taiwan closer to its fold. As for Taiwan, economic reasons are the primary motivation for it to enter into the ECFA as a first step to counter the mounting regional integration pressures that increasingly threaten Taiwan's economic prosperity, or even survival.

Cross-Strait Economic Ties

During the last decade, China has swiftly overtaken Japan and the United States to become Taiwan's largest trading partner, with an annual trade volume of US$129 billion in 2008 and US$106 billion in 2009. At the same time, Taiwan has also consistently ranked among China's top five trading partners, along with the United States, Japan, Hong Kong, and Korea.

As of the end of 2009, Taiwanese investments in China totaled more than US$49 billion based on government official statistics, accounting for around 5 percent of total foreign direct investments into China, although the actual invested amounts from Taiwan in China are generally considered to be much bigger, probably at least twice as much. As a result of such volume of trade and investment, about one million Taiwanese nationals are believed to be residing in China now, while another million or even more travel back and forth, engaged in a wide variety of businesses across almost all industry sectors and all over China's big or small cities and provinces.

Taiwanese-invested companies have consistently accounted for a majority of the top 10, or top 50, manufactured exporters in China. Over time, many Taiwanese businessmen are now very skilled at penetrating China's domestic market, and beyond just first-tier cities, far more effective than most of the Western multinationals.

Ironically, to date, all such remarkable Taiwanese economic success in China has largely been achieved despite the periodic political tensions, and the lack of bilateral trade agreements, between the two sides of the Taiwan Strait for more than half a century. In recent years, with the gradual implementation of the full "Three Links"—direct mail (communication), direct trade, and direct travel (people and goods)—Taiwan-China economic interactions have accelerated by leaps and bounds. The signing of the ECFA will open a new chapter for escalated trade and investment integration between Taiwan and China.

Regional Integration Pressures

While Taiwan is a major trading partner with many countries, it has yet to enter into any FTA due to its unique political status, except with a few Central American countries. These countries collectively represent less than 1 percent of Taiwan's aggregate foreign trade and are geographically too distant from Taiwan to make economic integration meaningful.

As regional economic integration is becoming the global trend, many FTAs are being signed among WTO members all over the world. In Asia alone, at least 58 FTAs have been signed. The Association of South East Asian Nations ("ASEAN") has been particularly aggressive recently in promoting the so-called "ASEAN+n" model by pushing for the signing of FTAs with all its significant neighbors, such as Australia, New Zealand, India, Korea, Japan, and China, with most of such FTAs coming into effect in 2010.

The ASEAN-China FTA, effective as from January 1, 2010, is a punch in the face to Taiwan, as this FTA will essentially blend China and ASEAN's 10 member-countries into a single free trade market, within which more than 90 percent of the goods traded will be tariff-free over time. For example, tariffs levied on Taiwan's petrochemical products, machinery, and equipment, and automobiles and parts exported to China, will be 7 percent, 10 percent, and 25 percent, respectively, higher than those imposed on the same products originating in ASEAN countries.

Taiwan, as the odd one left out in the region, is acutely aware of the pressure that it must do something to stay competitive, regionally as well as globally. Compounded with the fact that in 2009, exports accounted for 63 percent of Taiwan's GDP and about two-thirds of such exports were destined for China, it makes a compelling case for signing the ECFA with China. This is a first but crucial step toward maintaining Taiwan's competitiveness.

ECFA's Strategic Significance

The ECFA provides a mechanism pursuant to which Taiwan has an opportunity to be placed on par with, if not more favorably than, ASEAN and other countries having FTAs with China, with respect to exports to China. The Early Harvest List for Export Goods (Schedule 1 of the ECFA) seeks to progressively cut tariffs to zero within three years on hundreds of Taiwanese export goods to China (currently valued at US$13.84 billion per annum).

Perhaps even more significant than tariff reductions on goods, China is also committed, under the Early Harvest List for Service Industries (Schedule 4 of the ECFA), to immediately open up 11 of its domestic service industry sectors to Taiwan investment, including financial (banking, securities, and insurance), accounting and auditing, exhibition, computing and data services, health care (hospital establishments), and entertainment (motion pictures and audio records).

In some instances, China has offered, or promised to offer, even more preferential treatment to Taiwan investments than to other foreign investments.

More to Follow Under the ECFA

The ECFA contemplates further cooperation between Taiwan and China in the areas of intellectual property, finance, customs, e-business, small-to-medium enterprises, as well as other major projects to be agreed upon from time to time. A Cross-Strait Economic Cooperation Committee will be established under the ECFA to coordinate efforts and resolve disputes, with official representatives and staff from each side to be actually posted in Taipei and Beijing, respectively. Discussions about further tariff reductions on additional classes of goods and further liberalization on investment restrictions in more service industries are scheduled to kick off within six months and continue periodically thereafter.

In addition, while not part of the ECFA, it is widely expected that, based on the good will and momentum built up through the ECFA discussions, China will likely take a more pragmatic view toward allowing Taiwan to enter into FTAs with other countries of greater economic significance to Taiwan. This will obviously further boost Taiwan's competitiveness and further integrate Taiwan with the regional and global trade and investment. In the first week of August 2010, Taiwan and Singapore announced that FTA discussions between the two are already under way.

The full implementation of "Three Links" will also provide a big leg up for Taiwan in the flow of goods, people, ideas, and business activities. With direct flights between Taipei and dozens of major cities in China, flight time cuts down to about 80 minutes from Taipei to Shanghai and slightly over two hours to Beijing, rather than one whole day's journey as before. Direct flights make Taiwan even more centrally located than Hong Kong in air transportation to most major cities in China.

Surge in Cross-Strait M&A Activities Expected

M&A from Taiwan to China. Since the mid-1980s, Taiwanese companies have increasingly become important investors in China. The migration of manufacturing operations of Taiwanese IT and other industries to take advantage of China's inexpensive labor and land costs has helped to develop China into the "world's factory." Most of these Taiwanese investments to date have been made in the form of wholly owned or joint venture enterprises, and they have largely been greenfield projects. Now, as China is becoming the "world's market," M&A will be a much more efficient way for Taiwanese companies to gain foothold and penetrate local markets in China. The expected lifting of investment restrictions under the ECFA should further accelerate the pace of such M&A activities.

M&A from China to Taiwan. Historically, for national security reasons, the Taiwanese government had prohibited Chinese investments of any kind, whether directly or indirectly, from being made in Taiwan. Such outright ban on Chinese inbound investment was first relaxed by the Taiwanese government in June 2009. Now, Chinese inbound investment is permitted, but only for those industry sectors set forth on the so-called "Positive List" and only with prior regulatory approval of the Taiwanese government. To date, Taiwan has opened up approximately 100 categories of manufacturing and service industries to Chinese investment. More are expected to be opened up in the wake of the ECFA. Many of these Chinese investments are expected to be made by way of M&A.

Going Global: Taiwanese and Chinese Companies Join Hands. With its fast economic growth and abundant foreign exchange reserves, China is encouraging its major companies to aggressively go global and make acquisitions all over the world. On the other hand, Taiwanese companies are also going global to remain competitive. Some of these Chinese and Taiwanese companies have already found that they can generate synergy to complement each other by joining hands in going global. These joint efforts, currently still rather limited, are expected to grow with the enhanced cooperation between Taiwanese and Chinese enterprises post-ECFA.

Taiwan as Gateway to China for Multinationals

Thanks to the language and culture affinity, Taiwanese businesses have developed extensive networks of contacts and relationships and have accumulated substantial trade and investment experiences in China over the past 30 years. This unique strength of Taiwanese businesses has not escaped the attention of many multinationals, which have often tapped Taiwanese executives to manage their Greater China operations.

Prior attempts by some foreign multinationals to invest with Taiwanese companies into China, however, had generally not materialized due to China investment restrictions imposed by the Taiwanese government. Now, post-ECFA, with liberalization of such investment restrictions within sight, it is time for foreign multinationals to rethink such an approach.

Many also believe that, like Hong Kong companies under the Closer Economic Partnership Arrangement between China and Hong Kong, Taiwanese companies would likely be treated as if they were Chinese domestic companies for various purposes. If this is indeed true, it would be even more advantageous for Taiwanese companies trying to penetrate China's domestic market.

With the ease of travel due to direct flights, the convenient and central geographical location, and the recent slashing of corporate income tax to 17 percent across the board, plus ECFA, Taiwan is again making itself an attractive gateway to China for foreign multinationals. A number of Korean, Japanese, and European companies have taken heed of this development and have made their moves in this direction. U.S. companies, many of which have been active in Taiwan for decades, should not be far behind.

After all, according to some observers, "the Taiwanese are the foreigners who understand the Chinese best, and also the Chinese who understand the foreigners best." Taiwan, properly positioned, can play a key bridging role for China and the world.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.