China, Taiwan Ink Service Trade Agreement

View of Chongqing, China from the Yangtze River Cableway, October 29, 2011

View of Chongqing, China from the Yangtze River Cableway, October 29, 2011 (Hu, Cheng)

Trade relations between China and Taiwan received a substantial boost last month with the signing of a bilateral Service Trade Agreement.

The agreement, which will grant access to a large number of service sector businesses for cross-Strait transactions, was signed between China’s Association of Relations Across the Taiwan Straits (ARATS) and Taiwan’s Straits Exchange Foundation (SEF) during negotiations held in Shanghai this month.

The Service Trade Agreement will expand the role of the 2010 Economic Cooperation Framework Agreement (ECFA), which was the first significant step towards trade liberalization following five decades of strained trade relations between China and Taiwan.

“The service trade agreement aims to lower the threshold for market access for service providers and boost cooperation in the service industry,” said Chen Deming, president of ARATS.

The agreement will reduce tariffs and lower the threshold for market access to service sector businesses in a move to increase liberalization of trade between China and Taiwan.

The deal will benefit several key industries, including telecommunications, finance, health, tourism, transportation and commerce. Eighty Chinese subsectors will now be open to Taiwan, with Taiwan opening sixty-four subsectors to the mainland. Taiwanese companies will also be able to take controlling shares of joint ventures based in China.

“This is an agreement that embodies the bonds of our fellow countrymen. In terms of our commitment on market access, the number of sectors we open and the extent are unprecedented,” Chen Deming further commented.

“It helps both sides open their respective markets, create a favorable foundation for their sectors, upgrade each other’s competitiveness, advance trade exchanges and cooperation, upgrade the effects of the ECFA and speed up the signing of ECFA’s followup pacts,” said Lin Join-sane, chairman of the SEF.

The SEF and ARATS also agreed to discuss possible commodity exchange programs and dispute settlement agreements. Additionally, the organizations will work on an agreement to avoid double taxation of trade between China and Taiwan.

The service sector in China has seen steady growth in recent years. It accounted for 46 percent of the country’s GDP in 2012 and according to the National Bureau of Statistics overtook manufacturing for the first time in the first quarter of 2013. Similarly, the service sector is also the largest component of Taiwan’s economy, accounting for almost 70 percent of its GDP.

“With China’s increasing emphasis on the service sector, the trade pact is significant for Taiwan’s companies to benefit from its policy in the long term,” said deputy executive rirector of the Taiwan WTO Center, Roy Lee.

This article from Dezan Shira & Associates originally appeared at Asia Briefing, June 26, 2013.