0 A New Era in Cross-Strait Relations Dr. Chiang Pin-kung Chairman of Straits Exchange Foundation October 2010

1 Outline 1.Overview of Cross-Strait Relations 2.KMT Cross-Strait Policy 3.Results of SEF-ARATS Negotiation 4.Major Significance of ECFA 5.Challenges of Cross-Strait Economic Relations 6.Opportunities of Taiwan Economy 7.Conclusion

2 （ 1 ） We can divide past 60 years into two stages ： 1949 to 1987 and 1988 to now Between 1949~1987 a. Both sides of Taiwan Strait engaged in military and political face- offs. There were no contact, no compromise and no negotiation (Three-Noes Policy) between the two sides. Economic exchange prohibited. b. China exhausted by Korean War, Vietnam War and Cultural Revolution. c. Taiwan implements economic development plan, goes on to achieve status as one of four ‘Asian dragons’. 1. Overview of Cross-Strait Relations

3 China: Deng Xiaoping: a. Decided on China’s reform and open-door policy in b. China began to open its door to the world and changed as a result. c. Foundation for high economic growth was laid. Taiwan: Chiang Ching-kuo: Implemented two measures in 1987 that change Taiwan and China. （ a ） Martial law lifted on July 15, （ b ） Veterans allowed to visit family in mainland China on November 2, Both sides of Taiwan Straits began economic and personnel exchange on November 2, Between 1988~2008

4 Expansion of cross-strait trade and economic relations After twenty two years’ economic development, China, including Hong Kong, is Taiwan’s… a. Largest trade partner. Trade with China amounted to US$ billion in 2009, accounting for 28.9% of total. b. Largest source of trade surplus. Taiwan enjoyed a US$58.07 billion trade surplus with China, compared to US$29.04 billion with the rest of the world. c. Largest export market. Exports to China in 2009 amounted to US$83.69 billion, or 41.1% of the total. d. Second largest source of imports. At US$25.55 billion, imports from China made up 14.7% of the total. e. Largest target country for investment. Taiwan’s investment in China reached US$82.70 billion, or 56.8% of the total. (Accumulated to December, 2009)

5 （ 1 ） Peace Journey of Lien Chan On April 29, 2005, Lien Chan, chairman of the KMT, met the CCP leader Hu Jintao. Lien-Hu meeting reached five visions for the peace and development of cross-strait relations. a. Under the basis of 1992 consensus, both sides resume equality negotiation as soon as possible to promote healthy and sound development relations for both sides of Taiwan Strait. b. To terminate the state of cross-strait hostilities, reach a peace agreement and establish a confidence- building mechanism to avoid military confrontation. c. To build a cross-strait economic cooperation mechanism, and to discuss the priority idea of cross-strait common market. d. To exchange views with regard to Taiwan’s participation in international activities. e. To establish a regular party-to –party consultation platform. Five Visions Political HarmonyEconomic Cooperation 2. KMT Cross-Strait Policy

6 A. Political aspect ◆ 3 No Principle : no negotiations on unification with mainland China, no pursuit of de jury independence, and no use of force by either side. ◆ He also called for both sides to face reality, pioneer a new future, shelve controversies, and pursue a win-win solution ◆ Diplomacy: Modus Vivendi Both sides do not undermine each other’s diplomatic relations. Taiwan will consolidate official diplomatic relations, development pragmatic relations and attend international organizations. （ 2 ） Ma Ying-jeou’s platform on cross-strait relations during the 2008 presidential election campaign

7 （ 1 ） Resume institutionalized negotiations on the foundation of the “1992 Consensus.” （ 2 ） Promote the normalization of cross-strait economic and trade relations. （ 3 ） Sign cross-strait economic cooperation framework agreement (ECFA) B. Economic aspect President Ma announced the policies for cross-strait economic exchanges

8 C. President Ma announced the vision of turning Taiwan into: （ 1 ） a global innovative center （ 2 ） an Asia-Pacific trade hub （ 3 ） an operation headquarters for Taiwan businesses （ 4 ） a regional headquarters for foreign enterprises

9 3. Results of SEF-ARATS Negotiation The Straits Exchange Foundation (SEF) and the Association for Relations Across the Taiwan Straits (ARATS) have held five rounds of talk, signed 14 agreements, and reached one consensus on Chinese mainland’s investment in Taiwan. The two sides have successively implemented agreements on the opening up of direct cross-strait air and sea transportation links and mainland tourist visits to Taiwan, as well as cooperation in the areas of food safety, financial affairs, postal services, mutual judicial assistance, quarantine and inspection of agricultural products, fishing crew, standards, metrology, inspection and accreditation, and mainland investment in Taiwan.

10 For example, situation of Chinese residents to visit Taiwan Items2009Growth Rate Growth Rate Accumulation Total966, %817, %3,990,521 Social exchanges73, %38, %1,188,666 specialize exchange 155, %109, %627,792 Resident66, %34,0108.0%354,059 Sightseeing601, %630, %1,490,866 Three mini-links17, %4, %101,269 Sources ： National Immigration Agency, Ministry of Interior Affairs (2009.9) Due to Chinese tourists, thirteen new hotels have been built in the past two years and thirty-one hotels will be completed before 2013, with the total investment of NT$ 120 billion

11 Air transport ： No longer transit Hong Kong, which can save 62 minutes and 40 〜 45% fuel each flight and save 3 billion NT$ annually by estimation. PeriodFlight CategoryflightsNumberRatio Weekend Charter flight859336, % Charter Flight4,0911,709, % Regular flight7,9872,688, % Sea transport: No longer Stop by Ishigaki or Hong Kong, which can save average 16 〜 27 hours of each voyage and cost of 15 〜 30% as well as visa fee by 1.2 billion NT$ each year. PeriodNumber of VesselsvoyagesTEUGoods/tons 〜 vessels Taiwan 27;Mainland China 52 Expedient: Taiwan 54; Mainland China 28 17,8441,720,00086,800,000

12 On June 29 this year, the SEF and the ARATS signed the Cross-strait Economic Cooperation Framework Agreement (ECFA) and Cross-Strait Agreement on Intellectual Property Right (IPR) Protection and Cooperation in Chongqing. These two agreements came into effect on September 12, （ 1 ） The main objective of ECFA is to seek fair treatment of Taiwan products in the mainland market. 4. Major Significance of ECFA

13 （ 2 ） The scope of the agreement includes reducing tariffs, elimination of non-tariff trade barriers, promoting trade and investment contacts, and boosting economic development and employment. （ 3 ） The early harvest list for Taiwan exports to the mainland includes 539 products, eight service industries, and three financial service sectors. The mainland list for exports to Taiwan covers 268 products, eight service industries, and one financial service sector.

14 IndustryThe list for Taiwan exports to mainland China The list for mainland exports to Taiwan ItemsExport amount In 2009 US$ M. % of the total Taiwan’ exports to China ItemsExport amount In 2009 US$ M. % of the total China’s exports to Taiwan Petrochemical885, Machinery1071, Textile1361, Transportation Others1404, , Agriculture Total53913, (268) 2, （ 4 ） Early Harvest Plan in Goods

15 （ 5 ） Early Harvest Plan in Services Modes of service supply: (1) Cross-border supply (2) Consumption abroad (3) Commerce Presence China give TaiwanTaiwan gives China Business Services 1.Accounting, auditing and Bookkeeping 2.Software implementation and Data processing 3.Research and Development 4.Convention 5.Special design 6.Audiovisual services 7.Hospital 8.Aircraft repair and maintenance 1.Research and development 2.Convention 3.Exhibition 4.Special design 5.Motion Picture 6.Commission agent’s services 7.Sporting and other recreational services 8.Computer Reservation System Financial Sector 1.Banking and other financial services 2.Insurance and related services 3.Securities, futures and other related services Banking and other financial services

16 ECFA is only a framework agreement. After ECFA comes into effect on September 12, the two sides need to begin negotiations on four follow-up agreements within six months. （ 1 ） Agreement on Investment Protection There are about eighty thousand Taiwan businesses, with total investment of US$ 150 billion or so, and one million Taiwanese people in Chinese mainland. The SEF received 428 investment dispute cases from Taiwanese business people in Chinese mainland last year. At the sixth Chiang-Chen Talks, we will negotiate and sign agreements on the investment protection. Besides, we will also negotiate the issue of medical and health cooperation. 5. Challenges of Cross-Strait Economic Relations

17 Total Items8,726 Items in the Early Harvest268 Items of Non-Tariff already2,634 Items Needed to be negotiated 5,824 Divided into three categories1. Immediately practice zero tariff 2. Reduce tariff by phases. 3. Exception or Others （ 2 ） Agreement on Trade in goods If both sides can sign this agreement, Taiwan will get more benefit than the mainland, since the average tariff of Taiwan is only about 4%, but that of Chinese mainland is about 9%. Management of import Goods of mainland China （ Eight-digit HS code ）

18 （ 3 ） Agreement on Trade in services Mainland China treats Taiwan businesses as foreign companies, therefore, some service sectors in the mainland are prohibited for Taiwanese businesses to invest. Through the trade in services agreement, we can create investment opportunities for Taiwanese businesses people. （ 4 ） Dispute settlement agreement Both sides will engage in consultation on the establishment of appropriate dispute settlement procedures. Besides the four agreements, we will promote comprehensive cross-strait exchanges and cooperation: This includes economic cooperation under the ECFA in such areas as industry, finance, customs, e-commerce, as well as Small and Medium enterprises.

19 After ECFA coming into effect and establishing a good external environment, Taiwan is also working hard to improve its investment environment to further attract foreign investment. （ 1 ） Improve administrative efficiency and reduce the tax burden, such as lowering the corporate tax rate from 25% to 17%, and reducing the inheritance tax from 50% to 10%, to create a competitive tax environment. （ 2 ） Approved the Industrial Innovative Act to improve the core competitiveness of manufacturers and labors through innovative R&D and industrial upgrading. 6. Opportunities of Taiwan’s Economy

20 （ 3 ） Developing “Six Key Emerging Industries”, including biotechnology, green energy, quality agriculture, tourism, health care, and cultural and creativity. This also is aimed at improving economic innovation in Taiwan. （ 4 ） Promoting loosening and opening policies. This has included opening up Taiwan to investment from mainland China from June 30, Since then, there have been 70 such investments in Taiwan with a total value of US$185 million. （ 5 ） The government has established an"InvesTaiwan Service Center" and held a series of activities to provide for the foreign investors.

21 On September 19 this year, the U.S-based Business Environment Risk Intelligence (BERI) continued to rank Taiwan fourth globally for investment environment. IMD also ranked Taiwan at the eighth position in 2010 world competition Report.

22 （ 1 ） With a sound overall external environment, and through Taiwan's own efforts, we have a great opportunity to realize the President Ma‘s vision of turning Taiwan into a global innovative center, an Asia-Pacific trade hub, an operation headquarters for Taiwan businesses, and a regional headquarters for foreign enterprises. 7. Conclusion

23 （ 2 ） The first two quarters of Taiwan’s economic growth rate this year reached 13.71% and 12.53% respectively, and predicted annual economic rate will reach 8.24%. Some institutions even predicted that Taiwan’s economic growth will reach double digits. This all due to ECFA bring momentum for the economic development of Taiwan. （ 3 ） The signing of the ECFA has set the stage for cross-strait peace and prosperity and builds a bridge for Taiwan to sign economic cooperation agreements with other countries.

24 （ 4 ） The Cross-strait policy of KMT is not simply about developing closer ties with China. It is also about developing comprehensive, mutually beneficial and substantive cooperation relations with all countries of the world. In other words, the improvement of Cross- strait relations will help the development of Taiwan-the UK and EU relations. We hope that in future, Taiwan and UK as well as EU can expand areas of exchange, and further upgrade their economic cooperation.